Do business cycles affect state appropriations to higher education?

Spending on higher education constitutes an important and increasing portio n of state government spending and a major source of operating funds at pub lic institutions of higher education. Anecdotal evidence suggests that stat e appropriations are subject to cyclical variation. An analysis of state ap propriations to higher education, enrollment in two- and four-year public c olleges and universities, and state-specific measures of the business cycle for all 50 states over the period 1969-1994 shows that state appropriation s to higher education are highly sensitive to changes in the business cycle . A 1% change in real per capita income was, on average, associated with a 1.39% change in real state appropriations per full-time equivalent student enrolled. This implied decline in state government funding, coupled with th e increase in enrollment in higher education during recessions reported by Betts and McFarland (1995), suggest that public institutions of higher educ ation may experience fiscal stress during economic downturns. These results also suggest that state legislators and education policymakers should reco nsider their higher education funding policies during recessions in order t o allow public colleges and universities to provide dislocated workers with access to quality education and training during these periods.