Higher Education Expenditures

State and Local Backgrounders Homepage

Higher education spending includes expenditures on the operation, maintenance, and construction of public community colleges, universities, and postgraduate institutions such as law or medical schools.1

How much do state and local governments spend on higher education?

In 2015, state and local governments spent $274 billion on higher education – one tenth of state and local direct general spending.2 Higher education was the third largest source of direct general spending at the state and local level in 2015, and has been since 1977 – except for the years between 1989 to 1998 when it dropped to fourth.

Nearly all (89 percent) of higher education spending goes toward operational costs, such as instruction, administration, research, libraries, dormitories, cafeterias, and other student or faculty services. The remaining 11 percent are capital outlays, including construction, maintenance, and equipment.

How does state spending differ from local spending?

State governments spend more of their budgets on higher education than localities. In 2015, 3 percent of local direct general spending went to higher education versus 18 percent of state direct general spending. Local spending is typically for the community college system, while state spending goes toward public four-year universities and other state institutions.

Higher educational services are often delivered directly by state public university and community college systems. Thus, in 2015, 85 percent of higher education spending occurred at the state level. The remaining 15 percent came from local governments. Higher education revenue comes from a range of sources, including federal, state, and local governments. Higher education is also funded by tuition payments as well as endowments and financial gifts. Tuition and fees have grown as a percent of higher education revenues over time. Because the higher education system is complex, often other services - like hospitals – operate within institutions of higher learning, but these funds are normally allocated separately within the Census of Governments System.

Financing Higher Education

In 17 states, in 2015, 100 percent of state and local higher education spending occurred at the state level, and in 45 states, local spending accounted for less than 25 percent of spending. Only in Florida (30 percent) and Wyoming (40 percent) was local spending at or above 30 percent of total state and local higher education expenditures.

How have higher education expenditures changed over time?

In 1977, state and local governments spent $102 billion on higher education (in 2015 inflation-adjusted dollars). In 2015, they spent more than double that amount ($273 billion).

Higher education spending remained relatively constant as a share of total spending over time. In both 1977 and 2015, 10 percent of direct general expenditures went to higher education.

However, state and local direct spending on higher education includes tuition payments and fees that state and local governments raise from students, which have grown as a share of higher education revenues over time. Over time, tuition has grown faster than total spending. In 1977, tuition was approximately 30 percent of total higher education spending, reaching a peak of 45 percent in 2011. However, there has been a recent drop, with charges falling off since 2011.

How and why does spending differ across states?

Across the US, state and local governments spent $854 per capita on higher education in 2015.3  In 2015, at $1,458 a person, North Dakota spent the most per capita on higher education – followed by state and local governments in Delaware ($1,359), Wyoming ($1,353), Utah ($1,288), and Iowa ($1,264).  DC spent the least on higher education at $322 per person,4 followed by state and local governments in Florida ($509), Nevada ($512), Georgia ($574), and Maine ($593).

Per capita spending is an incomplete metric, since it doesn’t provide any information about a state’s demographics, its policy decisions, administrative procedures, or the choices its residents make. Spending on higher education is driven by the number of students in two- and four- year public universities, as well as the cost of college.

For example, California has lots of students and higher payroll and nonpayroll costs (after accounting for tuition and fees), leading to higher spending per capita.  Low spending per-capita states, for example New Jersey, have sometimes offset high payroll costs by hiring fewer employees per student or spending less per student on nonpayroll functions.5

Spending per Full Time Equivalent Student (FTES) can provide a more nuanced picture because it reflects the spending on students that are enrolled in higher education. According to the National Center for Education Statistics, public higher education enrollment has been increasing since 1980.

The United States spent – on average - $25,919 per FTES in 2015.6 The highest spender is Alaska with $46,158 per FTES, followed by Delaware ($38,667), Vermont ($38,183), Connecticut ($35,784), and Wyoming ($33,696).7 Per FTES spending is lowest in Georgia ($18,448), Florida ($18,460), Louisiana ($18,930), Idaho ($20,122), and South Dakota ($20,207).

While per capita and per FTES numbers are valuable for evaluating state and local spending over time, they miss a valuable part of the higher education financing picture: tuition. Overall, state and local governments collected $108 billion from charges and fees in 2015, equal to 39 percent of total state and local direct spending. States make different decisions regarding how much to charge students. Beyond that, states also set different tuition rates for in-state vs. out-of-state students. For example, Delaware ranks second among states in terms of spending per FTES, but drops to 25st ($15,216) once charges and fees (mainly tuition) are considered. Vermont, which has some of the highest tuition rates, moves from the 3nd highest per-pupil spender in 2014 to the 32th, once tuition is factored in.

Interactive Data Tools

What everyone should know about their state’s budget

Further Reading

Declining state expenditures on public universities are in fact driving tuition increases
Sandy Baum, Urban Wire (2015)
Financing Higher Education: The Evolution of State Funding
Sandy Baum and Martha C. Johnson (2015)
Financing Public Education: Variation Across States
Sandy Baum and Martha C. Johnson (2015)
A new tool to get under the hood of state and local budget choices
Tracy Gordon, TaxVox (2017)
Assessing Fiscal Capacities of States: A Representative Revenue System–Representative Expenditure System Approach, Fiscal Year 2012
Tracy Gordon, Richard Auxier, and John Iselin (2016)
Prepping for the 2018 Legislative Session
Richard Auxier and Erin Huffer (2017)
Prepping for the New Session: End-of-Summer Reading for State Budget Analysts
Norton Francis, Sarah Gault, and Yifan Zhang (2016)
Prepping for the New Session: End-of-Summer Reading for State Budget Analysts
Norton Francis, Tracy Gordon, and Megan Randall (2015)
Governing with Tight Budgets: Long-Term Trends in State Finances
Norton Francis and Frank Sammartino (2015)
State Budgets in the Trump Era
Kim Rueben and Richard Auxier (2017)

Notes
1 Data are from the census expenditure functions E16, E18, F16, F18, G16, G18, K16, and K18. 

2 Unless otherwise noted, all data are from the US Bureau of the Census, Survey of State and Local Government Finance, 1977-2015, accessed via the Urban-Brookings Tax Policy Center Data Query System, October 12, 2017, http://slfdqs.taxpolicycenter.org. The census recognizes five types of local government in addition to state government: counties, municipalities, townships, special districts (e.g., a water and sewer authority), and school districts. All dates in sections about expenditures reference the fiscal year unless explicitly stated otherwise. 

3 Calculation from the US Bureau of the Census, Survey of State and Local Government Finance, 1977-2015, accessed via the Urban-Brookings Tax Policy Center Data Query System, October 12, 2017, http://slfdqs.taxpolicycenter.org; and National Center for Education Statistics, Digest of Education Statistics, Table 307.20. Full-time-equivalent fall enrollment in degree-granting postsecondary institutions, by control and level of institution and state or jurisdiction: 2000, 2010, and 2015.

4 DC is often an outlier because, although it functions as a state and a locality, it most closely resembles a central city in terms of its population and economic activity, much of which comes from nonresidents. Its ranking among states should be interpreted within this context.

5 For an analysis of components of state and local spending using 2012 data, see the Urban Institute’s interactive tool, What Everyone Should Know About Their State’s Budget, http://apps.urban.org/features/what-drives-state-spending/.

6 Calculation from the US Bureau of the Census, Survey of State and Local Government Finance, 1977-2015, accessed via the Urban-Brookings Tax Policy Center Data Query System, October, 2017, http://slfdqs.taxpolicycenter.org; and US Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), Spring 2001, 2011, and 2016, Fall Enrollment component. (This table was prepared May 2017.)

7 DC has the highest spending per FTES at ($62,912), likely due to its Tuition Assistance Grant (DCTAG) program that provides financial assistance to DC residents attending out-of-state two- and four-year public institutions.