ERIC Identifier: ED467983
Publication Date: 2001-12-00
Author: Strauss, Linda
Source: ERIC Clearinghouse for
Community Colleges Los Angeles CA.
Trends in Community College Financing: Challenges of the Past,
Present, and Future. ERIC Digest.
Like all sectors of post-secondary education, community colleges face the
challenge of generating sufficient revenue to uphold their missions. Many
community colleges began as extensions of secondary schools, supported by public
school budgets. In 1918, local funds provided 94% of community college income.
This model proved insufficient, and state revenue, tuition and fees, federal
funds, and gifts and grants quickly became contributors to community college
revenues stream. Specifically, by the 1960's state appropriations became the
major source of revenue, accounting for 34% of income. (National Center for
Education Statistics, 1994). However, individual states vary in these
percentages (Cohen & Brawer, 1996). During the 1980's, funding shifted from
state and local support. In 1980, state support was 70%. By 1996, it had fallen
to 50% (Merisotis & Wolanin, 2000). Of this remaining percentage, less was
direct appropriations and more was distributed via funding formulas and
SOURCES OF FUNDING
and Local Appropriations
The prominence of community college funding is reflected in state
legislation. A 1976 review of state community college legislation indicates that
finances were most common (Martorana & McGuire, 1976). In July 2000, state
policy makers identified financing higher education as issue number one
(Educational Commission of the States, 2000). In addition to lump sum
appropriations, some states have adopted funding formulas and performance
indicators as additional or alternative mechanisms for funding.
Funding formulas use selected variables to calculate the amount of need for
an institution. Each equation allocates dollar amounts depending on the
institution's values for each variable. Although states determine different
variables and weights, three primary elements in funding formulas are
enrollment, space utilization, and benchmark indicators (Educational Commission
of the States, 2000). Formulas can provide an equitable distribution of
resources for each college. However, disadvantages can occur for smaller
institutions if the benefits of economies of scale are not considered to cover
Performance indicators are another method of supplemental state funding. As
of 2000, 30 states allotted resources to institutions based on attainment of
pre-determined standards (Burke, 2000; Layzell & Caruthers, 1995). Although
indicators are not the sole source of state funding, monetary incentives to
achieve goals drive institutions to devote resources and priorities consistent
with state priorities.
However, performance indicators can be problematic when the same indicators
measure institutions with different missions. The indicators meaningful for
two-year institutions may not be meaningful for four-year institutions. For
example, graduation rate is the most frequent indicator used (Burke, 2000).
Because many community college students do not intend to graduate, it can be
inappropriate for two-year institutions. Hence, state governments should include
all post-secondary constituents when developing indicators (Strauss, 2001).
Tuition is a growing source of income. Merisotis and Wolanin (2000) chart
increasing dependence of community colleges on tuition and fees. From 1979-1980
through 2001-2002, average tuition and fees have risen from $355 to $1,738
(College Board, 2001). While burdensome on students, corresponding increases in
federal funding in the form of student loans and grants have occurred,
increasing the ability of students to finance their education (Breneman &
Nelson, 1981; Phillippe & Patton, 2000).
One means of increasing tuition revenue is charging differential tuition or
fees for different programs and different students. Merisotis and Wolanin (2000)
examined cost and price data to reveal differences in actual institutional costs
in various disciplines (i.e. English vs. Computer Science). Although more states
recognize these differentials, many do not recognize or reimburse these
discrepancies. Breneman and Nelson (1981) suggest consideration be given to the
type of program and the type of student. They recommend differential tuition for
different students. For example, contracts might be negotiated with businesses
at rates different from those for other students.
Funds, Grant, and Contracts
Other federal funds have grown in importance. The American Association of
Community Colleges and the Association of Community College Trustees asked the
105th Congress for four items to be included in Federal appropriations
Increases in the federal Pell Grant program
Continue the Strengthening Institutions Program Title III-Part A
Increased funding for the Advanced Technology Education program at the National
Maintain Workforce Education (Basic State Grants, Tech Prep, and Carl Perkins
Additionally, many community colleges are turning toward grants and contracts
for services. Instead of relying on appropriations, community colleges seek out
opportunities to serve the needs of constituents through entrepreneurial models
(Merisotis & Wolanin, 2000). These activities include soliciting local and
national companies for support, creating agreements for developing programs
specific to corporate needs, and contracting with companies to retrain the
Community college endowments are growing quickly (Phillippe & Eblinger,
1998). In fiscal year 1989, the median community college endowment was valued at
$226,171, by 1995, the median was $521,748. During this time, 175 community
colleges created endowments. Phillippe and Eblinger (1998) also cite local
business and industry as the number one source of endowment funding.
While endowments appear to be a logical source of additional revenue for
community colleges, Seater (1995) points out that they often face competition
for endowment dollars from four-year institutions. Hence, although a promising
source of revenue, endowments can be difficult to establish, and can require a
significant investment of time nurturing philanthropic relationships with local
businesses and philanthropists.
IMPORTANCE OF MISSION
In order for community colleges to
remain financially solvent, they must continue to diversify their funding
sources. One strategy to maximize success across multiple funding sources is for
community colleges to be clear about their mission (Strauss, 2001). By
clarifying their missions, community colleges can excel at achieving standards
mandated by performance indicators, and meet the challenges that funding
The continued use of performance indicators calls for the involvement of
representatives from all sectors of post-secondary education. State legislatures
and other key finance decision makers need to understand that the missions of
community colleges should not necessarily be measured with the same indicators
as other sectors of post-secondary education (Burke, 2000; Ewell, 1998). One way
to ensure this is for community colleges to have a clear articulation of their
mission and goals.
While fiscal challenges facing community
colleges are difficult, diversifying funding sources and clarifying mission
statements can help. Funding challenges may lead to greater community college
representation in the federal and state discourse on post-secondary education,
and subsequently greater visibility of community colleges. By clarifying the
important role that community colleges play in educating and re-educating the
workforce, community college representatives could facilitate their own funding,
and continue to serve their targeted populations and fill the needs of the
country as community colleges were intended to do.
American Association of Community Colleges and
Association of Community College Trustees (1997). AACC-ACCT Community College
Agenda for the 105th Congress. (Eric Document Reproduction Service No. ED 403
Breneman, W. D. & Nelson, S. C. (1981). Financing Community Colleges: An
Economic Perspective. Washington, DC: The Brookings Institute.
Burke, J. C. (2000). Performance Funding: Popularity and Volatility. Paper
presented at the National Association for Institutional Research Forum,
College Board (2001). 2001-2002 College Costs: Keeping Rising Prices in
Educational Commission of the States. (2000). State Funding for Community
Colleges: A 50 State Survey. Center for Community College Policy: Denver, CO.
(Eric Document Reproduction Service No. ED 449 863).
Ewell, P. T. (1998). National trends in assessing student learning. Journal
of Engineering Education, 87(2), 107-103.
Layzell, D. T. & Caruthers, J. K. (1995, November). Performance funding
at the state level: Trends and prospects. Paper presented at the annual meeting
of the Association for the Study of Higher Education, Orlando, FL. (Eric
Document Reproduction Service No. ED 391 406).
Martorana, S. V. & McGuire, W. G. (1976). State Legislation Relating to
Community and Junior Colleges, 1973-75. Pennsylvania State University Press:
State College, PA.
Merisotis, J. P. & Wolanin, T. R. (2000). Community college financing:
Strategies and challenges. New Expeditions: Charting the Second Century of
Community Colleges. Issues Paper No. 5. (Eric Document Reproduction Service No.
ED 439 737).
National Center for Education Statistics (1994). Current Funds, Revenues, and
Expenditures of Institutions of Higher Education: Fiscal Years 1984 Through
1992. Washington, D. C.: U. S. Department of Education.
Phillippe, K. A. & Patton, M. (2000). National Profile of Community
Colleges: Trends and Statistics 3rd Edition. Community College Press:
Washington, DC. (Eric Document Reproduction Service No. ED 440 671).
Phillippe, K. A. & Eblinger, I. R. (1998). Community College Foundations:
Funding the Community College Future. American Association of Community College
Research Brief 98-3. Eric Document Reproduction Service No. ED 424 885).
Seater, B. (1995). Financial Decision Making During Economic Contraction: The
Special Case of Community Colleges. (Eric Document Reproduction Service No. ED
Strauss, L. (2001). Addressing the Discourse on the Future of Post-Secondary
Education: The Relationship between Mission and Funding in Community Colleges.
(Eric Document Reproduction Service No. JC 010 620).