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Interview with David Dyssegaard Kallick, Fiscal Policy Institute
January 25th, 2009
Background: On January 15, the Fiscal Policy Institute issued a report entitled "New York State's Underinvestment in Public Higher Education" authored by FPI Senior Fellow David Dyssegaard Kallick. The Empire Page asked Kallick about their findings.
Q#1: Why did FPI decide to focus on NYS's funding of public higher education?
A: Since it’s founding FPI has been concerned with higher education in New York. Here, for example, is some of what we’ve done over the years:
http://www.fiscalpolicy.org/CareerPathwaysTestimony.pdf
http://www.fiscalpolicy.org/BuildingALadderRecommendations.pdf
http://www.fiscalpolicy.org/OneNewYork.html
Last June, we had gotten questions from a number of people about the
funding of higher education in New York after the governor’s Commission
on Higher Education recommended establishing a new $3 billion research
fund, and concluded that SUNY and CUNY should plan to hire 2,000
additional full-time faculty members in the next five years.
Then, the Professional Staff Congress, the union that represents CUNY
faculty and staff, asked some simple questions about state funding of
higher education. As we had discovered over the years, the
straightforward questions about New York State funding of higher ed are
not always easy to answer.
So, we delved into the question more deeply, and wound up writing a 24-page report.
How much was aid down? It’s most extreme at the CUNY community
colleges, where funding per student fell by 26 percent between 1991/92
and 2008/09, in inflation-adjusted terms. At CUNY senior colleges the
reduction was 14 percent, at SUNY community colleges 12 percent and
SUNY state-operated campuses five percent.
So, for more than a decade, SUNY and CUNY have been operating with tightly squeezed budgets. That makes it hard to see how they could sustain proposed further reductions in state aid per student without
sacrificing the quality of students’ educational experience.
Add to that the fact that we are in a recession. We know that during
recessions enrollment at colleges and universities goes up and, because
tuition is more affordable, students are more likely than ever to turn
to public higher ed. We can already see the enrollment numbers
increasing.
So unless the proposed budget is modified, SUNY and CUNY will be asked to educate more students, for less money, after being squeezed by
underfunding for more than a decade.
A: It sounds like what you have in mind is New York’s Tuition Assistance Program (TAP).
There are two components that make up virtually all state aid to CUNY
and SUNY: Direct State Aid and TAP. If you look at charts 4, 5, 6, and
7 in our report, you can see that the vast
majority of funding comes from direct state aid. So, if you want to
keep your eye on the ball, in terms of support to SUNY and CUNY, direct
state aid is where the bulk of the money is.
But, we have sometimes heard the argument that it’s OK to shift the
burden from the state to students by decreasing direct state aid and
increasing tuition. The idea is that the students who can afford it
will simply pay the higher tuition. And for students who can’t afford
it, there will have needs-based funding - - TAP - - that will bring the
cost down.
In principle, it’s an interesting thought.
Personally, I like the notion that high quality higher education should
be inexpensive to everyone, regardless of income. But, I am sympathetic
to the idea of raising tuition and then making it affordable for those
who need help.
The problem is, I don’t know of anyone who has looked very closely at
whether that really happens. What is the actual effect on students and
families who just can’t afford to pay $4,000 or $5,000 a year? Tuition
at that level is a relative bargain compared to the skyrocketing cost
of some private-school tuition. But for low-income families - - or even
for many middle-income families - - that’s a lot of money. If you raise
tuition and then increase TAP funding, what’s the net effect for them?
The answer is, we don’t really know. It’s a piece of research that
we’ve talked about doing at FPI at some point in the future.
It’s also worth noting that New York State’s TAP funds go to students
at both private and public institutions. That’s a good thing; it makes
higher education in general more affordable to students. But increasing
TAP is not a very efficient way of supporting SUNY and CUNY, since a
big portion of the state money winds up going outside the systems.
A: In general, I think increasing tuition and increasing debt for students and families isn’t a great idea right now.
Similarly, this seems like a terrible moment to reduce grants (TAP) and instead increase the capacity of students to borrow money (state-supported loans).
A much better idea is to fund the universities directly, to keep tuition at a reasonable level, and to help students graduate with a manageable debt load--not with as much debt as possible, even if it’s at an affordable rate.
Of course, students and their families do borrow money to finance higher education. And there are, as you mention, serious problems with the way the banking industry has handled student loans, which does look a lot like the way the sub-prime mortgage crisis played out. Banks have sometimes lured low-income families into borrowing money at high interest rates even when they qualified for lower rates. And, in some cases, college financial aid offices were caught steering families to these banks and getting financial benefits in the process.
I haven’t looked at the governor’s proposed loan fund in depth, to see whether it’s a good answer to these problems, so I made a quick call to Tom Hilliard at the Schuyler Center and Claudia Wilner of the Neighborhood Economic Development Advocacy Project to ask about it. They were concerned with two major issues.
First, who is the target population? Is the proposed new loan fund really serving a need that isn’t being met by existing federal programs?
Second, what are the consumer protections? The proposal has a lot of detail about the state’s special powers to collect on loans (garnishing wages, for example), but no detail about whether the loans will include the kind of protections that are standard for federal loans - - provisions for deferral, or hardship, for example. And then there is the question of adjustable interest rates. That’s a danger I hope we’ve all learned about from the current economic crisis.
It’s possible that there could be reasonable responses to these questions, but they are important ones to be asking.
I think the first answer to affordability has to be lower costs to students, not greater ability to take on debt. And, if we’re going to have a new state-subsidized loan fund, it seems at a minimum like there needs to be a lot more clarity of purpose and much stronger and more explicit consumer guarantees.
A: That’s a trick question. Those are all very important priorities, and of course I don’t want to see them pitted against each other.
We are facing a $15 billion state deficit, but we are also facing one of the most severe economic crises of our time. No president, Democrat or Republican, would follow Herbert Hoover in implementing spending reductions and a balance budget in the face of such a severe downturn. Yet, as Paul Krugman points out in a column called “Fifty Herbert Hoovers,” that’s what many governors are proposing. It’s a misguided strategy that could undercut the federal stimulus package.
States can’t print money, and (except for Vermont) they can’t run budget deficits—as the federal government can. But they can be smart during a recession about how to raise revenue in the least damaging way in order to maintain state operations.
So how can we close a very serious budget deficit?
• One part should - - and looks like it will - - come from the federal government, as aid to state governments.
• Another part can come from some of the $1 billion in the Tax Stabilization Reserve Fund.
• Some of the gap can be closed through savings that will not damage the economy or reduce government services. A few to consider are: New York State can save money by contracting-in engineering and other professional services. New York can use its sizable pooled purchasing power to get better prices on prescription drugs. The wasteful and failed Empire Zones program should be ended. And we can close a loophole in the bottle bill, so that the state would receive the deposits from unreturned bottles rather than letting the industry keep that money.
• And, although it will raise political hackles, the state should increase top tax rates on the highest-income New Yorkers, as was done in 2003. An increase in the top marginal rate could raise $2 to $7 billion, depending on levels and rates. And it would be raised on people with very high incomes - - New Yorkers who, even in this recession year, made above perhaps $250,000 or $500,000.
Some people will object to raising taxes in a recession, but a recent letter signed by more than 100 economists urged Governor Paterson to learn the lessons of history. In a recession, the letter argues:
“...it is economically preferable to raise taxes on those with high incomes than to cut state expenditures.
“The reasoning is straightforward: in a recession, you want to raise (or not decrease) the level of total spending—by households, businesses and government—in the economy. That keeps people employed and buying things, and makes it more likely that businesses will want to invest to serve that consumer demand. Budget cuts reduce the level of total spending. Raising taxes on high income households also will reduce spending, but by much less than the amount of the tax increase since those with plenty of income typically spend only a fraction of their income.
“By contrast, almost every dollar of state and local government spending on transfer payments to the needy and for the salaries of public servants providing vital services to our communities enters the local economy right away, generating a greater economic impact. The New York local spending impact difference is even greater when you consider that much of the higher state income tax will be deductible against federal income taxes, and that non-residents who commute to high-paying jobs in New York will pay much of the increase.”
Higher education spending is very important to the state economy, to students, to parents, to businesses, and to communities where colleges and universities are located. But of course it’s not the only important part of the state budget.
We don’t have to choose between our children and the environment, or between aid to local government and aid to welfare recipients. We do have to choose between cutting services to those in need and asking the wealthy to pay their far share. That’s not a tough choice.
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