And the Last Shall Be First, Except in Higher Education: How Cuts to State Funding of Public Universities Reinforces the Winner-Takes-Most System

Abstract

Public institutions of higher education (IHEs) have four basic revenue streams: state appropriations, tuition, donations and contracts, and earned income. Over the last 2 decades, there has been a massive decrease in state appropriations for higher education. Declining state appropriations have forced public IHEs to look to alternative revenue sources; however, different types of IHEs have distinct abilities to increase those alternative sources of revenue. Larger IHEs can enroll more out-of-state students, attract larger donations from broader bases, and maintain the staff necessary to create and grow alternative revenue sources (e.g., research contracts). In contrast, smaller and more regional institutions are less able to increase enrollment, have weaker and more localized brands, and often face challenges in diversifying their revenue compared to their larger IHE peers. This study focused on the relationship between declining direct state appropriations and the growth of alternative revenue sources at 486 public IHEs. Using 18 years of data from the Integrated Postsecondary Education Data System and secondary data from the Grapevine Survey and institutional rankings, this study placed all IHEs into 1 of 4 study groups: bachelor, master, doctoral, or research-intensive institutions. The results revealed statistically significant differences by study group in the share of each of the four revenue elements that get larger over time. Those differences in elemental share in revenue, in turn, drove statistically significant differences in total revenue, also by study group, across the study period. These findings have practical implications for legislators and higher education leaders alike. The relationship between group size and total revenue reinforced the “winner takes most” system in higher education and moved certain public IHEs farther away from meaningful public financial support.