A recent update on our state’s progress toward meeting the Washington Roundtable’s Benchmarks for a Better Washington emphasizes the need for legislative action on education, including protecting funding for our public universities, as well as transportation and business costs. The Roundtable – a nonprofit, public policy organization comprised of major, local business executives – created the Benchmarks in 2011 as a means to measure and track Washington’s economic vitality and quality of life. The organization publishes annual updates that examine state-by-state comparative data (primarily from federal sources like the U.S. Dept. of Education); assess Washington’s position in key categories; and highlight opportunities for improvement.
The May 2013 update showed that:
- Washington trails most states in high school graduation rates (ranking 32nd nationally) and bachelor’s degrees awarded per capita (39th nationally).
- Washington’s road condition rankings have dropped from 16th (2012 ranking based on 2008 data) to 29th (2013 ranking based on 2011 data) and our state continues to rank poorly on bridge conditions (41st).
- Washington ranks in the bottom third of states for business tax burden (36th), unemployment insurance tax rates (40th) and workers’ compensation benefits paid (50th).
- However, Washington has held onto its lead in patent generation (5th) and in low commercial and industrial electricity rates (3rd).
The authors argue that Washington must move quickly to improve its education pipeline and align with workforce needs. As 70 percent of Washington jobs will require postsecondary training by 2020, they assert, “It is imperative that Washington prioritizes higher education and does a better job of preparing its citizens to succeed.”
In Monday’s edition of CrossCut, Roundtable President, Steve Mullin, urged lawmakers to focus on two key topics during the remaining weeks of session: education and transportation. He specifically called for legislators to ensure our colleges and niversities have the funding they need to develop necessary talent. “Decision time is here,” he wrote, “Education is the driver of prosperity and individual quality of life. Transportation is the backbone of commerce. Both need attention before the 2013 Legislature adjourns.”
Of the nearly 900 schools that received federal money for research and development (R&D) in FY 2011, the UW ranks first among public institutions and second overall in terms of federal research funding. According to a study by the National Science Foundation (NSF), approximately 20 percent of all federal R&D support went to just 10 universities. 24/7 Wall St. reviewed those universities, Table 1 summarizes their findings.
Johns Hopkins University, a private institution, topped the list with nearly $1.9 billion—more than doubling what any other university received that year. The majority of Johns Hopkins’ federal funding came from the Dept. of Defense and NASA. The university also brought in billions via fundraising efforts.
The UW came in second with almost $950 million in federal R&D funding—the most of any public school. The majority of the UW’s money came from the Dept. of Health and Human Services; however, the University was the top beneficiary of NSF funding, receiving more than $145 million in 2011.
Year after year, the same schools consistently receive the most money, said Ronda Britt, a survey statistician with the NSF. 24/7 Wall St. quotes her as saying, these universities “have big research programs that receive a lot of support year after year, and have a lot of infrastructure that helps them keep the money stable.” This holds true for the UW, which has ranked first among public schools since 1974. Having large endowments was another commonality of the top 10 schools, yet federal funding covered the bulk of R&D expenditures in all cases.
As these universities rely heavily on the federal government to support their research, many are concerned about the sweeping cuts of sequestration. The UW and other universities are preparing for a range of possible impacts. As described in our joint brief, the sequester could reduce the UW’s federal grant and contract support by an estimated $75M to $100M during FY13. The UW community is encouraged to remain cautious and conservative in spending federal awards and in planning for future federal funding.
House Ways & Means Chair Ross Hunter released the House budget proposal today. Please see the OPB Brief for a complete analysis. Table 1 shows the total funding the UW would receive under the House chair budget, divided into three standard categories: the carry forward level, the maintenance level and the performance level.
The House assumes that the UW will increase undergraduate resident tuition by 5 percent each year, thus making more revenue available. However, the House Chair budget requires that $2 million go toward the College of Engineering, $12 million be used to create a Clean Energy Institute, and a total of $16.5 million of the appropriation be used to support enrollments in Computer Science and Engineering.
As shown in the table below, once recognized additional operational needs are met and once dedicated funds are removed from the equation, the UW is left with almost $10 million less in net new state funding in 2013-15 compared to the previous biennium under the House budget. Once the potential additional tuition revenue is taken into account, however, the UW fares better under the House budget, even with its spending requirements. Moreover, the Senate relies on a draconian 20 percent surcharge on international student tuition to generate this additional funding amount. As mentioned in our previous brief, given that the majority of international students in Washington are enrolled at the UW, this amounts to a tax on UW students. It is expected that the surcharge will lead to a decline in international student enrollments, which could lead to an overall reduction of revenue for the UW.
We are still reviewing the potential impacts of this budget proposal and will provide revisions to the brief as more information becomes available. Once the House chair budget passes the floor (which is expected later this week), leaders of the House and Senate will begin negotiations to reconcile the differences between their respective approaches. It is likely that the UW will not have a clear sense of its actual anticipated state funding level until the end of this month at the earliest.
Senate Ways & Means Chair Andy Hill released the Senate budget proposal today. Please see the OPB Brief for a complete analysis.
Tuition: The Senate Chair budget contains language allowing the Regents to set tuition and fees for all student categories other than resident undergraduates. The budget bill assumes no tuition increases for resident undergraduates; however, UW Regents retain the authority to set tuition rates under HB 1795. It is crucial to note that the budget states that these tuition provisions will be nullified if SB 5883 passes. SB 5883 would require a 3 percent decrease in resident undergraduate tuition for 2013-14.
Compensation: The budget deems the UW’s collective bargaining agreements (CBA) to be financially feasible and restores the 3 percent salary cut imposed on state agencies in the last biennium. We assume the budget lifts the current salary freeze for state employees as it makes no mention of extending it. In addition, the budget assumes savings by changing the definition of “full time” employee to align state employee healthcare eligibility with the federal standard set out in the Affordable Care Act. This is a significant change in policy, and we expect it to become a serious topic of public debate in the weeks to come.
Other policy changes affecting the UW include:
- Funding for the Joint Aerospace Initiative with WSU;
- Appropriations for a new Center on Ocean pH Balance;
- One-time, performance-based funding;
- Operation and maintenance funding for MolE and Dempsey Hall;
- Funding reductions related to administrative efficiencies;
- An international student surcharge; and
- A fund transfer from the UW Hospital Account.
The Senate chair budget proposal is one of a series of budgets released as part of the biennial budget process; the House is expected to release its budget proposal next week. It is likely that the UW will not have a clear sense of its actual anticipated state funding level until later this month.
On Thursday, Governor Inslee released his budget priorities for the 2013-15 biennium. OPB released a comprehensive brief on the plan, but below is a quick summary of the major points in the Governor’s budget.
Governor Inslee’s plan would fund all of higher education, including financial aid, with nearly $3 billion (8.4 percent of the total budget), of which the University of Washington would receive just over $232 million per year. This funding level represents about $3.6 million more per year than the UW would have received under Governor Gregoire’s “New Law” budget. Governor Inslee’s plan also:
- Authorizes tuition increases of up to five percent per year for resident undergraduates at UW and WSU (three percent at other four-year universities). While the UW still has tuition setting authority, it must provide increased financial aid if it raises tuition above five percent.
- Provides the UW with $6 million per FY to create a Clean Energy Institute with the purpose of researching energy storage and solar energy.
- Appropriates$1 million per FY to the UW’s College of Engineering to support increased enrollments.
- Funds the joint Aerospace Initiative and the Center on Ocean Acidification at levels consistent with Governor Gregoire’s budgets.
- Gives additional funding to financial aid to keep pace with tuition increases and to fully fund the College Bound scholarship program.
Governor Inslee’s plan restores the 3 percent salary cut imposed on state agencies in the last biennium, but includes no mention of the current salary freeze for state employees, which is set to expire on June 30, 2013. We assume this means the freeze will be lifted, however the Governor’s plan does not provide explicit funding for wage increases.
Governor Inslee’s capital budget plan is identical to Governor Gregoire’s, and includes money for the UW’s top capital priorities such as minor capital repair, the UW Tower Chilled Water System Replacement, and Magnuson Health Sciences Center Roofing Replacement.
While Governor Inslee’s budget blueprint is an important step in the budget process, we expect the UW will not have a clear picture of its actual FY14 and FY15 funding levels for at least another month. We will post updates to this blog when the Senate and House release their budgets. Please also monitor the State Relations website for information.
On Wednesday, March 20, the Washington State Economic & Revenue Forecast Council (ERFC) released its quarterly update of State General Fund Revenues. Revenue from an anticipated increase in Washington housing permits and real estate excise tax receipts is expected to offset higher federal tax rates and spending cuts than were previously assumed. Overall, revenue projections for both the 2011-13 and 2013-15 biennia remain relatively stable, with a slight net gain of about $40 million across the two biennia. However, this net gain is negated by the roughly $300 million in additional Medicaid caseload costs. The state and its lawmakers now face a $1.3 billion deficit along with court-mandated funding for K-12 education, which could cost another $1 billion. Their upcoming budget proposals will have to reconcile these demands on the state purse.
We anticipate that the Senate Majority Caucus Coalition will release its operating budget proposal sometime next week, while the House will likely release its budget by early next month. Until that time, any specific impact on the UW cannot be assessed. Please see the full OPB brief for more information.
Last week, Moody’s Investors Service issued a negative short-term outlook for the entire sector of higher education based on its conclusion that every traditional revenue source for even the most elite colleges and universities is under pressure. That pressure, according to the report, is the result of nation-wide economic, technological and public opinion shifts, which are largely beyond institutions’ control.
The outlook report, released annually, articulates the fundamental credit conditions that Moody’s expects higher education will face during the next 12 to 18 months. For the last two years, Moody’s gave elite colleges and research universities a stable forecast; but this year, the following factors contributed to a negative outlook for the entire industry:
Struggling Revenue Sources:
- State appropriations are unlikely to increase meaningfully due to weak economic recovery.
- Federal spending on research and student aid could be truncated in response to the nation’s fiscal concerns.
- Tuition revenue continues to be suppressed by low family incomes and public/political pressure to keep prices down.
- Endowment returns are vulnerable to any economic volatility that could stem from federal tax and budget decisions.
- Donations are not expected to increase and could face pressure as Congress evaluates associated tax deductions.
- Financial diversity is no longer helpful as all revenue streams are strained.
- Student debt and loan default rates have increased and thus challenged the perceived value of a degree.
- High school graduates are declining in number.
- Public and political scrutiny of efficiency and degree value could add to institutions’ list of regulatory requirements.
- New technologies such as online learning and MOOCs could provide new revenue opportunities, but could also undermine traditional higher ed models.
Moody’s analysts warn that revenue streams will never rebound to post-2008 levels and leaders in higher education will need to adapt by thinking strategically and adjusting their operations.
But not all is gloom and doom. Although Moody’s gave higher education a negative outlook, most of the country’s top colleges and universities still hold the strong credit rankings. The UW, for one, continues to maintain a Aaa credit rating—the highest offered by Moody’s. Additionally, the report stressed that the intrinsic value of and demand for higher education remains stable.
Last Thursday, California Governor Jerry Brown released a proposed 2013-14 budget that includes substantial increases for higher education—made possible by the passage of Prop 30. For the UC and CSU systems, the proposal provides an ongoing increase of $125.1 million each. This includes $10 million each to expand the delivery of courses through technology and is in addition to the $125 million that UC and CSU will each receive in 2013‑14 for not increasing tuition and fees in 2012‑13, as required by the 2012 Budget Act. In sum, the proposal says “the state’s General Fund contribution to UC and CSU will increase by 5 percent per year in 2013-14 and 2014-15 and by 4 percent in each of the subsequent two years.”
Both higher ed systems had asked for more; but, according to The Chronicle, Gov. Brown said “the gap between what we’re going to give them and what they say they’re going to need” would have to be made up through efficiencies. Cal State system’s chancellor that Mr. Brown’s proposal at least “heads us in the right direction.”
However, in exchange for new money, state institutions are expected to keep tuition and fee levels stable over the next four years. The institutions are required to increase access to online courses and limit resident tuition rates to the first 150 percent of credits needed to graduate. This limitation is an attempt to encourage timely degree completion, reduce student debt, and free up classroom space for other students.
At a news conference Thursday, Governor Brown stated that he would be attending UC and CSU board meetings in the hopes of encouraging both systems to keep tuition prices stable.
The 2013 Washington State legislative session, scheduled to last 105 days, began today. OPB will be tracking all bills that are relevant to the University and we will do our best to keep you updated on the happenings in Olympia. For the most comprehensive legislative session information, please see the Washington State Legislature’s website.
As always, check the BillTracker for the latest information on bills relevant to the UW, including scheduled hearings, bill summaries, and the official UW position on a bill. This year, we have also integrated our Fiscal Note process into the BillTracker, which will hopefully streamline the data gathering process.
For more information about how to use BillTracker and bill analysis generally, check out this presentation. If you have questions about submitting Fiscal Notes, please review this Fiscal Note presentation.
Please also feel free to check out the Office of State Relations website for up-to-date information on the state of events in Olympia.
We will post updates on the budget situation to the blog, and we will announce any new budget briefs here as well. If you have a pressing budget-related question, please contact Sarah Hall at firstname.lastname@example.org. For any questions related to bill tracking or Fiscal Notes, please email email@example.com.
Yesterday, the Senate and House of Representatives approved legislation to avert the fiscal cliff. The deal postpones the automatic, across-the-board spending cuts—known as “the sequester”—by two months and increases tax rates only for individuals earning over $400,000 and couples earning over $450,000. The bill also preserves funding for Pell Grants and extends for five years the American Opportunity Tax Credit (AOTC), which allows students and their parents to claim up to $2,500 a year for tuition and college expenses.
For details, please see the blog post provided by Christy Gullion, Director of Federal Relations, and the articles provided by Inside Higher Ed and The Chronicle
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