MHEC Policy Brief: Evaluating State Funding Effort for Higher Education

Higher education makes important contributions to the betterment of society and to the lives of
individuals. On a societal level, higher education supplies an educated citizenry and workforce. For individuals, higher education provides an opportunity for personal development, fulfillment, and economic mobility. States play a large role in helping public colleges and universities fulfill these promised benefits: in 2017, states spent more than $86 billion on appropriations to higher education (Laderman & Carlson, 2018). However, the extent of financial support for higher education in each state varies greatly. Due to the importance of, and variation in, state funding for higher education, funding levels have received a significant amount of attention both in the scholarly literature and
in the popular press.

The relative effort of states in funding higher education can be evaluated using a variety of metrics. In the annual State Higher Education Finance (SHEF) report, several ways of assessing state effort are presented, such as by analyzing higher education spending relative to personal income, population, or total tax revenue. Each measure highlights different aspects of the general concept of state higher education funding effort. Within the empirical literature, state effort has been examined using several of these measures. This research has revealed a number of factors that help determine an individual state’s effort, finding that decisions about state funding for higher education are made in the context of multiple external factors, including current and projected economic conditions, competing priorities across the state, cultural and ideological shifts in the state population, political and higher education characteristics of the state, and state tax structures. In this report, changes in state funding for higher education, the concept of state effort and how to define and measure it, national trends in state effort, and state trends in state effort are explored. Then the empirical research on what impacts state effort is examined, and the paper concludes with policy considerations and recommendations.