Crowded Out: The Outlook for State Higher Education Spending

Source: Dan white, Sarah Crane, Moody’s Analytics, April 21, 2015

In an effort to better understand the funding difficulties faced by public higher education institutions over the next decade, this study derives baseline state funding projections for higher education from underlying measures of economic growth. It does this by incorporating historical state government spending data with Moody’s Analytics proprietary models for state tax revenue and Medicaid spending. Over the past several decades, the growth in state funding for discretionary spending categories has declined at an alarming rate. Mandatory spending programs, specifically Medicaid, are requiring more and more state funds, which in the zero-sum world of state spending, has left fewer and fewer dollars for other programs. Medicaid spending, for example, was less than 10 percent of state sourced spending 30 years ago, but today accounts for nearly 16 percent. Taking all funding sources into account, Medicaid has grown to more than a quarter of total state spending. Higher education funding has borne the brunt of much of this crowding out, falling from around 14 percent of state sourced spending in the late 1980s to just over 12 percent today. Our baseline forecasts show that trend continuing throughout the next decade and beyond.
Crowded Out by Medicaid
Source: Paul Fain, Inside HigherEd, April 23, 2015

State tax revenues are up. But the next decade is looking rough, thanks largely to rising Medicaid costs. And public higher education will bear the brunt of tighter state budgets. That’s the central finding of a new study from the National Commission on Financing 21st Century Higher Education. The University of Virginia’s Miller Center created the nonpartisan commission last year with funding from Lumina Foundation….