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Chapter 7
Expenditures of Institutions of Higher Education
The steady growth in higher education expenditures during the 1980s and 1990s is expected to continue throughout the early 2000s and beyond, with total current fund expenditures projected to increase 50 percent from 1995-96 to 2009-10 in constant dollars. (Note that all percent changes presented in this chapter were calculated using unrounded numbers.) Key assumptions behind these projections include: (1) the economy continues to grow at a steady rate; (2) inflation rates remain near current levels; (3) and enrollments increase as in the middle alternative projections presented in chapter 3. Projections based on alternative economic scenarios are discussed below.
Two different ways of categorizing expenditures-current-fund expenditures and educational and general expenditures-are examined. Educational and general expenditures consist of those current-fund expenditures that are for activities that are directly related to the education of students. Expenditures for such activities as auxiliary enterprises, e.g. student dormitories, cafeterias, and bookstores, and university hospitals are excluded from educational and general expenditures but are included in total current-fund expenditures. All expenditure data have been adjusted for inflation. Since the historical trends and the projections of current-fund expenditures and educational and general expenditures have similar patterns, emphasis is given to the broader, more inclusive measure, current-fund expenditures.
Projections are presented for public institutions and for the sum of public and private institutions. (Private institutions include both not-for-profit institutions and for-profit institutions.) Detailed projections are not presented separately for private 4-year and 2-year instiutions. This is because private institutions are in the process of going from one accounting model for reporting to another and there is not enough data to model with the new accounting method. This change will affect revenues and expenditures of private institutions beginning with data for 1996-97. The new model measures economic changes while the old accounting model measured financial flows and the terms current-fund expenditures and educational and general expenditures are not used in the new accounting model for private institutions. In theory cross-walks could be developed to transform data from one accounting model to another. However, this would require the collection of detailed financial data and would be an extremely costly endeavor. Instead, the cross-walks that have been developed to transform the finance data under the old accounting model into the new accounting model and visa versa, use only the data that IPEDS collects. As a result these cross-walks are only approximations to the theoretical cross-walks which would require the collection of much more data to produce precise cross-walks. The precision of the cross-walks developed is unknown because no study has been undertaken to collect the data needed to determine their precision. New accounting standards for public institutions have also been issued. Their adoption by the vast majority of public colleges and universities will be for the first fiscal year after June 15, 2001.
There are many factors that may affect future higher education expenditures that were not considered in the production of the projections presented in this chapter. Projections of expenditures of institutions of higher education that have been produced over the last seven years are generally less accurate than the recent NCES projections of public elementary and secondary enrollment, public high school graduates, and classroom teachers. They are more accurate than the recent NCES projections of higher education enrollment, earned degrees, and teacher salaries. They are of similar accuracy to recent NCES projections of current expenditures in elementary and secondary schools.
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Past Trends
Following a well-established trend, current-fund expenditures have increased significantly since 1984-85 (table 46 and figure 60). In real terms, current-fund expenditures increased 45 percent from 1984-85 to 1995-96. (At the time these projections were produced, 1995-96 was the last year for which there were actual data.) The rate of increase in current-fund expenditures during this period has not been consistent, with some years of rapid growth and others of slow growth. Factors that are associated with current-fund expenditures during these periods include: (1) the economy as a whole, and, for public institutions, the economic situation of state and local governments; (2) the inflation rate; and (3) enrollments (table A6.1).
The greatest increases in current-fund expenditures occurred from 1984-85 to 1986-87, when current-fund expenditures rose 12 percent.
The 29 percent increase that occurred from 1986-87 to 1995-96 was partly due to the rapid increase in enrollments that occurred during that time. The number of students as measured by full-time-equivalent enrollment rose 14 percent. From 1984-85 to 1986-87, full-time-equivalent enrollment increased 1 percent.
While current-fund expenditures in both public and private institutions rose, they did not rise at the same rate. From 1984-85 to 1995-96, current-fund expenditures, measured in constant dollars, increased 40 percent in public institutions and 53 percent in private institutions (table 46).
For the period under examination, educational and general expenditures have been an almost constant percentage of current-fund expenditures (increasing from 78 percent in 1984-85 to 79 percent in 1995-96). Hence, the trend for educational and general expenditures is similar to that for current-fund expenditures (table 47 and figure 61). Total educational and general expenditures in constant dollars increased 47 percent from 1984-85 to 1995-96. There was a 40 percent increase in educational and general expenditures in public colleges from 1984-85 to 1995-96 and a 62 percent increase in private colleges.
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Public 4-Year Institutions
The trend in constant dollars for current-fund expenditures in public 4-year institutions is very similar to that for all institutions (table 48). From 1984-85 to 1995-96, current-fund expenditures increased 39 percent, with the most rapid growth occurring from 1984-85 to 1986-87. Current-fund expenditures rose 11 percent during that time, while full-time-equivalent enrollment increased by 1 percent.
As with total current-fund expenditures, current-fund expenditures per student rose each year from 1984-85 to 1995-96. Much of the increase occurred from 1984-85 to 1986-87 when current-fund expenditures per student rose 9 percent. From 1986-87 to 1995-96, when FTE enrollment rose 11 percent, current-fund expenditures per student rose 14 percent.
The trend for educational and general expenditures (table 49) is similar to that for current-fund expenditures.
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Public 2-Year Institutions
Current-fund expenditures in public 2-year institutions increased 8 percent from 1984-85 to 1986-87 (table 50). A further 33 percent increase in current-fund expenditures occurred from 1986-87 to 1995-96, when FTE enrollments rose 21 percent.
A somewhat different pattern emerges when public 2-year current-fund expenditures are placed in per student terms. Between 1984-85 and 1986-87, current-fund expenditures per student rose 6 percent. From 1986-87 to 1995-96, current-fund expenditures per student rose 10 percent.
The trend for educational and general expenditures (table 51) is similar to that for current-fund expenditures.
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Alternative Projections
Projections have been prepared for each of the sectors of higher education. The methodology and assumptions used to produce these projections are discussed in appendix A6.
There are three sets of projections for the public 4-year, public 2-year, and private 4-year sectors. Due to the short time series of consistent data, only one set of projections was produced for the private 2-year sector. The projections of private 4-year institutions and private 2-year institutions are not presented separately.
The projections in this chapter are presented in both constant 1998-99 dollars and current dollars. The projections were developed in constant dollars and then placed in current dollars using projections for the Consumer Price Index (CPI). Three alternative sets of projections for the CPI were used, one for use with the middle alternative projections, one for use with the low alternative projections, and one for use with the high alternative projections. As the set of projections for the CPI developed for use with the high economic growth projections is rising at the slowest rate, it is sometimes the case that the expenditure projections in current dollars from the high economic growth set of projections are lower than those from the other two alternative sets of projections.
All of the alternative projections indicate an increase in current-fund expenditures throughout the next ten years (table 46). In the middle alternative projection, current-fund expenditures are projected to reach $303 billion in 2009-10. This is a 50-percent increase from 1995-96, the last year for which there are actual data. In the low alternative projection, current-fund expenditures are projected to increase to $294 billion. In the high alternative projection, the figure for 2009-10 is $318 billion.
A similar pattern is seen for educational and general expenditures (table 47). In the middle alternative projection, educational and general expenditures are projected to be $241 billion in 2009-10, a 50-percent increase from 1995-96. In the low alternative projection, educational and general expenditures are projected to increase to $233 billion. In the high alternative projection, the figure for 2009-10 is $256 billion.
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Public 4-Year Institutions
There are only small differences in the trends among the various sectors of higher education. In public 4-year institutions, current-fund expenditures are projected to reach $157 billion in the middle alternative projection in 2009-10 (table 48). This is a 50-percent increase from 1995-96. In the low alternative projection, the value for 2009-10 is $153 billion, and in the high alternative projection, it is $161 billion.
Since full-time-equivalent (FTE) enrollment in public 4-year institutions is projected to increase by 23 percent from 1995-96 to 2009-10, the rate of increase for current-fund expenditures is lower on a per student basis. In the middle alternative projection, a 22 percent increase is projected for the period from 1995-96 to 2009-10, compared with 19 percent for the low alternative projection and 26 percent for the high alternative projection.
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Public 2-Year Institutions
Current-fund expenditures are also projected to increase in public 2-year institutions (table 50). For instance, in the middle alternative projection, current-fund expenditures are projected to reach $37 billion in 2009-10 and expenditures per student are projected to increase to $10,048. When the low alternative projection is used, with its lower growth path for revenues of state and local governments per capita, lower values for current-fund expenditures are found. When the high alternative projection is used, with its higher growth path for revenues of state and local governments per capita, higher values are found.
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