Office of Planning and Budgeting

Yesterday, March 4th, President Obama submitted his fiscal year 2015 budget request to Congress. The Institute for College Access & Success (TICAS) has published their analysis of the budget as has the Education Policy Program at New America.

TICAS states that the President’s proposal “takes important steps towards making college affordable for Americans by reducing the need to borrow and making federal student loan payments more manageable.” Specifically, his budget:

  • Invests in Pell Grants and prevents them from being taxed.  The budget provides funds to cover the scheduled $100 increase in the maximum Pell award, raising it from $5,730 in 2014-15 to $5,830 in 2015-16. TICAS notes that although this increase will help nearly 9 million students, “the maximum Pell Grant is expected to cover the smallest share of the cost of attending a four-year public college since the program started in the 1970s.”
  • Makes the American Opportunity Tax Credit (AOTC) permanent.  TICAS supports making the AOTC permanent as they note research suggests the AOTC is the most likely of the current tax benefits to increase college access and success.  New America, however, recommends the administration convert the tax credit to a grant program as they state researchers have found grants to be a more effective way to deliver aid to low-income families.
  • Improves and streamlines income-based repayment (IBR) programs. Under the President’s budget, more borrowers would be eligible to cap their monthly payments at 10 percent of their discretionary income and have their remaining debt forgiven without taxation after 20 years. The budget also adjusts the IBR programs to prevent debts forgiveness for high-income borrowers who can afford to pay their loans.
  • Requests funding for the College Opportunity and Graduation Bonuses.  The budget proposes establishing College Opportunity and Graduation Bonuses, which would reward schools that enroll and graduate low-income students on time. Both TICAS and New America note that, unless this proposal is thoughtfully designed, it could incentivize schools to lower their academic standards in order to make it easier for Pell students to graduate. Further, as this proposal is one of several different efforts to reward colleges that provide affordable, quality educations, it is unclear how its goals and formulas would interact with those of initiatives like the Postsecondary Education Ratings System.

The UW’s Federal Relations blog notes that the budget also proposes $56 billion for an “Opportunity, Growth and Security Initiative,” which “aims to effectively replace the remaining FY2015 sequestration cuts for nondefense discretionary programs – the programs we care about the most.” Please stay tuned to their blog for more information and updates.

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.

Sequestration will take effect tonight at midnight. While the cuts will be smaller than originally mandated ($85 billion instead of $109 billion), the impact in federal FY13 will be higher since the cuts must now be applied to only seven months instead of nine. Immediate and long-term impacts on the UW and Washington State are difficult to predict. However, during the remaining months of federal FY13, we estimate that the sequester could reduce the UW’s federal grant and contract support by an estimated $75 million to $100 million and cut Build America Bonds (BABs) subsidy payments by $500K to $700K. Additionally, the UW is projected to lose about $33,000 in work study funds for 2013-14. The potential impact on Washington State includes $11.6 million less for primary and secondary education, $11.3 million less for education of children with disabilities, and 1,000 fewer children receiving Head Start services.

Please see the full brief prepared by the Offices of Federal Relations, Planning & Budgeting, and Research and be sure to visit at the UW’s Federal Relations blog for regular updates.

Christy Gullion, Director of Federal Relations, recently provided an update on the sequester–the large, automatic federal spending cuts originally scheduled to take effect January 1st of this year, but delayed until March 1st thanks to a last-minute, bipartisan deal.

For background information, please see our most recent post on the topic as well as the brief put out jointly by the UW offices of Federal Relations, Planning & Budgeting, and Research.

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.

Additional Challenges:

  • 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.

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

Christy Gullion, Director of Federal Relations, recently provided an update on the fiscal cliff–the combination of large decreases in federal spending and simultaneous increases in income taxes set to take effect January 1st. For background information, please see the brief put out jointly by the UW offices of Federal Relations, Planning & Budgeting, and Research.

Check out Christy Gullion’s latest post about a possible to deal to avoid the federal fiscal cliff.

The UW’s Office of Federal Relations posted information this morning detailing the federal sequester’s impact on state budgets. Read the grim summary here.

The Offices of Federal Relations, Planning & Budgeting, and Research recently collaborated on a policy brief summarizing basic sequester information. Note that sequester updates are available on the Office of Federal Relations’ blog.