Following Deep Cuts Due to Pandemic, Some State Higher Ed Budgets Look to Rebound With Additional Federal Aid

By Owen Daugherty, NASFAA Staff Reporter

As governors throughout the country release proposals for their budgets for the upcoming fiscal year, the potentially turbulent shape of some states’ funding for higher education is beginning to come into focus.

With the ongoing pandemic hitting states’ higher education budgets hard in the last fiscal year, many are looking to another federal stimulus package to help them stave off another round of cuts and prevent institutions from having to raise tuition and enact additional cost-cutting measures.

Just as different states have struggled to contain the coronavirus to varying degrees, there is an uneven landscape when it comes to the funding for higher education budgets, said Tom Harnisch, vice president for government relations at the State Higher Education Executive Officers Association (SHEEO). Many states are facing significant budget challenges and without a federal relief package that includes aid to state and local governments will likely experience deep cuts to higher education. 

Some states, Harnisch said, have fared much better due to different tax and revenue structures that have allowed them to forgo significant cuts. Most states, though, have seen tax revenue declines paired with a drop in enrollment at institutions that could lead to additional program- and spending cuts in the upcoming fiscal year. Similar to how the Coronavirus Aid, Relief and Economic Securities (CARES) Act served as a lifesaver to states, “without another intervention from the federal government, many states are going to be looking at another round of budget cuts,” he cautioned.

At least a dozen states made significant cuts to higher education funding due to the pandemic in 2020, and many enter 2021 in a fragile fiscal state, according to Sunny Deye, program director for postsecondary education at the National Conference of State Legislatures (NCSL).

The higher education community, including NASFAA, has also called for more funding, and noted in a recent letter that the nearly $40 billion for higher education in the latest coronavirus relief proposal is less than half of the $97 billion “we know students and campuses need.” Still, the letter added that the funding “is the most significant effort so far to address the crippling financial impact of the pandemic on American higher education.”

Harnisch said states are going to be creative in their approaches to budgeting and funding schools because they don't want to see deep cuts in funding for their institutions.

“[States] want to be able to ensure that students have access to higher education and they certainly don't want to see tuition increases at this time,” he said.

Up to this point, states and institutions have largely been able to avoid raising tuition, relying on the previous tranches of federal aid to bolster ailing budgets and provide funds to colleges and universities. 

SHEEO partnered with the Washington-based think tank New America to survey state higher education agencies and systems in an effort to track the pandemic’s impact on state funding for higher education, regularly updating the resource with responses from states to reflect the latest moves from governors and state legislatures. The findings show just how disparate the situations are for various states.

A pattern arose in the spring as governors and state lawmakers slashed higher education budgets, attempting to shore up deep revenue shortfalls as fiscal forecasts changed for states almost instantly. Then, with an influx of federal aid and a better understanding of the impacts on the coronavirus on their states, many higher education budgets were made whole again. 

Colorado, for example, slashed nearly $500 million from the higher education budget, only to then receive $450 million in federal relief from the CARES Act for the state’s public colleges and universities. In Democratic Gov. Jared Polis’ proposed budget for the 2021-22 fiscal year, the higher education budget would be returned to pre-pandemic levels. A similar situation played out in Ohio, where initial cuts were later reversed. Even so, returning budgets to pre-pandemic levels is a far cry from some states’ initial plans to increase spending on higher education.

“Some of the initially forecasted revenue losses based on projections early in the pandemic, those losses have, in many cases, been less severe,” said Kathryn White, director of budget process studies at the National Association of State Budget Officers (NASBO).

Even with the billions in federal aid already allocated to states, Harnisch said they are looking for more because their higher education budgets could still be reduced due to the fact that they are discretionary items and states can cut them without consequence.

“Higher education has been historically one of the first things to get cut and the last thing to to get replenished as state budgets recover,” he said.

Additionally, while the most recent tranche of federal aid passed in December certainly helps, the aid is temporary and it's not flexible fiscal relief for states to spend as they see fit, NASBO’s White said.

Since states are required by federal law to balance their budgets, flexible federal aid would assist states in doing so without the need for as many spending cuts or tax increases, White said.

The uneven budgeting landscape is evident when viewing various proposals put forward by governors and state legislatures in recent months. For instance, Nebraska’s higher education budget did not see a reduction in appropriations for public institutions of higher education nor for financial aid programs in the last fiscal year. Going forward, Republican Gov. Pete Ricketts recommended increases of 2.7% and 2.6% respectively in his biennial budget proposal. 

Alabama included increases of 2.7% for universities and 2.1% for the two-year colleges in its 2020-21 education budget and was able to avoid making any cuts, due partially to dipping into its rainy fund and looking at a variety of cost-cutting measures.

In Kansas, the budget Democratic Gov. Laura Kelly recently presented to state lawmakers amounts to a roughly $37 million reduction in funding for higher education, with a vast majority of the cuts to the six state universities.

North Dakota Republican Gov. Doug Burgum’s proposed budget calls for a 7.5% reduction in the state higher education system’s funding formula. With a $500 million drop in state revenue, Nevada Democratic Gov. Steve Sisolak released a biennial budget proposal last month calling for a $130 million decline in funding to spending for K-12 education and the Nevada System of Higher Education.

But overall, Deye, of the National Conference of State Legislatures, said states see higher education as part of the pathway to recovering from the pandemic and are less likely to make significant and permanent cuts to their higher education budgets when compared to the last economic recession.

“In years past, higher ed was on the cutting block,” she said. “It's less of a certainty right now. But that could be because these [states] are hoping for more federal assistance, which would really mitigate a lot of the cuts that they have made.”

Notably, state leaders across the country showed how much they value higher education with at least 34 governors putting money from the Governor’s Emergency Education Relief (GEER) Fund toward higher education. Two states — Kansas and New Jersey — awarded the entirety of their GEER funds to state public institutions, NCSL found.

As part of the additional federal aid made available in December, more than $4 billion will go to states through the GEER fund, giving governors another chance to provide institutions relief.

Going forward, $350 billion is being proposed for direct aid to state and local governments in a budget reconciliation bill closely mirroring President Joe Biden’s coronavirus relief package.

However, for states that were able to avoid major budget cuts, Harnisch predicted more belt-tightening in the coming months. 

“Without some intervention from the federal government, states made cuts in 2020, and more cuts could be on the horizon in 2021,” he said.

 

Publication Date: 2/17/2021


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