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FEBP Releases New Report on State Fiscal Stabilization Fund Spending for Higher Education

Published:  October 18, 2011

The State Fiscal Stabilization Fund, a program created by the American Recovery and Reinvestment Act of 2009 to help states maintain state spending for education and other services, provided $39 billion in Education Stabilization funds specifically to support education spending. While most media reports focus on how the funds were used to support K-12 education, little is known about how states used the funds to support higher education.

Today, the Federal Education Budget Project (FEBP), Ed Money Watch’s parent initiative, released a policy paper, The State Fiscal Stabilization and Higher Education Spending: Part 3. This report sheds some light on how states actually used the Education Stabilization funds to support higher education and what will happen to these institutions' budgets in fiscal year 2012 when the funds are no longer available. Findings are based case studies of eight states including Colorado, Louisiana, Massachusetts, Montana, Nevada, North Carolina, Ohio, and Wyoming.

While it is hard to generalize about how states used the funds, we can draw some general conclusions about how the ARRA funds actually affected higher education and what is likely to happen once the funds are no longer available. For example, every state interpreted Department of Education guidance on the funds differently, likely the result of two inherently conflicting priorities outlined in the guidance: institutions were to use the funds to both save and create jobs and to avoid ongoing expenditures.

As a result, many states used their funds to support salaries and benefits in the effort to save and create jobs. Some states, like North Carolina, even required their institutions to use these funds in this manner, while others allowed their institutions to choose to do so. These states clearly prioritized saving and creating jobs over avoiding ongoing expenditures. States like Wyoming, on the other hand, dedicated a significant portion of their Education Stabilization Funds to one-time expenses like improvements to instructional facilities. These states seemed more concerned with creating a funding cliff once the Education Stabilization funds ran out than using the funds to support directly support salaries and benefits.

Regardless of how states and institutions chose to spend the funds, however, it is clear that the Education Stabilization funds played an important role in keeping higher education institutions financially stable in 2009, 2010, and 2011. The funds helped delay or lessen the impact of tuition increases in each of the years and kept many state higher education employees in their jobs. But most states are not out of the woods yet – many institutions will continue to face budgetary challenges in 2012 and beyond.

Institutions in some states, like those in Montana, will face little-to-no budget cuts in 2012, leaving them on stable financial footing. But institutions in other states, including Colorado, North Carolina, and Nevada will be forced to increase tuition and make additional cuts in the face of continuing low tax revenues. The Education Stabilization funds, which at least slowed the impact of these cuts, did provide some institutions with the opportunity to plan for the long term through spending reductions, flexibility and autonomy, and tuition and fee increases.

Now that the Education Stabilization funds have expired and any additional federal funds to support state education budgets, like the Education Jobs Fund, are not available for higher education, public institutions will have to rely solely on state funds and tuition revenue for support. Though the Education Stabilization funds did delay this reality, these institutions will have to shift the burden heavily on to students through tuition increases as state tax revenues are still insufficient to cover costs.

To read the full report, including in-depth case studies of all eight states, click here.

This report is the third in a three-part series analyzing higher education funding under the SFSF.  Part 1 in the series examined fluctuations in state spending on higher education during the implementation of the SFSF, and Part 2 focused on states' division of SFSF monies between K-12 and higher education in each year.

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