View Research by Author - Thomas J. Kane

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[© Brookings Institution] In recent years, many public colleges and universities around the country have announced double-digit increases in tuition. The recession and the resulting squeeze on state revenues are the immediate causes. However, the short-term crisis should not be allowed to obscure a longer-term shift in state financing of higher education, which began more than a decade ago. As states have struggled to respond to other demands on their budgets-primarily due to rising state Medicaid obligations-parents and students have been asked to pay an increasingly large share of the costs in public higher education. Public colleges and universities should not expect much respite when the current crisis recedes. In many states, the cuts imposed on higher education during the last recession in 1990-91 were not made up in the subsequent recovery. Because Medicaid expenditures are expected to grow rapidly over the coming decades, state support for higher education is likely to come under increasing pressure, even as state revenues recover. Since roughly three-quarters of all college students in the United States attend public institutions, the implications for the nation's higher education system are profound.

State governments have historically taken the lead in financing higher education. Over the past twenty years, however, state support for higher education has gradually waned, with the share of higher education expenditures subsidized by state appropriations declining. In this paper, we use state-level data on expenditures since 1977 to study the forces underlying the shift in state financing. More specifically, we examine interactions between state appropriations for higher education, other state budget items (especially Medicaid), and the business cycle.

The current economic downturn is putting heavy pressure on state budgets. The National Conference of State Legislatures estimated that as states were drawing up their fiscal year 2003 budgets, more than a quarter faced deficits exceeding 10 percent of their general fund budgets. In response, many are sharply reducing appropriations - including those for higher education.

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