Monday, April 10, 2017

 

The Limits of States


The Federal government is allowed to run an operating deficit.  Most states aren’t.

That may sound like a small difference, but it isn’t.  It’s fundamental.

Community colleges have had countercyclical enrollment patterns for decades.  When the economy does better, our enrollments do worse; when the economy tanks, our enrollments jump.  That makes sense when you think about the alternatives.  If the choice is between school and work, that’s one thing; if the choice is between school and nothing at all, that’s something else.  (To be fair, a more realistic opposition would be between full-time work and part-time school, or full-time school and part-time work.  When work is plentiful, more of our students study part-time.)  
In economists’ language, enrollment correlates closely with opportunity cost.  When opportunity cost goes down, as it does in recessions, enrollments go up.  After years of economic expansion, opportunity cost is relatively high, so enrollments are down.

Tax revenues, by contrast, are starkly cyclical.  They go up when the economy booms, and they drop when the economy tanks.  That’s particularly true at the state and local levels, where the economy is less diversified than at the national level.  

I mention this because I’m both fascinated and conflicted by New York’s proposal for free community college.  Governor Cuomo has proposed eliminating tuition and fees for full-time undergraduate students at public colleges and universities, if their family income is below $125,000 per year.  In order to get it through, he’s including a provision that would require any recipient of free tuition to live and work in New York State for at least as many years as she received the benefit.  Someone who took the benefit for all four years of a four year degree would be on the hook to remain in New York for at least four years after graduation.  I assume there are asterisks and exceptions, but that’s the broad outline.  

At one level, it’s a fantastic idea.  If you take tuition and fees off the table, you’re making college much more affordable, and there’s a marketing magic to the word “free.”  He’s even setting aside money to foster the development of Open Educational Resources in order to reduce textbook costs, which any student can tell you can be substantial.  If you subtract the cost of tuition, fees, and books, you’ve taken a worthwhile chunk out of the cost of college.  That’s terrific, and I’m a little jealous that New York got there before New Jersey did.  New Jersey exports more college students than just about any other state, so the need here is arguably greater.

But the combination of a state-level balanced budget requirement and a post-graduation residency requirement makes me nervous.

When the next recession hits -- when, not if -- tax revenues will drop, and community college enrollments will increase.  I know that like I know the sun will rise in the East.  At that point, the state will have to pony up more money to colleges, and will have less money with which to do it.  

The Federal government can do that.  Through the miracle of Keynesian economics, it has the option of spending countercyclically.  That means it can pay for training and education when the economy is slow.  When the economy bounces back, trained workers will be ready to step into the new jobs.  

States can’t.  When tax revenues drop, spending has to drop.  (Yes, there are asterisks and exceptions there, too, but the broad outline is correct.)  

Under the current system, aid to colleges typically drops during recessions, but at least they have increased tuition revenue to soften the blow.  If you replace that tuition revenue with state aid, and the states can’t deficit-spend, then the colleges will face an ugly choice: either sustain absolutely devastating cuts, or simply turn away students above maintenance level.  (If it’s the latter, I’d expect to see for-profits swoop in and provide options that publics can’t.  See Tressie McMillan Cottom’s “Lower Ed” for details.)  California did that in the wake of the Great Recession; at one point, the San Diego district alone had a waitlist in the five figures.  

Governor Cuomo is trying to pitch the idea as an economic development measure by including the post-graduation residency requirement.  The idea is to keep the payoff from free college in the state that paid for it.  

I get the logic.  But any state’s economy, arguably excepting California, isn’t as diverse as the country’s.  For traditional-aged students, too, post-college years are often the “coupling up” years.  Putting a sort of ransom on people who want to leave to be with their true loves just seems cruel.

As long as funding is at the state level (or lower), these dilemmas will keep reoccurring.  They’re built into the ground rules for how states operate.

Higher education makes eminent sense as a countercyclical good.  From a societal perspective, what better time to educate and train than when people have time on their hands?  But by leaving higher ed to the states, we’re pushing against making that possible.  States can only afford it when most people don’t need it.  When they need it, states can’t afford it.

I applaud Governor Cuomo’s efforts, and wouldn’t mind seeing Governor Christie look at something similar.  But if it’s going to be sustainable, it needs to be built around recessions.  That means going Federal. Otherwise, we’re just setting ourselves up for a rude surprise the next time tax collections fall short.





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