Finance, Higher Education
FINANCE, HIGHER EDUCATION
Scott L. Thomas
COMMUNITY AND JUNIOR COLLEGES
Richard L. Alfred
While many college-bound students and their families view higher education as a means to professional success and economic security, this end belies the myriad of contributions that America's colleges and universities make to the broader society. Although such social benefits often defy precise measurement they nonetheless establish the rationale for the public support of higher education. By any measure, public support of higher education is huge. In fiscal year 1996, federal, state, and local governments gave well in excess of $75 billion to degree-granting institutions of higher education (calculated from data generated by the National Center for Education Statistics). Tens of billions more dollars were provided indirectly through student financial assistance in the form of scholarships, grants, loans, and tax deductions.
Higher education is a massive enterprise with fiscal year 1996 expenditures of just more than $190.4 billion. Taking into account further expenditures of $20.9 billion in additions to physical plant value, combined expenditures on higher education comprised roughly 2.7 percent of the nation's gross domestic product during that year. By all accounts it is expected that higher education will continue to grow throughout the first part of the twenty-first century.
Higher education expenditures fall into two general categories: capital outlay (land, buildings, and equipment) and annual operating expenses. Annual operating expenses–or current-fund expenditures–occur in four distinct areas: educational and general expenses, auxiliary enterprises, hospitals, and independent operations.
In fiscal year 1996, colleges and universities devoted roughly $20.9 billion to capital outlays with the largest expenditure area (60.1% of total) being buildings, followed by expenditures on equipment (36.1%) and land (3.8%). Thus, capital expenditures made up roughly 10 percent of total higher education expenditures in this year. The percentage of all expenditures devoted to capital additions has fluctuated within 1.5 percentage points since the early 1980s.
The remaining 90 percent of higher education expenditures are devoted to education and general expenses–items such as instruction, research, libraries, administration, campus operations and maintenance, institutional scholarships and fellowships, auxiliary enterprises (e.g., residence halls, food services, intercollegiate athletics), independent operations (usually research and development centers), and university hospitals. Almost four-fifths of current-fund spending is accounted for by education and general expenditures. Costs associated with instruction (including faculty salaries) constitute just under one-third of annual expenditures and represent the single largest expense category in the higher education budget. Research expenses and institutional support costs (for example, general administrative services, legal and fiscal operations, community relations) each account for just under 10 percent of current-fund expenditures.
Outside of the educational and general expenditure area, institutions of higher education may devote significant resources to auxiliary services, independent operations, or hospitals. Such expenditures are generally revenue generating (although not always revenue neutral) and therefore have some capacity to be self-supporting. Roughly 20 percent of current-fund expenditures are directed at such units.
While these numbers are helpful in providing a very general description of higher education expenditures, they will vary dramatically across different types of campuses, generally in accordance with size and institutional mission. Relatively few campuses, for example, support hospitals or independent research centers.
Public investment in higher education is based on the belief that colleges and universities provide social benefits to society that individual students cannot capture. To the degree that this belief is correct, the demand for higher education by individual students would be less than the social demand and an underproduction of higher education would inevitably result. Public subsidies are therefore used to address this imbalance in demand. Historically colleges and universities have been controlled and financed by state as opposed to federal government. While the federal government and students themselves provide a substantial amount of revenue to institutions of higher education, state revenues are the single largest source of government support for public institutions.
Capital projects on U.S. campuses are supported by revenues from a variety of sources. These most often take the form of private gifts, grants, and loans from the federal government, appropriations by state or local legislative bodies, general obligation bond issues by states or localities, borrowing by state building authorities or similar public corporations, and institutional issues of revenue bonds by the institutions themselves.
Current-fund revenue for higher education–money received during any given fiscal year from revenue that can be used to pay current obligations due, and surpluses reappropriated for the current fiscal year–also comes from many different areas and in many different forms. The majority of current-fund revenue received by institutions of higher education comes from students (through tuition) and federal, state, and local governments. Almost 28 percent of revenues in fiscal year 1996 came from students and their families while federal, state, and local governments combined provided 38 percent during this year. State governments provide the largest share of public funds directed to institutions (comprising roughly 60% of public funds in 1996), followed by the federal government (32%), and local governments (8% of total government support). The remaining 34 percent of current-fund revenues was made up from private sources, endowment income, and sales and services during this fiscal year.
This pattern of support has changed significantly since the early 1990s, with tuition revenue surpassing the amount of state appropriations to higher education institutions. The proportion of current-fund revenues received from each of these sources varies dramatically by sector, with private colleges and universities much more reliant upon tuition revenues. Table 1 shows that most revenues for higher education come from one of four distinct sources: the federal government, state governments, students (through tuition), and the sales of goods and services that are incidental to the conduct of research, instruction, or public service.
Since the Northwest Ordinance legislation in 1787 authorized land grants for the establishment of educational institutions, the federal government has been a major player in the financing of higher education. The first Morrill Act (1862) set the stage for the development of the nationwide system of land-grant colleges and universities to which the United States owes much of its extraordinary agricultural productivity since the late nineteenth century. Subsequent federal legislation supporting higher education has helped ensure the nation's military and industrial dominance for most of the twentieth century.
The U.S. government provides funds directly to institutions as well as to students in the form of financial aid. Most federal support comes through categorical aid programs administered by various departments within the executive branch or through independent agencies of the federal government. Of those funds provided directly to institutions of higher education, the bulk of federal support comes through such categorical programs in the form of restricted or unrestricted grants and contracts. The remainder of federal institutional support is provided either as direct appropriation or through independent operations usually involving major federally funded research and development centers (see Table 2).
Federal grants and contracts have long played an important role the advancement of science and engineering in the country. The National Defense Education Act of 1958 and grants and contracts provided through the Higher Education Act of 1965 and subsequent reauthorizations are good examples of this historic commitment. Toward the end of the twentieth century attention has been drawn to the increasing tendency of federal lawmakers to provide generous earmarks directly to institutions in their respective states. Scientists and college officials across the country have voiced concerns that the purely political distribution of funds traditionally awarded on competitive bases tends to erode the efficient provision of federal support aimed at leveraging the largest advances in knowledge and access to higher education.
While substantial funds flow from the federal government directly to institutions of higher education, the major portion of federal support for higher education comes in the form of student financial aid. Dramatic shifts in the economics of higher education and in policies defining the composition and delivery of student aid occurred between 1972 and 2001.
Civil rights–era ideals of federal student aid programs (largely falling under Title IV of the Higher
Education Act) focused on providing need-based grant aid to ensure that low-income youth would not face a greater economic burden than their peers from more affluent backgrounds. These progressive ideals were soon eroded by the economic and political realities of the mid-to late 1970s, realities that radically altered the funding environment for higher education programs across the country. Marked gains in lower-income student access and persistence associated with Title IV were diminished as the need-based grant aid ideal was nudged toward the margins by more cost-effective and politically palatable loan programs.
The trend away from the need-based ideals outlined in the early Title IV programs was followed by a series of federal policy actions across the 1980s that devolved federal responsibility for a wide variety of public programs down to the state level. This devolution effectively relieved an exploding federal budget from a large share of the funding burden associated with a number of traditionally federally sponsored programs, including numerous high cost health and welfare programs.
One consequence of shifting responsibility to the states was that many states began experiencing severe financial strains–strains associated with unfunded mandates concomitant with the reassignment of many of these high cost federal programs. Strains on state budgets throughout the 1980s and early 1990s, combined with a serious economic recession in the early part of the 1990s, ultimately led to cutbacks in state general fund expenditures directed at public higher education which in turn fueled a run-up in tuition prices in the public postsecondary education sector. A slightly different but no less malignant set of forces undergirded an even more dramatic tuition escalation in the private sector across this period.
States serve as the locus of control for higher education and are the single largest government funding source for public institutions. Any effective consideration of state support for higher education requires the separate treatment of public and private institutions. While public institutions receive generous state appropriations designed to subsidize the real costs of instruction, private institutions are generally less likely to receive such subsidies and are therefore much more reliant on tuition revenues (see Table 3).
Public institutions. Appropriations to institutions of higher education were made largely on the basis of political decisions in the post–World War II expansion. This strictly politically driven mode of funding had largely given way to funding based on enrollment-driven formulas by the late 1970s. Throughout the 1970s and 1980s the formulas used by state officials became much more refined to better reflect the varied missions, structures, and histories of state institutions. Many states during the 1980s adopted various forms of budgeting based on performance measures that usually affected a small portion of the overall funding. By the 1990s the mixed results from adherence to these various forms of budgeting led many states to abandon formulabased allocations and attempts to distribute funds on the basis of performance. Those states turning away from these earlier budgeting schemes began to develop policies that take into account previous allocations then making adjustments for inflation and changes in enrollment.
Similar to the federal government, states provide revenue to institutions directly in the form of appropriations, unrestricted grants and contracts, and restricted grants and contracts. And like the federal government, states provide financial aid to students that is then redirected to the institutions at which they enroll to cover the price of attendance. State student aid has taken many forms over the last half of the twentieth century. Although most programs were initially merit-based, many states had developed need-based aid programs by the mid-1960s. Need-based state aid programs were widely adopted by the mid-1970s to take advantage of the federal State Student Incentive Grant program passed in the 1972 reauthorization of the federal Higher Education Act. In the early twenty-first century, contractions in federal and state spending and political sensitivity to the dismay of middle-and upper-middle class families over spiraling tuition costs are driving state aid programs back toward the merit-based (as opposed to need-based) model.
Private institutions. States have long recognized the contributions of private higher education to enhancing the quality of life of its citizens. In addition to providing a greater diversity of higher education opportunity and enhancing states' economic and cultural richness, state leaders realize that these institutions also absorb the subsidization costs of students who would have otherwise attended a public institution in the state. Moreover, private institutions play an important role in the expansion of higher education opportunity in many states that would otherwise be hard pressed to underwrite such growth. Consequently, many states make significant public investments in these institutions.
While some states have chosen to provide direct intuitional aid to private colleges and universities, others target their support at specific high need programs or at the development of research and technological capacity. Another important source of state revenue for private institutions comes through state student aid programs. Student aid programs in which students enrolling in private institutions can participate have become ubiquitous. In addition, many states have developed tuition equalization grant programs to encourage access to this sector.
State allocations to private institutions remain relatively modest however when compared to state contributions to institutions in the public sector (roughly 3% of state institutional support goes to the private sector). Differences in the types of funds made available to private institutions are also noteworthy. While more than 90 percent of state funds provided to public institutions are in the form of straight appropriations, almost three-quarters of state support allocated for private institutions is provided in the form of restricted grants and contracts (see Table 3).
Public and private institutions have become more reliant upon tuition revenues than on any other single source. Most institutions chose to raise tuition charges paid by students and their families as revenues from state and federal sources declined throughout the latter part of the twentieth century. Escalating tuition prices during this period resulted in intense political pressure and close scrutiny of college costs. Many, especially those from lower-and middle-class families, expressed fear that they were being rapidly priced out of higher education.
The resultant political pressure combined with a strong economic recovery by the mid-1990s in most states allowed an easing of tuition increases over the course of the last several years. This hiatus, however, appears to be short lived as states come to grips with long-term structural budget deficits that will erode their ability to continue to provide revenue at current levels, let alone fund the further expansion necessary to accommodate the growing
demand for higher education across the country. Many experts have concluded that this is not a cyclical pattern and that state spending on higher education is being permanently altered.
With the continued escalation of public sector costs in areas such as K–12 education, health, welfare, and prisons, higher education's claim on public funds is becoming increasing tenuous. Most experts agree that as the federal and state governments struggle to meet the demands in areas outside of higher education, tuition revenues will continue to become an ever larger source of revenue for all institutions, public and private.
Sales of Services, Private Giving, Endowment, and Other Support
As competition for government funds increases, institutions of higher education are becoming increasingly reliant upon other sources of support. Throughout the early 1990s rapid increases in tuition charges highlighted one strategy for replacing funds traditionally provided by state and federal governments. Recognizing that sustained tuition increases such as those in the 1990s were eroding access and would eventually affect demand, higher education leaders began to more aggressively encourage the cultivation of less dominant revenue sources. Colleges and universities are resorting to selling goods and services that were historically provided at no or little cost; faculty and staff are increasingly and openly encouraged to be more entrepreneurial when thinking about their research and teaching; and few institutions, public and private alike, lack coordinated fund-raising mechanisms (despite the reality that only the most prestigious institutions realize much from this source). Such activities are likely to become more pronounced throughout the early part of this century as higher education leaders struggle to balance the burgeoning demand and dramatic declines in levels of public support.
See also: Accounting Systems in Higher Education; College Financial Aid; Federal Funding for Academic Research; Federal Funds for Higher Education; States and Education, subentry on State Governments in Higher Education.
Becker, William E., and Lewis, Darrell R., eds. 1992. The Economics of American Higher Education. Boston: Kluwer Academic.
Bowen, Howard R. 1977. Investment in Learning. San Francisco: Jossey-Bass.
Callan, Patrick M., and Finney, Joni E., eds. 1997. Public and Private Financing of Higher Education. Phoenix, AZ: American Council on Education/Oryx Press.
Cohn, Elchanan, and Geske, Terry G. 1990. "Financing Higher Education." In Economics of Education, ed. Elchanan Cohn and Terry Geske. New York: Pergamon.
Ehrenberg, Ronald E. 2000. Tuition Rising. Cambridge, MA: Harvard University Press.
National Center for Education Statistics. 2002. Digest of Education Statistics, 2001, NCES 2002–130. Washington, DC: U.S. Department of Education.
Paulsen, Michael B., and Smart, John C., eds. 2002. The Finance of Higher Education: Theory, Research, Policy and Practice. Edison, NJ: Agathon.
Slaughter, Sheila, and Leslie, Larry. 1997. Academic Capitalism. Baltimore: Johns Hopkins University Press.
Scott L. Thomas
COMMUNITY AND JUNIOR COLLEGES
Comprehensive two-year colleges emerged at the beginning of the twentieth century during a period of experimentation in all sectors of American education. In keeping with the spirit of the time, the community college–initially known as the junior college–developed as a result of increasing demand by the American public for accessible and affordable education. This unique institution, in which the associate degree is most commonly the highest degree awarded, quickly became a bridge between work and further education for traditional and adult learner populations. Throughout this entry, the term community college will be used to refer to public comprehensive two-year colleges. Included in this designation will be publicly supported associate degree institutions, technical colleges, and branch campuses. Private two-year colleges, usually recognized as junior colleges, are not included in this designation.
Beginning with Joliet Junior College in 1901, community colleges evolved in three distinct ways: as an upward extension of public school systems, as a downward extension of the university, and through voter approval. In the first half-century, most community and junior colleges were influenced in structure and operation by the public school systems and boards of education of the states in which they were located. According to a 2000 report from the American Association of Community Colleges, growth was steady during the first half of the twentieth century, with 648 institutions enrolling 168,000 students in 1950. With the expansion of the economy following World War II and growing public need for access to postsecondary education, community college campuses and enrollments grew at an explosive pace. By 1975, the number of two-year colleges (known variously as community colleges, junior colleges, technical colleges, associate degree institutions, branch campuses, etc.) had grown to 1,230 institutions enrolling 3,836,000 students. In fall 1999, the latest year for which official statistics are available, twoyear colleges numbered 1,600 institutions and enrolled 5,339,000 students–one out of every two students enrolling in college on a first-time basis and 44 percent of all undergraduate students enrolled in American colleges and universities.
Although much of this growth has been attributed to changing demographic and economic conditions, it was also a product of public sentiment that favored the development of community colleges as a distinct educational entity within a local service region. Citizens committed to the idea of an affordable college within easy reach approved bond and tax referenda that provided capital and operating support at a record pace between 1960 and 1990. Local support not only paved the way for large-scale growth, it also positioned community colleges as a different type of institution from other postsecondary institutions. Public community colleges in most states receive significantly more support from local tax funds than do for-profit and baccalaureate degree granting institutions. And, as a reflection of their status as community-based institutions emphasizing access and convenience, tuition and student fees are typically lower than student charges at other institutions.
Financing Community and Junior Colleges
In significant ways, the financing of community and junior colleges is similar to college and university finance. All two-year institutions charge tuition and fees. They generate support from gifts and grants and the proportion of support they get from state funds is more like that received by baccalaureate colleges than K–12 school systems. State funds are often distributed to public community colleges by formula rather than by direct appropriation from the state legislature, which is the typical procedure used for state financing of four-year colleges and universities. Private junior colleges, of course, rely much more heavily on tuition than do public community colleges. In this respect, they are more like privately controlled four-year colleges and universities.
By looking at the methods of financing community and junior colleges over the six-year period from academic year 1991–1992 through academic year 1996–1997, one can gain an understanding of both the sources of funding for these colleges and the shifts that have occurred over time. Inclusion of funding data for four-year colleges and universities in the analysis provides a framework for comparison of resources allocated to different institutions by source over a common reporting period.
Sources of revenue. The status and methods of financing current operations between 1991–1992 and 1996–1997 for community and junior colleges and four-year colleges are illustrated in Table 1. (In interpreting these data, it is important to note that Pell revenue is not included in tabulations of support from the federal government.) Several observations of note can be gleaned from this information. One is that public community colleges are holding steadily to the principle that funds from state appropriations, local tax, and student payments in the form of tuition should be the primary sources of revenue in support of operations. For independent junior colleges–smaller in number and enrollment–tuition and fees are the primary source of operating income. When public and private two-year colleges are considered together, state, local, and student sources of income constitute, in combined form, more than 80 percent of the operating income. It appears that tuition and local tax are providing a proportionally greater share of support for operations in 1996–1997 compared to their level in 1991–1992 and that state appropriations are declining as a source of support for operations. The percentage of revenue through state appropriations shows a shift from 45 percent in 1991–1992 to 42 percent in 1996–1997. Student tuition and fees accounted for 21 percent of operating revenue in 1991–1992 and 23 percent in 1996–1997. In 1991–1992, local tax constituted 17 percent of operating revenue; by 1996–1997, it had increased to 18 percent.
Support provided through the federal government remained stable at roughly five percent between 1991–1992 and 1996–1997 for community and junior colleges. Gifts, private grants, and contracts account for only one percent of the revenue received by community colleges. This income source has become increasingly important to two-year colleges, however, as indicated in the 24 percent gain registered between 1991–1992 and 1996–1997.
Finally, the table illustrates the great variation in proportion of funding from different sources for public community colleges and four-year colleges. Public and private four-year colleges show a markedly higher reliance on student tuition and fees to support operations in comparison to community colleges. Additionally, they rely more on the federal government, auxiliary enterprises, private gifts and grants, and other revenue to finance their operations. Public community colleges, in contrast, rely more on local tax support. The information in Table 2 shows the proportion of operating revenues from different funding sources on a state-by-state basis for two-year colleges in 1996–1997. Public community colleges in thirty-five states received local tax support for their operations ranging from $.02 per capita in Washington to $56.57 per capita in Arizona. Public community colleges in states like Arizona, Wisconsin, California, and Illinois received a healthy portion of their operating revenue–in excess of one-third–from local tax while colleges in states like Connecticut, Indiana, Massachusetts, and Utah relied exclusively on state appropriations and student charges for operating support.
An interesting sidebar to the data in Table 1 is the basic difference in the way public and private two-year colleges are financed. Detailed information showing the distribution of revenue by source and type of institution for 1996–1997 (Table 3) reveal that private junior colleges get about two-thirds of their operating revenue from student tuition and fees. The only other significant sources of operating funds are private gifts, grants, and contracts and revenue earned through auxiliary enterprises. This pattern is similar to that found in privately controlled four-year colleges and universities, but even here significant differences are noted. Private four-year colleges and universities receive only about 43 percent of their income from student tuition and fees and more than one-third of their total revenue from gifts, grants, and contracts and other sources such as endowment. Clearly, private junior colleges have much smaller endowments than private four-year colleges on which to draw to support their current operations.
Open access. Student charges are an important source of revenue for all postsecondary institutions. For public community colleges, however, the cost of education is an important part of their mission. Access to educational opportunity is a defining characteristic for them and keeping
the door to opportunity open through low tuition is both a philosophical premise and a practical necessity.
Comparative student charges for two-year colleges and four-year colleges are shown in Table 4. Over the 22-year period from academic year 1976–1977
to academic year 1997–1998, tuition and fees in two-year colleges have, on the average, amounted to one-quarter of those for four-year colleges. This differential has widened over time as state appropriations to four-year colleges and universities have diminished in periods of economic fluctuation and tuition has increased to reduce the gap between income and expenditures. In 1976–1977, for example, the average cost of tuition and fees for a full-time student in two-year colleges ($946) approximated 28 percent of the average cost for students enrolled in four-year colleges ($3,329). By 1997–1998, the disparity had increased with the cost of tuition and fees in two-year colleges ($1,592) averaging 25 percent of those for four-year colleges ($6,329). When private two-and four-year colleges are removed from the analysis leaving only public institutions, the cost differential diminishes considerably with tuition and fees at public community colleges ($1,318) averaging 42 percent of those at public colleges and universities ($3,110).
Expenditures. Generally speaking, budgets and financial reports of colleges and universities are developed and analyzed according to categories of educational and general expenses. Subdivisions are commonly used to organize and report expenditures; the most common are instruction, research, public service, academic support, student services, institutional support, plant maintenance and operations, scholarships and fellowships, and transfers.
The information in Table 5 shows that public community colleges employ all nine expenditure subdivisions. As would be expected in any educational institution, the largest category of expenditure is instruction with 43 percent of all educational and general expenditures classified in this category in 1996–1997. When costs for academic support, student services, and institutional support are added to instructional cost, they account for more than threequarters of all expenditures. These costs, for the most part, are attributable to personnel, which is why two-year colleges, and colleges and universities in general, are described as labor intensive organizations.
It is interesting to note that the categories of cost fluctuate as a percentage of expenditures as cost allocations
change over time. For example, total expenditures for instruction increased by 25 percent between 1991–1992 and 1996–1997 whereas expenditures for academic support increased by 40 per cent, expenditures for student services by 38 percent, and expenditures for instructional support by 39
TABLE 5 [CONTINUED]
percent. This could be a reflection of the tendency of community colleges to shift more of the instructional workload to part-time faculty as a method for decreasing fixed costs and increasing flexibility. Proportionally larger costs for academic support could indicate that more resources are needed to acquire advanced technology in support of classroom in struction and to provide tutorial assistance to students experiencing academic difficulty. Rising costs for student services and institutional support could be a result of more extensive efforts by community colleges to market programs and services to a wide array of audiences and to make more and better services available using technology and specialized support staff.
Out of these trends a greater focus is emerging on using resources more effectively through strategic planning. In this approach to allocating resources, priorities are determined through gathering and analyzing information about trends in the external environment and internal capabilities. Resources are allocated to these priorities in the operating budget and institutions measure their performance against achievement criteria established for each priority as a method for determining their progress in reaching stated goals. The fiscal impact that each priority has on expenditure categories in the operating budget is then analyzed to determine cost benefits and additional resource requirements. What are the costs of implementation associated with each priority? How much revenue did the priority generate? What additional resources need to be allocated to fully achieve the priority?
A number of important finance and finance-related issues will challenge public community colleges, and to some extent private junior colleges, in the decade ahead. These issues can be organized and described in four categories: limits to institutional development, changing market conditions, new sources of support, and accountability.
Limits to institutional development. Public community colleges have been criticized in past years for having an unfocused mission–for being "all things to all people." As their mission has expanded to encompass new activities such as workforce development and corporate training, the requirement for resources to support these activities, in addition to a comprehensive battery of current programs and services, has stretched to a breaking point. Where will new and additional resources come from to support an expanding mission? Will contraction be necessary to free up resources for new activities? How will institutions support a comprehensive mission in a period when resources are drying up? Planning will become important to institutions in the future as a method to make better decisions with fewer resources.
Changing market conditions. Shifting economic conditions and resulting impacts on programs and services are a fact of life for community colleges. In forty-three states, state revenues lag behind projections; governors and legislatures in states including California, Florida, Virginia, and Washington are faced with filling budget holes of $1 billion. In most states, deep cuts in state expenditures once again mean higher education is facing a sharp-edged budget ax. Cuts in higher education will be used to balance overall state budgets in the short-term.
Demography will exert further pressure on states. By 2020, the retirement of baby boomers will cause an exodus from the workforce of 46 million workers with at least some postsecondary education. Replacing these workers will be an estimated 49 million new adults with at least some college education–a net gain of 3 million. But this gain of 3 million will not be nearly enough. The Bureau of Labor Statistics projects a 22 percent increase in jobs that will require at least some college by 2008. If the trend holds through 2020, roughly 15 million new jobs that require postsecondary-educated workers will be created. In sum, the nation faces a deficit of approximately 12 million workers with at least some college education by 2020. Community colleges will be expected to address this shortage by providing new and additional programs and services. In a tight economy, however, where will the resources come from to develop and sustain new services?
New sources of support. As state spending for higher education declines in periods of economic recession, new sources of revenue will need to be found or community colleges will face the uncomfortable task of reducing their operating budgets. Many colleges are ill-prepared for budgetary reduction: systems for review of programs and services are not in place, performance information is not available, and the culture of most institutions is focused on growth, not decline. To avoid the trauma of reduction, many colleges will turn to new sources of revenue such as training dollars from the corporate sector and private gifts and grants. Resources in these arenas are historically tight, however, in periods of economic recession. What new sources of support will be available to community colleges to finance growth? When will colleges develop a capability to contract–to grow smaller through program and service reductions–as a method to allocate resources to new programs and services?
Accountability. Community colleges, and colleges and universities in general, have been criticized for performing quite poorly over time in reporting performance and cost information to the public. Legislators are reluctant to provide blank checks to institutions that are not accountable for what they do or how they spend public money. What is the effect of poor or weak reporting systems on institutional credibility? What new standards will elected officials put in place to improve accountability? What steps will institutions take to improve cost and performance reporting in a way that will help the public understand what they do?
What does the future hold for finance in two-year colleges? In the public sector, the long-standing reliance on state appropriations and local tax funds and on student tuition and fees as primary sources of operating income will change dramatically. As economic conditions fluctuate, private sources of revenue will become more important as part of the operating budget. Institutions will seek to establish partnerships as a method for acquiring new revenue and reducing costs.
Community colleges in the twenty-first century will be more complex than their predecessors. At the same time, they will have less mass; many of the functions now handled in-house will be performed through alliances and networks. Shifting market opportunities and continuously evolving external networks will make these organizations dynamic. The power of an institution's "brand" will become increasingly important and new approaches to planning and budgeting will develop around the idea of brand. Budgeting will take on strategic importance as a method for transforming institutions in a turbulent market.
See also: College Financial Aid; Community Colleges; Federal Funds for Higher Education; States and Education, subentry on State Governments in Higher Education.
Alfred, Richard L. 2000. "Assessment as a Strategic Weapon." Community College Journal 70 (4):12–18.
American Association of Community Colleges. 2000. National Profile of Community Colleges: Trends and Statistics, 3rd edition. Washington, DC: American Association of Community Colleges.
Conklin, Kristin. 2002. "After the Tipping Point." Change March/April: 24–29.
National Center for Education Statistics. 1999. College and University Finance Data. Washington, DC: National Center for Education Statistics.
Schmidt, James A. 1999. "Corporate Excellence in the New Millennium." Journal of Business Strategy 20 (6):39–43.
Richard L. Alfred
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