US health reforms could put public universities on life support

Higher education funding from US state governments has always been volatile, but reforms to healthcare could put public universities’ income under even greater pressure, says Will Doyle

March 23, 2017
a hospital ward
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While the presidents of public universities express continued concern about lower levels of investment by their state governments, state and local policymakers remain the key actors for US higher education. State money still forms the bulk of unrestricted revenues for the majority of public institutions. And, overall, state and local funding provides 43 per cent of general funding for public colleges and universities – which 77 per cent of undergraduate students attend.

Levels of public funding are closely tied to tuition fee levels: universities in states with higher funding have lower fees. But state funding for higher education has been volatile for decades. State revenues can be prone to economic shocks because many states do not have diversified revenue streams and generally cannot borrow money to make up for deficits.

Higher education tends to receive larger cuts in state funding than do other areas such as transport because it is the only major area of spending that has the ability to get more money elsewhere. So when universities receive less state money, it is assumed that they will be able to make up the deficit by charging higher tuition fees. The problem is that downturns in revenues come during recessions, at a time when families make less money and can least afford to pay more for higher education.

The role of the federal government in the past few recessions has been to limit the impact of these cuts in state funding by increasing spending on the Pell Grant programme for poor students, and – following the financial meltdown of 2008 – by providing the states directly with more money for colleges.

Many states have sought to create new programmes that could lower student charges and increase participation in higher education. Many of these are tied to state leaders’ goals of creating a more educated – and higher earning – workforce. Both liberal-leaning Oregon and conservative Tennessee have created “promise” programmes that provide fee-free community college for recent high school graduates. However, Oregon’s programme is already in financial trouble, and there are no guarantees that such programmes will survive any future recessions. Louisiana, for instance, has had to cut its college scholarship programme in light of its huge budget deficit.

Before November’s elections, there had been hopes that the federal government might intervene to change the way that states fund their colleges and universities, making their revenue streams more secure. However, the election of Donald Trump as president and the maintenance of Republican control of Congress has largely ended those hopes. Key congressional leaders have expressed scepticism about the idea, and the Trump administration has been largely silent.

However, if congressional Republicans pass the American Health Care Act (the proposed replacement for “Obamacare”), change might yet come to the way that federal funding compensates for state shortfalls – but not in ways that higher education leaders expected. This is because the bill would change Medicaid – the joint federal-state programme to provide healthcare to low-income state residents – to a block grant programme in 2020. Medicaid is already the largest single category of state expenditures in every state; but over time, the bill would further shift the responsibility for paying for it away from the federal government and on to the states because federal funding would no longer be directly tied to state-level changes in Medicaid enrolment.

Medicaid becomes even more expensive during economic downturns, as falling incomes make more people eligible. Hence, during the first recession after 2020, any state that wishes to maintain its commitments to Medicaid recipients will be facing very large expenditures. And if states follow the pattern of previous recessions, higher education will receive disproportionate cuts relative to other budget categories – only this time the cuts will be even more severe.

The result will starve colleges and universities of cash, leading to further significant increases in tuition costs and cuts to financial aid. State initiatives now being explored will need to be cancelled or curtailed, and policymakers will be unable to attain their ambitious goals for a more educated and prosperous population.

Will Doyle is associate professor of higher education and public policy at Vanderbilt University in Nashville, Tennessee.

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