Preserving Access with Excellence:

1. Preserving Access with Excellence: Financing for Rural Community Colleges By Stephen G. Katsinas Don A. Buchholz Chair and Director Bill J. Priest Center for Community College Education

2. Organization of the presentation • INTRODUCTION: ACCESS AND EXCELLENCE • STATE FUNDING: FROM “DOING MORE WITH LESS” TO SIMPLY DOING LESS • FUNDING ISSUES FOR RURAL COMMUNITY COLLEGES: THE STOOL WITH A MISSING LEG •  KEEPING COMMUNITY COLLEGE AFFORDABLE: LOW TUITION AND FINANCIAL AID • RECOMMENDATIONS FOR STATE AND FEDERAL POLICY

3. Introduction: The “Big Picture” 1. State investment in public HIED after Vietnam. Legislative distrust = categorical funding increases and declining operating budgets. • Federal student aid has not kept pace with costs. • A shift in what aid is available, from direct aid to students (grants and work) to loans. • Workforce training did not make up state cuts.

4. STATE FUNDING: FROM “DOING MORE WITH LESS” TO SIMPLY DOING LESS

5. For rural community colleges…a 4-legged stool with a missing leg • In an era of state disinvestment, rural CCs get MUCH less local revenues than their urban and suburban counterparts • States assume funding formulas provide adequate foundation, yet state disinvestment has eroded that base, producing fundamental contradiction • STILL, states, regions, & communities expect MORE from their rural community colleges

6. Respondents from 21 of 29 functioning Statewide (Governors) Human Resource Investment Councils in ’96. *67% agreed community colleges offered a broad array of excellent workforce training programs for recent high school graduates. *63% agreed their state's community colleges a good job of preparing workers with work readiness skills. *83% believed community colleges should provide developmental education *65% believed states should finance dev. education if federal funds cannot *Yet 25%–-a significant minority--were unsure if adequate funding existed to support CC involvement in workforce development, plus other missions.. *And 55%believed funding for CC workforce training was inadequate. Konz, Thomas A. A Study of the Perceptions of Community Colleges of Members of Statewide Human Resource Investment Councils in 22 States. PhD Dissertation, University of Toledo (June, 1997).

7. The two new claimants on state dollars since Vietnam are Medicaid and prisons… • In Ohio, in 1969-71 biennium, elementary and secondary education received 38% of state budget, and higher education received 17%; by 1996 those percentages were 23 and 10%, respectively.[1] • In Oklahoma, for the period 1985-1993, state spending increases on Medicaid averaged 15.5% each year. [2] • Nationally, 300,000 state and federal incarcerated in 1980. By 1990, 700,000; by 2000, 1.2 million. [1]Johnson, J.L, & Katsinas, S.G. (1999). A Study of Higher Education Finance and Outcomes in the Great Lakes States, with Emphasis on Ohio, The Toledo Journal of the Great Lakes. • [2]Katsinas, S.G."Is the Open Door Closing? The Democratizing Role of the Community College in the Post-Cold War Era." in Community College Journal, April/May, 1994.

8. Federal investments in all levels of education declined by 14.4% in constant, inflation-adjusted dollars between 1975 and 1990. SOURCE: U.S. Department of Education, National Center Education Statistic, Federal Support for Education: Fiscal Years 1980 to 1997, NCES 97-383, Washington DC, September 1997, p. 15.

9. While these drivers of new state funds, Medicaid and corrections, are well understood by state leaders in both parties, their massive costs have resulted in significant long-term shifts in state budget policy. These shifts are not well understood by the general population.[3]

10. From doing more with less, to simply doing less… • According to NEA’s 2000-1 survey, when state legislative were asked whether they thought the current level of state funding for higher education in their states was adequate to meet current state needs, over three-quarters of them responded "no." • ...In explanation, many said that the state's economic and workforce development goals have contributed to setting an ambitious agenda for HIED that includes a variety of long-term costly priorities designed to expand capacity and maintain quality in the system as well as to accommodate changing enrollment demands.

11. From doing more with less, to simply doing less… (continued) “…Many legislators also referred to HIED's traditional role as the "budget balancer" as a related issue that has fed their concerns about the level of state funding…Most are well aware that HIED, as the single largest discretionary item of state budgets, has been subject historically to widely fluctuating funding cycles, faring better than other major spending categories in good economic times and disproportionately worse in a downturn. Moreover, even as the total amount of state appropriations for HIED has steadily grown for much of the last decade, the percentage of state general fund budgets allocated to HIED has continued to shrink, from 14% in FY1990 to 11.7% in FY2001.

12. State support for higher education has declined since the Vietnam War In 1996, the report of the Commission on National Investment in Higher Education, "Breaking the Social Contract, the Fiscal Crisis in Higher Education, co-chaired by Joseph L. Dionne, Chair and CEO of McGraw-Hill and Thomas Kean, President of Drew University and former two-term governor of New Jersey, was released: “While both enrollment and costs have increased rapidly over the last two decades, public funding of the [higher education] sector has not kept pace. Total public appropriations to higher education from federal, state, and local sources in real terms--that is, adjusted for inflation--per student (by which we always mean FTE student) relative to 1976. ...public support per student has just kept pace with inflation, but real costs per student have grown by about 40 percent. …In effect, the United States has been underfunding higher education since the mid-1970s.”

13. FUNDING ISSUES FOR RURAL COMMUNITY COLLEGES: THE STOOL WITH A MISSING LEG

14. IN GENERAL…. *Rural community colleges have a much smaller budget base over which to spread program costs. *Rural community colleges have fewer sources of revenue; in general the smaller the college, the lower the amount of local tax appropriations and the greater the dependency upon state funding. *Workforce development programs at rural colleges are a significant but largely stagnant revenue source, and endowments are nearly nonexistent. * Rural community colleges receive significantly lower total funding from tuition and fees

15. Enrollment Rises as % of State Funding Drops (expressed in 1997 dollars) Small Medium Large FY93 FY97FY93 FY97FY93 FY97 State 49% 44% 43% 42% 38% 37% Local 4 4 9 8 13 13 Tuition/Fees 18 18 18 19 20 19 Workforce Dev. 21% 24% 20% 20% 21% 21% Federal 1 1 1 1 - - Unrestricted & Other 7% 10% 9% 10% 8% 11% TOTAL: 100% 100% 100% 100% 100% 100%   FTE, FY93-FY97 +13% +3% +1% Average Total Budget in Dollars, and Percentage Distribution of Sources of Revenue at Community Colleges, FY 1998

16. Average Total Budget in Dollars, and Percentage Distribution of Sources of Revenue at Community Colleges, FY 1998 Number, Average CollegesTotal Budget RURAL Small (<1,000) 121 $ 5,148,867 • Medium (1-1,500) 227 11,600,196 • Large (>1,500) 270 24,809,916 Sub-total 618 16,101,839 SUBURBAN Single Campus 137 35,125,948 Multi-Campus 57 29,401,431 Sub-Total 194 URBAN Single Campus 47 37,858,577 • Multi-Campus 115 47,958,842 • Sub-Total: 162

17. Average Total Budget in Dollars, and Percentage Distribution of Sources of Revenueat Community Colleges, FY 1998 • Tuition Work- Endow- Sales • & force ment & Auxi- • State Local Fees Dev’ment Income Services liary Other RURAL • Small 45% 4% 17% 25% – 1% 6% 2% • Medium 42 8 19 21 – 1 7 2 • Large 37 12 19 21 – 1 6 3 SU SUBURBAN • Single 31 22 22 16 – 1 6 3 • Multi- 32 20 24 15 – – 6 4 • URBAN • Single 42 8 25 18 – 1 4 3 • Multi- 36 18 20 19 – 1 4 3

18. What do fewer revenue streams in practice for rural community colleges? • Vulnerability to Economic Downturns • Less venture capital for new programs • State Workforce Policies Don’t Match Rural Needs • Effect of Low-Wealth Tax Districts • Operating Costs are Higher at Rural Community Colleges • Technology Programs Are Often Unaffordable for Rural Colleges

19. 1. Vulnerability to Economic Downturns • Since state funding is more important to rural community colleges, by definition if state funding goes down, rural community colleges hurt. Welfare, unemployment compensation, and K-12 have higher claims on scarce state funds than higher education and community colleges. RESULT: SINCE ENROLLMENTS RISE IN RECESSIONS, RURAL COMMUNITY COLLEGES LACK THE FINANCIAL FLEXIBILITY TO RESPOND AT THE PRECISE TIME THEIR COMMUNITIES NEED THEM TO “RETOOL” THEIR PROGRAMS AND SERVICES.

20. 2. Less venture capital for new programs means a fundamentally different way of doing business for rural community colleges. • At larger suburban & urban CCs, expensive high-tech programs can be launched with part-time faculty. Leaders can see if new programs take root before committing funds to hire permanent faculty. At rural CCs, however, adjunct pool is small or non-existent. RESULT: IN TERMS OF DEVELOPING CURRICULUM RURAL COMMUNITY COLLEGES PLAY “FIELD OF DREAMS” (BUILD IT AND THEY WILL COME) EVERY TIME. YET STATE POLICY ASSUMES AN URBAN/SUBURBAN CONTEXT, WITH LOWER UP-FRONT ENTRY COSTS FOR NEW PROGRAMS.

21. 2. A fundamentally different way of doing business for rural community colleges (continued) Culturally, the rural context is different…when rural CC presidents and deans hire new faculty and staff, they ask people to join a community. In these more isolated communities, the rural CC is often only employer that pays at that skill level. RESULT: RURAL CCS CANNOT EASILY LAY PEOPLE OFF JUST BECAUSE A RECESSION OCCURS, BECAUSE THEY WILL NEED SKILLED FACULTY AND STAFF WHEN RECESSION ENDS, AND GOOD STAFF ARE HARDER TO FIND.

22. 2. A fundamentally different way of doing business for rural community colleges (continued) At rural community colleges, leaders must make programmatic choices carefully, against the backdrop of an unforgiving budgetary climate. If a high-tech grant opportunity appears, the rural CC leader must always ask “Can we cover the costs for staff when the grant funding runs out?” RESULT: THE GENERAL EFFECT IS TO PROMOTE EXTREME BUDGET CONSERVATISM IN PLANNING NEW PROGRAMS.

23. 3. State Workforce Policies Don’t Match Rural Needs • Poorly meshed state/federal workforce training policy only makes matters worse for rural CCs. Each program requires a state plan for expenditure be submitted to the appropriate federal agency. State planners assume that maps match, but in rural areas, they don’t. RESULT: “TURFISM” LESSENS ABILITY OF RURAL CCs IN ACHIEVEMENT OF STATE ECONOMIC DEVELOPMENT GOALS GENERALLY, AND WELFARE-TO-WORK, ADULT LITERACY, AND WORKFORCE TRAINING SPECIFICALLY.

24. 3. State workforce policies don’t match rural needs (continued) • Unless consistency in geographic service areas exists across all workforce programs—which rarely occurs--rural CCs with 5 counties might have 2 or 3 workforce investment councils…on top of county, region, and state job training, welfare, and literacy agencies…& city, county, and regional economic development authorities • RESULT: INABILITY OF STATES TO ASSIGN COMMON SERVICE AREAS ACROSS ALL PROGRAMS CREATES FRAGMENTATION, REDUCING INCENTIVES FOR RURAL CCs TO BE ACTIVE IN ECONOMIC DEVELOPMENT.

25. 3. State workforce policies don’t match rural needs • For rural CCs serving economically depressed areas--which themselves are challenged by smaller economies of scale—mismatched policies make it all the more difficult to provide access to continuous training and lifelong learning programs and services that rural Americans need. • RESULT: THE LACK OF ECONOMIES OF SCALE IN HIGHER EDUCATION FUNDING IS MIRRORED IN STATE WORKFORCE TRAINING POLICIES, YET RURAL CCs HAVE NOT CHOICE BUT TO WORK WITH THE MISMATCHED POLICIES AND PROGRAMS

26. 3. State workforce policies don’t match rural needs (continued) • Often, policy and program practice for adult literacy, welfare-to-work, and job training programs assume an urban context. In no area is this more consistently prevalent than as it relates to transportation accessibility. RESULT: MOST STATE WORKFORCE POLICIES ASSUME AN URBAN CONTEXT, YET PUBLICLY SUBSIDIZED MASS TRANSPORTATION SERVICES DO NOT EXIST IN THEIR RURAL AREAS.

27. In 1973, John Lombardi, Chancellor of LACCD wrote "slowly but surely, CCs are becoming dispensers of social welfare.” • The evidence is limited and mixed as to impacts of economic investments in the community college as a social service agency. James Palmer observed “The desired advantages of these funding arrangements (for social agency programs) may not be realized if hidden costs remain unrecognized in funding mechanisms. These costs are incurred through the paperwork burden of government contracts, the strictures within legislative mandates that impede responsiveness to local needs, and the tendency to involve colleges in noneducative work for which the institution may be ill suited. ...Although colleges must remain accountable, there is a point at which staff investment in paperwork endangers program effectiveness. There is also a point at which legislative strictures diminish college responsiveness to local needs. This responsiveness will be endangered to the extent that funding is tied to specific, centrally prescribed actions rather than to desired outcomes.

28. 4. Effect of Low-Wealth Tax Districts • Combination of political realities & environmental and geographically-related conditions not found in urban and suburban CCs explains low tax rural CC districts. Many state CC enabling laws were based upon flawed assumptions, assumptions that 40 years of practice have only magnified. TX, OH, MS are all examples of this. RESULT: LOWER ABILITY OF RURAL CCs TO PROVIDE BOTH ACCESS AND ECONOMIC. DEV.

29. 4. Low-Wealth Tax Districts (continued) • The 90 rural community colleges that serve the 319 most economically distressed counties are severely challenged. For them and for presidents and boards of the other 400 small- and medium-sized community colleges in rural America, infuriating local voters to tax themselves when the financial payoff is so low is not politically viable. In sharp contrast, a levy of only half a mil in 1994 to support the 10 campuses of the Maricopa Community College District produced $394 million in new revenue.

30. A 1999 national survey of rural CC presidents revealed… • 66% agreed with the statement, "My state's funding process doesn't recognize higher costs of 'doing business' (just opening the door) at rural community colleges." RESULT: Given their much lower local assessed property valuations, rural CCs operate without a key funding stream. Here state policy can make a critically important difference, and investment is justified if the rural CC is to become a full partner in economic development & access capacity building activities for rural areas of the states.

31. 5. Operating costs are higher at rural community colleges • Rural community colleges – especially smaller institutions with enrollments below 2,500 -- have higher expenditures per full-time students than suburban or urban community colleges. These greater diseconomies of scale are consistent with a long line of work in the area of higher education finance by experts Howard R. Bowen and Kent D. Halstead in the 1960s and 1970s. BUT SUCH DISECONOMIES OF SCALE ARE RARELY REFLECTED IN STATE POLICY DEVELOPMENT OR FUNDING

32. 5. Operating costs are higher at rural community colleges (continued) A 1999 national survey of rural community college presidents revealed that 66% agreed with the statement, "My state's funding process doesn't recognize higher costs of 'doing business' (just opening the door) at rural community colleges." RESULT: Given their much lower local assessed property valuations, rural CCs operate without a key funding stream. States can promote equity by creating tiers of per-FTE funding for small, rural colleges, particularly for institutions with less than 2,500 FTE students.

33. Financially, rural community colleges are four legged stools with missing legs Several states have some provisions in their funding systems to reduce discrepancies, but most are not substantial enough to get the job done, or only cover one small area of the total funding picture. It is worth noting here that no state holds small, rural CCs to any lesser standard in meeting the myriad of state rules, procedures, and accountability standards.

34. Financially, rural community colleges are four legged stools with missing legs In state after state, the ability of CCs to make a difference in both access and economic development is tied to a) access to a strong local property tax base, and b) the willingness of local voters to tax themselves. As CC missions have been broadened, the higher costs of just opening the door and hidden costs of meeting diverse state policy objectives--most notably in the economic development arena--are not reflected in state budgeting for rural CC operating budgets.

35. 6. Technology Programs Are Often Unaffordable for Rural Colleges. • Over 50% of rural CC CEOs in 4/99 national survey agreed with statement, "My state's funding formula promotes high volume, low cost academic programs for rural areas, not lower volume, higher cost technology-oriented programs." Many state funding formulae have no gradients of cost for expensive allied health, nursing, & eng tech programs, and CCs run high cost programs as “loss leaders.” RESULT: But with a much lower budget base to spread costs over, rural CCs must offer a much more limited curriculum. They cannot afford loss leaders, period.

36. 6. Technology Programs Are Often Unaffordable for Rural Colleges (continued). Similarly, rural colleges are hard-pressed to keep up-to-date on information technology. Said one rural community college dean of instruction, "When it comes to instructional technology, we are in an arms race we are destined to lose." Software firms will look to large, multi-campus community colleges for test sites for new product development; they don’t look to partner with small, rural community colleges like us."

37. 6. Technology Programs Are Often Unaffordable for Rural Colleges (continued). Yet high cost programs are often highest in demand, and produce the best prospects of high wages upon graduation. Rosenfeld and others have argued that such programs are key to assisting with economic development in depressed rural areas.

38. Why rural CCs matter…a great deal If state and federal policies are to ameliorate persistently low adult educational attainment rates in rural America, the rural CC’s capacity to provide access and economic development is of critical importance. Data from Thomas Mortensen reveal a purchasing power decline of nearly 30% for persons with less than a high school diploma, adjusted for inflation, between 1979 and 1997.[2] The premium for college attendance has never been greater, yet Census Bureau data show persistently lower rates of adult educational attainment (and therefore, lifetime earnings) among adults from rural, when compared to urban and suburban areas.

39. Yet the rural community college—long one of the most important institutions in rural America—is clearly the most important institutionwhen it comes to providing access for adults to lifelong learning. How does a regional economy provide computer literacy services on a mass basis to an entire workforce? This is not the role of the land-grant universities with their focus on research and discovery, nor is it the mission of the great regional universities that grew from teacher’s colleges with their contributions of teaching. It is the function of the multi—purpose comprehensive community college. And in rural America, where small manufacturing entities are key to rural development, it is the rural community college that must provide leadership in delivering lifelong learning, both for traditional transfer and career education.

40. In summary…. • At a time when states need their CCs to be doing more to reach ever more people, to leave no one behind, state funding for CCs is at best flat, even though enrollments grow ever larger. • Rural America has traditionally suffered from lower rates of adult educational attainment, necessitating greater outreach by rural community colleges to the elementary and secondary educational systems. Will the funds be there to do this critically important work, on top of access to baccalaureate transfer and lifelong learning/workforce training?

41.  KEEPING COMMUNITY COLLEGE AFFORDABLE: LOW TUITION AND FINANCIAL AID

42. Federal student aid & rural CCs: Reinforcing inequities • Hope Scholarships reimburse students for up to $1,500 a year–about the average of CC tuition nationally in 1996. However, this tax credit is designed for middle-income students--one must generate income to take a tax deduction (students or their families must have taxable incomes in excess of $1,500 AND cash on hand for tuition, only to get reimbursed by Uncle Sam later on). RESULT: For poor students and families, each new paperwork and financial hurdle to be crossed eliminates opportunity.

43. Average Awards of Federal Direct Student Aid Grants (Pell, SEOG & SSIG) for Undergraduate Students, 1996 1994 Carnegie Income of <$30,000 Income of $30-60,000 Classification AwardPercentageAwardPercentage Research Universities Private $ 2,808 49% $ 1,423 13% Public $ 2,005 55% $ 1,090 10% Doctoral Universities Private $ 2,352 59% $ 1,352 13% Public $ 1,754 57% $ 1,141 11% Comprehensive U’s Private $ 2,235 62% $ 1,438 N/A Public $ 1,875 60% $ 1,438 12% Baccalaureate C&U’s Private $ 2,337 74% $ 1,357 18% Public $ 1,684 58% $ 1,198 10% Associate of Arts Colleges Private, Non-Profit $ 1,846 65% $ 1,170 17% Private, For-Profit $ 1,590 73% $ 1,010 12% Public $ 1,567 34% $ 941 5%

44. What accounts for these striking differences in federal student aid? • First, federal policy typically assumes dependent students attending 4-year institutions live on-campus; that same policy assumes CC students live at home. • Second, federal policy assumes students live on campus, and don’t need transportation (because of availability of mass transit, which is non-existent in rural areas). • Third, federal policies assumes students attend full-time. Yet 60% of all US CC enrollments are part-time students. Thus, the poorest students clustered at public CCs receive the smallest dollar amounts of direct federal grant aid.

45. The result: Inequity! • Only 34% of community college students receive grant aid, compared to 65% for private-for-profit two-year institutions, and 74% for students attending private for-profit four-year institutions like the University of Phoenix. Put differently, federal direct grant support has promoted an individual benefits as opposed to a social benefits model, and does not promote equity.

46. Built-in advantages for private institutions (particularly for-profit), over CCs • Public institutions cannot discount their published tuition and fee charges, while private colleges can. This is why 34% of students attending public CCs receive direct grant aid, compared to 65% at 2-year for-profit and 74% at 2-year non-profit. • Tuition policy at public colleges and universities is set by public boards of trustees influenced heavily by state policy. Private tuition is heavily influenced by aggressive admissions officers who discount tuition as a matter of course.

47. High tuition/high aid doesn’t work at the federal or state levels. The emphasis on choice (tax credits and loans) as opposed to direct grant aid (Pell and SEOG) by the federal gov’t has promoted higher tuition at public universities and CCs at the state level. The heart of the “high tuition/high aid” model is that the primary benefits of higher education accrue to the individual, therefore individuals should pay all or nearly all costs for benefits received. Increased tax credits and loans favor higher income students served by public flagships like U of N Carolina, not institutions that serve large numbers of first-generation-in-college students like Appalachian State University or rural CCs.

48. High tuition/high aid doesn’t work at the federal or state levels (con’t). The federal emphasis away from direct aid (Pell and SEOG) toward loans has encouraged state policymakers to raise tuition to “recapture” federal funds, not unlike coming up with the 10% match for an interstate highway project. The problem of mismatched state policies to promote access combined with federal high tuition policy is magnified when states increase tuition on an across-the-board basis, which does not take into the very different type of financial background of students served by different institutions.

49. High tuition/high aid comes to states… • States increasingly invest in need-based and merit-based direct student aid programs, not low tuition and investing in public college and university operating budgets to make college accessible to all. In 1976-77, state direct student aid grant funds accounted for 4.8 percent of all state HIED appropriations; by 1997-98, it was 6.6 percent, and higher still in NE and upper midwestern states. Alexander found average award for state direct aid grants for dependent undergraduate students attending CCs was $995, compared to $2,075 for students attending private, non-profit and $2,279 for students attending private, for-profit institutions.

50. State inequities…. • Alexander and Hines (2001) found 31% of students receiving state direct student aid in Illinois attended CCs, but they received just 12% of funding. In other words, despite having nearly one-third of the students receiving state direct student aid in Illinois, public CC students only received $45 million of the nearly $400 million allocated to student aid programs through the Illinois State Scholarship Program. RESULT: These important fiscal disparities emphasize the significant role tuition and fees play in government allocations of direct student aid resources. By tying aid to tuition, Pell Grants and state direct grant aid programs are not tied to real needs of students.