States' Investment in Human Capital: Higher Education Funding Effort

Elena Garrison, The University of Montana


Diminishing state support for higher education threatens human capital development. This quantitative study undertook to determine the state factors that influence higher education funding and to what degree they do so, what level of funding is required to satisfy higher education expenditure need, and what can help to ensure that those funding needs are met. The focus of the study was the 15 WICHE states, with special attention to the situation in Montana. The states in the study varied dramatically in their fiscal capacity to generate the revenue needed to support public services, a capacity influenced by state resource endowment, tax structure, and the ability and will of public officials to expand that capacity. Utilizing data from 2001 to 2009, the fixed effects method was employed for panel analysis of socioeconomic, higher education and budgetary factors of WICHE states and their level of influence on funding for higher education. Effective tax rate and per capita personal income were found to have a strong positive influence on the level of state higher education support, while tuition was determined to exert a strong negative influence. Descriptive statistics was employed to estimate expenditure need for higher education support and the extent to which states satisfied that need. Three nonconsecutive years were analyzed: 2002, 2006, and 2010, with 2010 showing a marked decline in satisfaction of expenditure need in the WICHE region when only five of 15 states exceeded the 100% benchmark and Montana satisfied only 64% of its higher education expenditure need, ranking 13th among WICHE states and 46th in the nation. Both panel and descriptive analyses supported the conclusion that increasing state tax revenue would not necessary bring relief to higher education as state budgetary priorities may lie elsewhere. The panel analysis led to the conclusion that to compare and evaluate state resources and spending priorities among states other methods may prove more appropriate. The representative revenue and expenditure systems are recommended as alternatives. Finally, human capital theory was proposed as a way to unite decision makers in their pursuit of sustainable state development through investment in higher education.


© Copyright 2012 Elena Garrison