Office of Planning and Budgeting

The Pew Center on the States teamed up with the Public Policy Institute of California to assess taxpayer attitudes toward state government, budget cuts, and funding priorities during the Great Recession. The survey was conducted in five states– Arizona, California, Florida, Illinois and New York– , which, together, comprise 1/3rd of the nation’s population, 1/3rd of the nation’s output, and almost 45 percent of the total projected state budget gaps for 2011.

The resulting report, Facing Facts: Public Attitudes and Fiscal Realities in Five Stressed States, highlights surprising similarities across the five states where respondents, in general, agreed on the following points:

  • That state government could deliver the same services with fewer resources (even up to 10-20% less).
  • That state government is untrustworthy and could be more effective.
  • That taxes on the wealthy, corporations and particular goods or behaviors like alcohol, smoking and gambling are favored.
  • That state governments are relying too heavily on borrowing money.
  • That K-12 Education and Health and Human Services are seen as the most essential services worth protecting, even if general tax increases are required.

Notably, survey respondents were significantly less likely (by 20-30 percent) to support tax increases to protect higher education than they were to protect K-12 education. These results seem to confirm that while providing a K-12 education is seen as a public obligation, a college education is seen as less essential and something that the student and family should help pay for.

The mere presence of tuition in the funding model for public higher education might also be affecting how citizens view increasing taxpayer support to institutions. Tuition simultaneously provides a reason to believe that universities can better handle state budget cuts because they can raise money elsewhere, and provides a visible and increasing price tag that frustrates citizens who think that this represents inefficiency.

These survey results are consistent with recent polling in Washington.

The California State Legislature is set  to vote on the budget for FY10-11 (current fiscal year) today; 99 days after the start of the fiscal year.  Based on negotiations among the gang of five (governor and majority and minority leaders from senate and assembly) the budget should pass.

The starting problem for California was a $17.9 billion shortfall, To ‘solve’ this problem the state did the following:

  • Expenditure Reductions  -$7.5
  • Use of one time Federal Funds  $5.3
  • Additional Revenues $2.5
  • Fund Shifts, Other Revenues  $2.8
  • Alternative Funding $0.5
  • Baseline Workload Adjustments -$0.2
  • Total Solutions $18.3
  • Final Reserve $0.4

The $18 billion deficit represents ~20 percent of the state’s $87.5 billion general fund, compared to an estimated 2011-2013 biennial shortfall in Washington State of $4.5 billion, ~14 percent of a $31 billion biennial budget (pre mid-year cuts in FY 11).

One area California chose not to reduce was its university systems.  The University of California received an increase of $370 million in new state funding – an increase of 14 percent over their FY10 state funding base of $2.6 billion.  The funding is broken out as follows:

  • $199m in permanent dollars as a start of restoring the base
  • $106m in temporary funds (with a stated goal of converting these to permanent funds)
  • $51m in permanent funds for new enrollment
  • $14m in permanent funds for health benefit cost increases

While one could argue that this California budget proposal is based on overly optimistic revenue projections, it is clear that they have made a loud statement on the importance of their public universities.

Be sure to regularly check the Spotlight section on the OPB homepage where we post links to important documents and work products that have been posted to our website. Currently you will find links relating to recent budget cuts, and the altered time-line for implementing an activity-based budgeting (ABB) approach at the UW, among other things.

Additionally, OPB Briefs (recent and archived) are always posted to our website.

As a result of recent federal scrutiny, the for-profit higher education industry and its supporters have begun to turn their protests toward the unfairness of singling out the for-profit companies while ignoring traditional higher education’s non-profit institutions, particularly public community colleges and four year institutions.

Congressional scrutiny of for-profit education companies comes at the same time that the Obama administration has been pushing new Department of Education regulations that would use three tests– debt-to-earnings ratio for students, debt-to-discretionary income ratio for students, and the loan repayment rate of students—to determine whether a for-profit program would be eligible for federal financial aid funds under Title IV. A large lobbying effort led to over 90,000 public comments on these “gainful employment” regulations, causing the Department to delay publication of the rule.

Opponents of these rules and hearings include Republicans and Democrats as well as various interest groups, many of whom receive large sums of money from the for-profit education industry. The sector’s industry group, the Association of Private Sector Colleges and Universities (known up until September 22 as the Career College Association), institutions, and other stakeholders have spent millions waging a campaign against further regulation. Notably, these lobbying efforts include Chairman and CEO Donald Graham whose Washington Post Company owns Kaplan as well as an 8% stake in Corinthian Colleges, both giants in the for-profit education sector that currently provide over 60% of the Post’s annual revenue. The Post has been called to task for using its opinion and editorial pages to argue against the regulations.

At a HELP Committee hearing on September 30th, three Republican Senators, Richard Burr (NC), John McCain (AZ) and the committee’s ranking minority member Mike Enzi (WY), emphasized their disappointment that the scope of the hearings did not include non-profit institutions. Additionally, for-profit institutions have funded two reports claiming that for-profit colleges are more efficient at producing graduates, and more responsible with taxpayer dollars than non-profit institutions, including community colleges, public four years and private four years. The increased aggressiveness with which proponents of for-profit education are attacking traditional higher education with misleading information and data is troubling. The market share of for-profit institutions continues to rapidly grow alongside ambitions to compete with traditional institutions.

Ultimately, federal attention paid to this issue is a possible harbinger of increased scrutiny for all of higher education. The federal government spends over $170 billion dollars on student aid (loans and grants) each year, potentially providing powerful grounds for increased federal oversight. Looking forward, some of the same questions being asked of for-profit colleges about debt burden, retention, and completion could be asked of the non-profit sector as well. The combination of rapidly rising tuition in an economic crisis, concerns about US competitiveness in the global economy, and the aggressive goals to nearly double the portion of Americans with some level of higher education may create a compelling case for increased federal attention.

The atmosphere was tense on the morning of September 30th as attendees, many of them proponents of the for-profit higher education sector, overflowed into a second room to witness a hearing held by the US Senate Committee on Health, Education, Labor, & Pensions (HELP). The hearing, The Federal Investment in For-Profit Education: Are Students Succeeding, was the third in a series held by the HELP committee under the leadership of its Chairman, Senator Tom Harkin (D-IA).

A GAO report on the results of an undercover operation that investigated 15 for-profit education companies revealed “misleading, deceptive, overly aggressive or fraudulent recruitment” practices at all 15 schools visited. Two reports by Senator Harkin’s staff, Emerging Risk?: An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education, and The Return on the Federal Investment in For-Profit Education: Debt Without a Diploma, provided even more detail, drawing on nationally available data as well as data that Senator Harkin requested directly from 30 of the largest privately held and publicly traded education companies.

Some of the facts revealed in these publications:

  • Less than 10% of postsecondary students are enrolled in for-profits, yet they receive 23% of federal aid, and account for 44% of all loan defaults.
  • 95% of all students at for-profits borrow money to attend, compared to less than a quarter of community college students, 64% of students at public four year institutions, and 72% at private four year institutions.
  • Almost 60% of students at for-profits drop out within 2 years of enrolling.
  • Student enrollment has grown exponentially. For example, in 1991, the University of Phoenix had 7,000 students. Today it has 475,000 and is the 2nd largest higher education system in America, enrolling more students than the Big 10.
  • On average, 90% of all revenue comes from federal student aid dollars (a $24b annual taxpayer investment), belying claims of being purely private sector institutions.

As the hearings have uncovered more information about these companies, Chairman Harkin’s resolve to continue the fact finding mission has strengthened, and he has pledged to sponsor legislation aimed at tightening regulations. Harkin called fundamentally flawed and unconscionable a system that funnels taxpayer dollars through poor students to line the pockets of the wealthy, leaving many students with no diploma, all students with heavy debt, and the taxpayers, who have guaranteed that debt, at risk.

The next hearing will be held in early December.

In our next post we will consider the implications that this issue might have for traditional institutions of higher education like the UW.

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