The State Fiscal Stabilization Fund and Higher Education Spending in the States

By late 2008, the United States was in the midst of its most severe economic recession since the 1930s, brought on by a collapse in real estate prices and exacerbated by the failure of many large banks and financial institutions. Heeding calls from economists, Congress and the Obama administration passed a historic law in early 2009 to stimulate the economy with $862 billion in new spending and tax cuts.

This law, the American Recovery and Reinvestment Act of 2009 (ARRA), included nearly $100 billion in one-time funding for new and existing education programs, a historic sum given that annual appropriations for federal education programs at the time were approximately $60 billion. The largest single education program included in the law was the State Fiscal Stabilization Fund, a new $48.6 billion program that provided direct grant aid to state governments in 2009 and 2010. The program was designed to help states maintain support for both K-12 and postsecondary education that they might have otherwise cut in response to budget shortfalls brought on by the economic downturn.

As 2010 draws to a close, the data now exist to take a close look at how states responded to the policies and funding made available through the State Fiscal Stabilization Fund. An examination of available state budget information can help address whether the State Fiscal Stabilization Fund was successful in supporting state higher education spending or if it enabled states to make larger cuts to their higher education spending than they otherwise would have. To better understand these issues, this paper examines changes in higher education spending during the implementation of the State Fiscal Stabilization Fund by comparing how state spending on higher education has fluctuated in the context of total state spending. Specifically, it explores higher education spending in the 50 states and the District of Columbia as a proportion of total state spending before and during the implementation of the ARRA. Using this information, we can make general conclusions about how the ARRA may have affected state spending on higher education and whether policymakers’ concerns about the law, as described above, were valid.

This paper is the first in a four-part series examining the ARRA’s effect on state spending for higher education. The forthcoming reports will provide an analysis of state allocations of State Fiscal Stabilization Funds (SFSF) to higher education, a study of how those funds were used in select states, and a look at the status of state higher education funding after the SFSF monies are no longer available at the end of fiscal year 2011.

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