A Missing Puzzle Piece in the Federal-State Partnership Landscape

With college costs on the rise and state investments dipping lower, policymakers, communities, colleges, and universities are looking for different models of funding to jump-start greater investment in higher education. During a keynote speech last year, Senator Patty Murray, ranking member of the Senate Health, Education, Labor and Pensions committee, stated that the reauthorization of a new Higher Education Act “must include a state-federal partnership to promote new investments in our students and families and to pave affordable pathways to higher education."

The idea behind a federal-state partnership is to motivate states to invest more in higher education by providing federal resources to supplement state funding through mechanisms like matching grants. Presidential candidates and members of Congress have introduced plans for such a federal-state partnership, but many of these plans don’t grapple with how a federal-state partnership would interact with community colleges, given their various and complex funding structures. Community colleges in America educate roughly one-fourth of undergraduates. Generally, community colleges serve a large proportion of first-generation, low-income, adult and minority students. Overlooking the intricate systems that govern these two year institutions could result in unintended consequences that don’t necessarily accomplish the goal of affordability that a federal-state partnership seeks to accomplish.

Community colleges are a unique entity in the higher education finance landscape. Their financing mechanisms combine components of the revenue structures of both public, four year universities and the K-12 systems. Community colleges generate the bulk of their revenue from three main sources: state appropriations, local appropriations, and tuition and fees. The breakdown and proportions of these revenue streams varies from state to state, and even within states.* Arizona two year schools, for example, are most dependent on local appropriations, while Texas has a more balanced funding stream. Colorado schools, meanwhile, rely heavily on their net tuition revenue (see figure 1). There are even community college districts that receive no local funding at all and are financed entirely by the state and students’ tuition, more similar to how the public four-year sector is funded nationwide.

A potential federal-state partnership can, therefore, affect the current funding mechanism for community colleges in different ways. The diversity of funding structures is reflected not just in the community college budgets themselves, but also in the ways states appropriate money to these schools.

For many community colleges, the operating aid received from the state is formula based, and often determined by a variety of factors such as enrollment numbers and, in some states which have implemented outcomes-based funding, student outcomes. More often than not, these funding formulas don’t account for the inequities that arise between locally funded schools serving communities of different wealth, leaving low-income students behind. A federal-state partnership should be attentive to these realities, and structure the partnership to potentially address this problem.

Another reality that throws a wrench in the discussion is the fact that not all community colleges rely heavily on state appropriation. For example, in Arizona, by the time the state legislature cut all operating aid to Maricopa and Pima community colleges (the two largest districts in the state, serving about 75 percent of all students enrolled in community colleges in Arizona) state funding only accounted for one percent and four percent, respectively, of their total revenue. This dip in revenue resulted in property tax increases, and now Maricopa county residents finance 55 percent of the Maricopa community college district budget. For Pima, that figure is 69 percent.

It’s hard to predict how a new increase in state funding would interact with the local financial support for community colleges, especially for schools where local communities play a substantial financing role. When the Texas legislature appropriated $17.3 million to Lamar State colleges, that money was passed onto students in the form of an approximately 25 percent reduction in tuition. The Lamar State colleges, unlike many other Texan community colleges, do not have the ability to levy taxes on their communities. Would students still have seen this reduction in tuition if the colleges were collecting property taxes? Or would an increase in state funding simply lead to lower local taxes, as is commonly seen in K-12 funding? These questions would have different answers for every community, given the different political, historical, and social contexts that shape a community college’s ability to utilize property taxes as a source of revenue.

There isn’t a lot of current research about state funding mechanisms for community colleges, or how they interact with federal policy. The last comprehensive study that examined the structures and processes that dictate community college finance, state-by-state, was published back in 2000 by the Education Commission of the States. A more recent brief was published in 2014 by the National Center for Higher Education Management Systems (NCHEMS), but it only provides a modest overview of the diversity of community college finance structures. A new federal-state partnership should be well informed with up-to-date research and context from the communities it’s seeking to improve.

A new federal-state partnership should address the discrepancies and complexities that are woven into the community college finance landscape. Without paying attention to how the money flows from the state to the community colleges or recognizing the significance of local finance, an increase in state funding could fall short of the affordability goal and perpetuate inequity problems. When the time comes to construct this new federal-state partnership, all of these considerations should be taken into account to ensure its structure needs to reflect the stated policy goals of making college more affordable for students and their families.

*The other community colleges in Arizona receive funding from the legislature, although it’s still a relatively small share of the revenue stream compared to money coming from student tuition and property taxes for some schools.