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Overview of the structure of postsecondary education in the U.S. Types of postsecondary institutions –Public and private (non-for-profit or profit) 2-year colleges 4-year colleges (Research, Comprehensive, Liberal Arts) Outputs (degrees, research, service) Revenues (endowment, tuition, grants and patents, community-collaboration) Revenue and output are not connected
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The Economics of Higher Education
Tatiana MelguizoAssistant Professor
University of Southern California
Sao Paolo – BRAZIL International Seminar
April 6-8, 2010
Outline
• Overview of the Structure of Higher Education in the U.S.
• The California Master Plan
• Community College Funding
Overview of the structure of postsecondary education in the U.S.
• Types of postsecondary institutions– Public and private (non-for-profit or profit)
• 2-year colleges• 4-year colleges (Research, Comprehensive,
Liberal Arts)• Outputs (degrees, research, service)• Revenues (endowment, tuition, grants and
patents, community-collaboration)• Revenue and output are not connected
Expenditures and Enrollment• Total expenditure in education is about $200
billion or 3 percent of Gross Domestic Product (GDP).
• Total fall enrollment (2007) graduate and undergraduate students about $18.7 million (US DOE, 2009).
• Total number of public and non-for-profit private institutions about 6,680 (US DOE, 2009).– Public 2,028 (13.5 million)– Private non-for-profit 1,864 (3.6 million)– Private for-profit 2,788 (1.4 million)
High tuition- High aid• High tuition – High aid model (efficiency and equity)
– Traditional public finance theory argues that public goods that consumers will buy in the absence of subsidy is inefficient use of public tax dollars
– Tax dollars should be distributed by need• Un-intended consequences
– Diminish quality of public institutions– Decrease enrollment of students in public four-year– Not guarantee high aid– Deny the appropriateness of higher education for the
public good
x
The Flow of Funds
EconomyAvailable
State and Local Govt. Funds
FederalGovernment
DonorsFoundationsCorporations
Tax Policy
Appropriations/GrantsStudent Aid
Tuition
Scholarships &Waivers
Research and Other Grants (Restricted)Student Aid (Restricted)
Gifts
Income
••••
K-12CorrectionsHealth CareOther Govt.
Higher Education
Students Institutions
CALIFORNIA
California Master Plan
• California Master Plan in 1960 created a three-tier system– University of California (UC) (10 campuses)– California State University (CSU) (23
campuses)– California Community College (CCC) (110
colleges)
California Community Colleges
• The CCC are a about $7 billion enterprise serving about 1.7 million students
• They are open access• They are inexpensive compared to other two-
year public colleges in the country• The CCC serves a substantial majority of African
American and Latino students – 39% Latinos in CCC compared to 19% UC– 9% African American in CCC compared to 4% UC
CCC serve the majority of the students in the state
Full-time-equivalent students in California Higher Education, 1970-08
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1970-71
1972-73
1974-75
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
Year
Num
ber UC
CSU
CCC
The CCC has the lowest expenditure per student, FTES
State and Local Revenue per FTES for California Higher Education, 1970-2008
0
5,000
10,000
15,000
20,000
25,000
1970
-71
1972
-73
1974
-75
1976
-77
1978
-79
1980
-81
1982
-83
1984
-85
1986
-87
1988
-89
1990
-91
1992
-93
1994
-95
1996
-97
1998
-99
2000
-01
2002
-03
2004
-05
2006
-07
2008
-09
UC
CSU
CCC
The funding for CCC has remained constant in the last forty years
State and Local Revenues for California Higher Education, 1970-2008
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1970
-71
1972
-73
1974
-75
1976
-77
1978
-79
1980
-81
1982
-83
1984
-85
1986
-87
1988
-89
1990
-91
1992
-93
1994
-95
1996
-97
1998
-99
2000
-01
2002
-03
2004
-05
2006
-07
2008
-09
Year
Cons
tant
dol
lars
200
8
UC
CSU
CCC
They are inexpensive
Two-year CollegesAverage Undergraduate Student Costs, Fifty State Comparison 2007-08
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000
2007-08
CCC serve a large percentage of racial/ethnic minorities
Enrollment by Race and Ethnicity, 2006-2008
36.08
3.93
18.7
33.69
11.17 8.78
38.4634.65
05
1015202530354045
Asian/PacificIslander
Black Latino White
Perc
ent
UC
CSU
CCC
Sources of Revenue
• Two main sources that account for about 75% of the revenue:– State general fund (about 45%)– Local property taxes (about 30%)
• The other 25% comes from:– Student enrollment fees– Lottery– Other– Federal
CCC System Sources of Revenue, 2007-08
Source: California Community College Chancellor's Office (2008)
CCC District General Fund Revenues, 2007-08
3%
58%
39%
Federal State Local
Regulations
• Proposition 13 (1978) (That year the revenues went from 66% to less than 20%)
• Proposition 98 (1988) Guarantees funding for K-14
• Accountability Reporting for the Community Colleges (2007)
How do the state allocate resources to districts?
• The districts receive funds based on a Full-Time Equivalent Student (FTES)– FTES for standard full-term courses(Census enrollment)x(15)x(17.5) 525– The state funding for FTES in 2008/09 was
$4,564.83– The state uses Program Based Funding
(PBS)
The current funding for CCC is inadequate and unequal
• The formula was designed to produce adequate levels of funding and reduce funding inequalities. In reality it has failed to do so.
• The current funding is not adequate:– The state average funding level is about half of what
the state deems appropriate. The “percentage of standard” in 2002-02 was 54.2% statewide. For example: The stated FTES in that year was $4,472 but the average rate received was $2,424
• The current funding is not equal:– The funding shortfall does not affect all districts
equally, leading to inequalities in the system
Negative incentives of PBF• Districts do not invest in high cost programs (i.e.,
nursing).• The incentive is to expand low-cost programs (i.e., large
credit classes with part-time adjuncts).• Districts don’t have incentives to provide non-credit
courses such as English as a Second Language (ESL) and GED, if it is at the expense of the credit courses.
• The scale factor increases inequalities. The smallest districts received a boost of 25% in their program allotment. Those small but close to the cut-off the increase was 0.8%
Summary
• The funding structure of higher education has important implications on the mission of postsecondary institutions
• Institutions need to be market savvy and mission centered (Zemsky, 2004)
• The economic crisis and global pressures are re-shaping institutions. Institutions need to adapt if they want to survive in this permanent changing world.
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