As Some States Confront Budget Shortfalls, A Mixed Picture for FY2018 Budgets — and Higher Education Funding — Emerges

By Dylan Opalich

As 2017 legislative sessions draw near, governors around the country are announcing their budget and policy priorities for fiscal year (FY) 2018. While the national economic news has been positive in recent days, overall state revenue growth this year has been sluggish due to weak performance in state income and sales tax collections. The sharpest revenue declines are in states that rely on taxes from natural resource extraction. Several states are already predicting budget deficits for the current fiscal year and forecast difficult decisions that will need to be made regarding the FY 2018 budget.

Current fiscal year budgets increased funding for higher education in many states, with many of these states requiring campuses and systems to freeze tuition or cap tuition increases in order to receive additional funding. State leaders have directed new revenue to specialized purposes, such as workforce development programs, while others distribute new revenue based on an outcomes formula. Although these trends will likely continue, some state leaders have already outlined cuts for higher education in the next legislative session, while deficits loom in other states that could have serious ramifications for higher education funding. While the condition of many state budgets remains unclear, Arkansas, Colorado, Connecticut, Florida, Illinois, Kansas, Louisiana, Massachusetts, New Mexico, Oklahoma, Texas, Virginia, West Virginia, and Wyoming are among the states that have released information on their budget dynamics this fall.

Arkansas: On November 1, Gov. Asa Hutchinson (R) proposed increasing higher education funding by $10 million in the 2018–19 fiscal year if legislators approve his outcomes-based higher education funding plan. If this materializes, it would be the first funding increase for public higher education in Arkansas in 20 years. In the meantime, Hutchinson has proposed flat funding for the fiscal year that begins July 1, 2017.

Colorado: Despite state budgetary challenges, Gov. John Hickenlooper (D) has proposed a state budget that increases general fund investment in higher education by 3.1 percent, or $27 million, in his fiscal year 2017–18 budget. The budget plan seeks to moderate tuition increases, which the governor’s office expects to be around 6 percent statewide.

Connecticut: In a monthly update on Connecticut’s fiscal health, Governor Dannel Malloy (D)’s comptroller announced a projected budget deficit of $42 million for the current fiscal year. According to news reports, analysts estimate that the state is facing a combined deficit of $3 billion in the next two-year budget cycle. The governor’s team will release a fiscal plan for the state in February 2017. No official word on how this might affect higher education.

Florida: Governor Rick Scott (R) has not yet released his budget for the next fiscal year, however; he did pledge more funding for higher education during a speech to Florida’s university leaders on November 2. Scott, a former healthcare executive, challenged the audience to act more like private executives in finding ways to cut costs by examining contracts for efficiency and refurbishing old buildings rather than building new ones. He also wants to avoid tuition increases. According to Florida economists, a $1.3 billion state budget deficit looms for 2018, which could influence policy priorities in the next legislative session.

Illinois: Illinois has a $9 billion state budget deficit. The state had nearly a year-long standoff on its higher education budget that ultimately resulted in substantial budget cuts for public colleges and universities. The state’s sizable budget deficit will loom large as lawmakers prepare for the next legislative session.

Kansas: Kansas continues to struggle with budget deficits. The state missed budget projections by $12.7 million in October, and a $75 million budget gap has accumulated thus far for their current budget year.

Louisiana: For the last few months, Governor John Bel Edwards (D) has been anticipating a budget deficit around $200–300 million; last week, officials estimated the shortfall to be around $313 million. There have already been cuts to public higher education, including an $87.8 million cut to the TOPS scholarship program. Historically, TOPS covered all of student tuition, but the state will only fund 47 percent for next semester. State officials are asking agencies to prepare for budget reductions between seven and 10 percent.

Massachusetts: Governor Charlie Baker (R) and his administration are facing a budget deficit of $294 million due to weak sales tax revenue. The governor’s administration is using spending reductions and voluntary buyouts for state government employees as mechanisms in a plan that could reduce executive branch spending by nearly one percent of total spending.

New Mexico: New Mexico is experiencing a formidable budget situation due to the sharp declines in oil and natural gas prices. Although there have not been any formal announcements about the budget for fiscal year 18, a recent special legislative session led Governor Susana Martinez (R) to sign a bill that included a five percent budget cut for higher education funding. Next year’s legislative session begins in January and some are expecting further cuts to higher education.

Oklahoma: Earlier this year, Oklahoma made deep budget cuts to higher education to close a budget deficit. Due to depressed oil prices, the state treasurer predicts another budget shortfall, which a state representative has forecasted to be between $600 million and $800 million.

Texas: Earlier in the year, Governor Greg Abbott (R) and state leaders announced that public agencies were to cut their budgets by four percent for 2018 and 2019. While the state officials believe they have set aside enough funds to cover any shortfalls in the current budget, the upcoming budget session will require state lawmakers to make difficult budget choices.

Virginia: Governor Terry McAuliffe (D) notified Virginia’s public colleges and universities that they should prepare for a 7.5 percent reduction in their appropriations for the next fiscal year. The state is struggling with closing a $1.48 billion shortfall and asking the public institutions to make the necessary savings plans without increasing tuition and fees beyond the rate that was proposed in the institution’s six-year plan. McAuliffe will introduce his proposed budget next month, which will detail the cuts.

West Virginia: West Virginia’s deficit has grown to $87.9 million — similar to last year’s shortfall at this time in the fiscal year — but officials do not expect the deficit to match last year’s $262 million shortfall.

Wyoming: Wyoming has a $156.6 million budget gap for the current budget cycle, and Governor Matt Mead (R) has called on state legislators to use a portion of the state rainy day fund to fill the budget gap. The University of Wyoming is experiencing its own budget constraints due to reductions in state funding. As a result, the university eliminated more than 100 staff and faculty positions this year and has proposed further cuts in staff and faculty for the upcoming year.

Dylan Opalich is the assistant director of state relations and policy analysis at the American Association of State Colleges and Universities