State Economic Conditions and Finances: Risk and Reward for Colleges and Universities

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The condition of states' economies and thus their budgets is a topic not often likely to be among the foremost concerns of admissions, registration, and enrollment management professionals at colleges and universities. State economic and fiscal issues, however, deserve at least some measure and understanding by these professionals. They are significant for public colleges and universities because appropriations for institutions constitute the largest single discretionary items in state budgets. For private colleges and universities, needed revenue via state grant and scholarship programs is also generated from the public purse. Nearly all of this funding depends on the vitality of the states' economies and revenue/budget structures.

As the higher education market becomes increasingly competitive, the ability of institutions to read the fiscal environment and take appropriate action will only grow in importance. Accordingly, the better equipped admissions and enrollment management professionals are to do this environmental scanning, the better prepared they will be to help their presidents and chancellors to respond quickly to changes in that environment.

Overview

The federal government and state governments are clearly enjoying the strongest economic conditions in history. The federal budget, awash in red ink less than a decade ago, is expected to have a surplus of more than $1 trillion during the coming decade. The story at the statehouse level is similar, with lawmakers arguing over how to give money back to their constituents instead of agonizing over how to slash their programs.

Amid all the good news, however, there is reason to be watchful. The unfolding economy has so far been one of prosperity, but it is also one of uncertainty. Analysts cannot offer assurances of economic performance based on precedent simply because there is no precedent-we have not yet experienced a full economic cycle in an information-driven economy. Additionally, there is evidence that the economy is cooling, and that state policymakers are taking their cue from that by scaling back tax cuts and spending increases. For some states, the slowing has been abrupt, such that the good times may in fact be over. Finally, the changing structure of the economy and shifting demographics of the population pose potentially serious challenges for states' revenue systems, and thus their spending patterns. For many campus and state policymakers, the year ahead will be a time for cautious optimism.

The Economy One Day At A Time

In 2000, the nation's economy officially entered the longest expansion in its history. At this unprecedented point, the great unknown is whether, to what extent, or how quickly the economy will retreat from its historic growth pattern. A September 2000 report by the Federal Reserve indicated that while economic activity has expanded at a moderate pace in recent months, growth is slowing in some regions.

Below the national level, the growth pattern of the past year has paralleled that of preceding years, with significant growth in the West and Southwest and weaker performance in the nation's mid-section. What most states hold in common, though, is the expectation of slowing growth over the next two years.

* The Gross Domestic Product (GDP)-the output of goods and services produced by labor and property located in the United States-grew at an annual rate of 5.6 percent in the second quarter of 2000. This represents an increase from the 4.8 percent growth rate posted in the first quarter of the year, but also represents a slowing from the rates posted in the final two quarters of 1999.

* Rising inflation may also help to put the brakes on the record expansion. The Consumer Price Index rose 3.5 percent from September 1999 to September 2000, which represents a significant increase over previous 12-month periods. Increased energy prices are being blamed in large part for the rise. …