Wednesday, July 26, 2017

Promises, Promises

Apparently Oregon and New York, each having announced a variation on free public college, are both falling short of full funding for their programs.  

When “Promise” programs don’t keep their promises, I would expect some blowback.  As Robert Kelchen pointed out, this will give scholars of disappointment effects (!) an excellent natural experiment. (“When I grow up, I want to study disappointment!”)  But I can’t claim surprise.

In both cases, to my knowledge, the programs don’t have dedicated funding streams.  Instead, they’re discretionary spending, subject to political horse-trading and the usual legislative shenanigans.  The programs are new enough that we can’t blame growth.  Worse, the underfunding is happening at a point in the business cycle when states are as flush as they can reasonably expect to be without major policy changes.  States can’t run deficits, so when the next recession hits -- and it will -- revenues will drop at the exact moment that demand for college increases.  If they’re falling short now, they’ll fall catastrophically short then.

In my perfect world, nobody would be allowed to serve in a legislature without being able to demonstrate a first-level knowledge of Keynesian economics.  I can envision a few possible policy responses.  (I can also envision a few choice words from disappointed students…)

One is the usual policy-wonk retreat to “means testing,” or what laypeople call “slow murder.”  The argument will be based on a sort of economic triage: if there isn’t enough for everybody, then help the neediest first.  But in the political climate of my adult lifetime, that’s a recipe for decline.  Programs for the poor become poor programs.  If you want an expensive program to survive, its benefits need to be broad-based, and preferably universal.  Otherwise you start to get into bureaucratic nightmares of income verification, apocryphal or exaggerated stories of abuse, and the like.  The unsung heroes in our financial aid offices know how that works.

I could also imagine benefits being narrowly targeted at desired majors, as Arkansas is doing.  The argument there would be that the state needs more STEM majors, or computer majors, or nursing majors, or whatever, so let’s build incentives for that.  It’s better than nothing, but it assumes that entering students know what they want, and/or are utterly indifferent to what they study.  Neither is true.  It also runs the risk of saturating certain job markets over time.

Alternately, states could move to “first come, first served.”  There’s a simplicity to that, but in practice it will tend to be regressive.  It also defeats the predictability that made the initial promise of free college a potential game-changer.  If a full-tuition scholarship is guaranteed, that’s an incentive.  If you follow the rules but your application only came in 30 days early instead of 35 so you get nothing, that’s not much of an incentive.  If anything, it’s a kick in the teeth. Once some sympathetic stories of students who were denied for heart-tugging reasons start making the rounds, things will get ugly.

Tennessee has taken the utterly brilliant step of actually designating a specific funding stream.  It uses lottery revenues.  One can argue about the moral hazard of that, but it does provide a line of revenue (relatively) protected from political mood swings.  As a result, Tennessee isn’t having the shortfalls that Oregon and New York are, and enrollments in community colleges received a healthy boost.  At the state level, this strikes me as the best realistic outcome.  Kudos to Governor Haslam - a Republican, for those keeping score at home - for getting this one right.

Eventually, a free college policy would make the most sense at the Federal level.  Unlike the states, the Feds can run deficits, so sudden enrollment spikes in recessions wouldn’t threaten everything else.  Give it a dedicated funding stream as a baseline, and use borrowing to cover gaps just as Keynes recommended 80 years ago.  States that aren’t being contrary for purely ideological reasons will figure out quickly that having a healthy higher education sector will mean getting their share from the Feds; as incentives go, that’s pretty good.  As for the states that will be contrary just for the sake of it, well, all the more for everyone else.

Of course, that’s not where we are, politically.  In the short run, it looks like the Tennessee model makes the most sense, and I commend it to other states..  But when the next recession hits, and it will, the rules against state-level deficit spending will come back to bite us.  Because eventually, the political winds will shift again.  Promise.