My goals are to provide you with some important details about the budget crisis and to use some of the tools we have developed in the course to provide you with an analytical background. I will also draw on some concepts fomr Chapters 14 and 15. This will put me somewhat off schedule in terms of the syllabus. I will cover Chapter 13 on Wednesday and then return to the material in Chapters 14 and 15 next week.

Fees: 33.6%

Grants (federal): 10.9%

Not tuition-- goes to state

Sales and services: 1.2%

Donations: 2.8%

State Appropriations: 51.4%

This past November, the state legislature cut the higher education budget by 6.2 percent B almost half way through our fiscal year!

The UMass system was handed a 5.1 percent budget cut, although the overall state budget increased slightly (1.1%) we want equity!

This cut was equal to $25 million for the UMass system, and translates into a $15 million cut at UMass-Amherst.

A mid-year fee increase of $495 was imposed on students for the Spring semester.

95 people laid off and 400 staff and faculty have put in for early retirement.

University Childcare Center, Escort Services and Language Lab CLOSED.

We are projected to lose 10 percent of our faculty through early retirement, which will mean that we have seen nearly 30 percent reduction in full-time faculty since 1987 (from 1244 to 900).

The system-wide library budget has been cut by 64 percent, from $14 million to $5 million.

The total increase in fees and tuition will be $1270 per student, for full-time in-state undergraduates.

Up to 10 percent of currently offered courses may no longer be available.

Whole departments may be closed or merged, and others may lose their national accreditation because of faculty losses.

Time to completion will likely increase for currently enrolled students, meaning more money in tuition and fees, and/or more student loans.

Before this round of budget cuts, UMass had over $300 million in deferred maintenance costs-- whole buildings may become unusable and even be condemned and torn down due to lack of maintenance.

Only six states reduced their higher education budget for this academic year. With a 6.2 percent cut, Massachusetts was 50th out of 50 in terms of increases in higher education expenditure.

In 1999 Massachusetts spent 5 percent of the state budget on higher education, whereas the national average is 12 percent. We rank 47th out of 50 in this area.

In 1999 Massachusetts spent $163 per person on higher education, whereas the national average was $214. We rank 45th out of 50 in this area.

What does it mean to say there is a state "fiscal crisis"?

Spending exceeds revenues--deficit.

The federal government is allowed to run a deficit.

States are not.

States all across the country are experiencing major deficits.

Why is there a deficit?

Because tax revenues have gone down.

Why have tax revenues gone down?

Partly because we are in a recession.

Most taxes are a percentage of income. So when income goes down, as in a recession, taxes also go down.

BUT THE MAIN REASON REVENUES ARE DOWN IS BECAUSE OF TAX CUTS.

Most of the cuts have come in reductions in income taxes on the top 10%-20% of income earners, many of them as a result of cuts in federal income tax rates, to which state income taxes are tied.

Connection to Chapters 14 and 15:

Income taxes are an example of a progressive tax: taxpayers with higher income pay a higher percentage of their income in taxes.

State sales taxes are an example of a regressive tax: taxpayers with higher income pay a lower percentage of their income in taxes (because sales tax is paid only on goods and services purchased and more affluent people spend a smaller proportion of their income on these).

In general, tax cuts are advocated by those who believe that government spending is wasteful and inefficient and should be reduced. A recent report from the Heritage Foundation clarifies this argument (see David Firestone, "Does Pain Make States Stronger?" New York Times, April 17, 2003.

Higher education has a significant impact on earnings. Over the past twenty years, average earnings of all workers but the college-educated has declined. From an individual point of view, investments in education pay off. So why not just leave the provision of higher education to the market?

First, ask yourself what the market would look like if we removed all public support for higher education. The supply curve would shift to the left. The price of higher education would go up. The quantity of higher education consumed would go down.

Note: "private" schools like Amherst or Smith College have much higher tuitions. But even they do not charge students the full cost of their education (which is probably over $60,000 per student). They have large endowments of gifts from alumni and they use the income from those endowments (as well as substantial public aid and tax abatements) to help pay the costs).

Why do many people believe we should provide public support for higher education? Two reasons.

First, higher education creates a public good--benefits that spillover beyond the individuals concerned. Better educated workers improve overall productivity (and increase future taxes). They are better at functioning in an increasingly high-tech economy. They are more informed consumers and voters. They are better parents, etc.

Implication: the "social" demand curve is higher than "private" demand curve....

Second, public support for higher education contributes to equal opportunity. Without it, students from low-income families would not have a chance to compete effectively with students from affluent families. It's hard for students from low-income families even to borrow the amounts of money they need to pay for college, since they have no "collateral" to offer for the loan beyond their own expected higher earnings.

About 80% of all undergraduates in the U.S. today attend publicly funded institutions.

On average, tuition in higher education covers only about one third of total costs.

See "Colleges in Crisis," Business Week, April 28, 2003.

Even with today's subsidies, poor students are less likely to enroll or get a degree:

(see "College Admissions: The Real Barrier is Class," Business Week, April 14, 2003)

Source: Business Week, April 14, 2003

Counterarguments:

It is hard to quantify the public benefits of support for higher education.

Public support for higher education is not well-targeted, and ends up subsidizing many high-income as well as low-income families.

Students who are really smart and work hard can get merit-based scholarships, no matter what their family income.

Too much public support for higher education increases the supply of highly educated workers and therefore lowers their relative pay.

If we need skilled workers, we can import them from overseas (or send jobs to where they are).

Use your personal story to illustrate the plight of the University.

USE ECONOMIC ANALYSIS TO ARGUE FOR HIGHER TAXES AND MORE SUPPORT FOR HIGHER EDUCATION.

If the UMass budget is cut severely, you may not be able to get into the classes that you need to graduate on time.

Will fee increases will affect your ability to stay in school or increase your working hours at the expense of study time?

You should ask whether your legislator supports equitable funding for UMass.

Put your home address on your letter and expect a reply from your legislator.

Emphasize that you are registered to vote in your home district or that you are registering right now (forms available).