Patterns and Volatility in State Funding for Higher Education, 1951–2006

Abstract

BackgroundNumerous studies have addressed the determinants of higher education appropriations. Extending prior studies that only consider the relationship between higher education and one other state budget category, Delaney and Doyle develop and test an empirical model of the relationship between higher education and all other budget categories. Delaney and Doyle propose that higher education takes the form of a balance wheel in state budgets. They find that higher education is cut more than other budget categories in bad budget years and given larger increases in good budget years. Although previous work advances understanding of how states budget for higher education, it is limited in the length of time considered.PurposeThis study makes two important contributions to the literature. First, it documents changes in the amount of volatility in state funding for higher education. Second, it identifies patterns in the volatility, and does so over a longer time period than has been investigated in past research, using data that spans over a half century (1951–2006).Research DesignThis study uses a unique panel dataset spanning the period from 1951 to 2006 to quantitatively document changes in the extent of volatility in state funding for higher education. It also identifies and tests for patterns of volatility.FindingsWe find that the level of volatility in state budgeting for higher education has changed over time. We also find evidence of linear (incremental), quadratic (countercyclical), and cubic (balance wheel) patterns of volatility at different points in time.RecommendationsOur findings indicate that the role of higher education in state budgets is not static and has varied over time. In policy discussions about higher education funding, we think it is important to consider both absolute funding levels and the amount of volatility in funding. We recommend that higher education leaders discuss not only funding levels with their state legislatures, but also discuss volatility in funding patterns. States and higher education have operated under different funding relationships in the past; therefore, it seems possible that policymakers and higher education officials could change their current funding relationship to conform to a pattern that better serves the needs of the state, institutions, and students.