Funding Forecast

U.S. states will have difficulty getting state funding if the growth of the labor market continues to slow and the costs of Medicaid continue to rise, according to a new study.
A new study predicts that individual states in the U.S. will have difficulty securing more state funding if the growth of the labor market continues to slow and the costs of Medicaid continue to rise. “Crowded Out: The Outlook for State Higher Education Spending,” was released by the National Commission on Financing 21st Century Higher Education, which is directed by Ray Scheppach, an economic fellow at the Miller Center at the University of Virginia in Charlottesville. The commission contracted with Moody’s Analytics to project state-by-state spending from 2014 to 2024.

The study notes that over the past several decades, the growth in state funding for discretionary spending categories has been squeezed at an alarming rate. Mandatory spending programs are requiring more and more state funds, leaving fewer dollars for other programs. Medicaid spending, for example, was less than 10 percent of state-sourced spending 30 years ago, but today accounts for nearly 16 percent. Taking all funding sources into account, Medicaid has grown to more than a quarter of total state spending.

At the same time, higher education has fallen from around 14 percent of state-sourced spending in the late 1980s to just under 13 percent today. “Our baseline forecasts show that trend continuing throughout the next decade and beyond,” the report notes.

Over the next year, the National Commission on Financing 21stCentury Higher Education will develop and propose new funding models that will expand access to post-secondary education. The work will identify new public investment and partnership strategies that can generate greater private investments; it also will suggest ways to realign current incentives to reduce costs and enhance graduation rates.

The results of the “Crowded Out” study can be found at web1.millercenter.org/commissions/higher-ed/2015-higherEdFunding-Moodys.pdf.