Help for State Higher Ed

WASHINGTON -- With state revenues stagnating and unemployment stuck at high levels in most states, the budget outlook for public higher education in the 2011 fiscal year remains rather bleak. But college leaders in most states are poised to get a gift from the nation's capital this week, in the form, oddly enough, of $16 billion in Medicaid funds.

The money was part of legislation -- which was approved by the Senate Thursday, and which Speaker of the House Nancy Pelosi has called her colleagues back to town to consider next week -- that would also provide $10 billion to states to save "education jobs." While logic might suggest that that would be the portion of the measure with implications for higher education, it really isn't; that money is set aside to help ward off the elimination of as many as 138,000 elementary and secondary school teaching positions.

But the $16.1 billion that Congress would provide to extend for six months federal Medicaid support for states' share of their health care programs for the poor would have clear implications for public colleges and universities. Obviously none of the Medicaid money would flow directly to postsecondary institutions (except to the extent that they have teaching hospitals that provide medical care to indigent patients). But governors and legislators in more than half of all states had built the expected Medicaid money into their overall 2011 operating budgets, and many had warned that if the money failed to come through, the budget agreements reached in many states would collapse, with dire ramifications for many state agencies and services.

"The cuts that I have proposed ... are absolutely devastating; they break my heart," Gov. Arnold Schwarzenegger said in a speech in late June, as the Medicaid extension seemed doomed to fail amid partisan disagreement. "But if Congress fails to extend the [Federal Medicaid Assistance Percentages] we will have to find an additional $1.8 billion in spending cuts in health care, in education, safety net programs and so on. The federal money is critical to preventing deeper pain and deeper job losses."

The potential ramifications for public higher education, particularly, are severe. In Pennsylvania, for instance, state leaders had vowed that if the state got none of the $850 million in Medicaid money on which it was banking, they would ask Education Secretary Arne Duncan for a waiver from the federal "maintenance of effort" requirement that compels states to maintain higher education spending at previous levels. Removal of that maintenance of effort requirement, said John C. Cavanaugh, chancellor of the Pennsylvania State System of Higher Education, would have put the commonwealth's public colleges "on the cut table" along with other discretionary programs there, and virtually assured major spending reductions.

The apparent agreement to approve the additional federal spending on health and education -- which was made possible after Democratic leaders agreed to offset the spending with cuts to other domestic programs, winning the support of Maine's two moderate Republican senators, Susan Collins and Olympia Snowe -- would represent only a partial solution to the kind of dire consequences that face California, Pennsylvania, and other states. That's because the $16.1 billion contained in the compromise legislation is not quite two-thirds of the $25 billion that state and federal officials had argued was necessary to make states whole on Medicaid.

States that had built their budgets in part on the Medicaid funds won't get all they hoped was coming. Pennsylvania, for instance, had counted on receiving $850 million, but instead is likely to get $600 million, assuming the deal goes through. While it's still too early to say for sure how political leaders there will react, Cavanaugh said he expected that rather than seek a waiver, Pennsylvania politicians are more likely to "look at other aspects of the state budget" to try to close the $250 million gap that the scaled-back Medicaid money will leave.

But that $250 million hole is a heck of a lot better than the $850 million chasm that Pennsylvania would face without the FMAP money, Cavanaugh said.

"This certainly seems like good news for us," he said of the state's public colleges. "Seventy percent is a whole lot better than nothing. It could well result in [legislators] being able to figure a budget out without asking for an exemption" that would ensure big cuts to colleges.

Maine faces a similar situation, said Richard V. Pattenaude, chancellor of the University of Maine System. The $8.3 million cut that the Maine system would face in its budget if the Medicaid money falls through "would necessitate extreme budget measures -- stopping purchases that have already been made, canceling classes that are already scheduled for the fall." Even if the state gets only two-thirds of the money on which it is counting, "with a smaller number like that, we think we can handle it," Pattenaude said, just as it has handled other recent rounds of budget cuts.

"That's a much more doable number," he said. The funds will be especially helpful given that Maine, like virtually all other states, is phasing out the federal stimulus funds that has helped keep it afloat the last two years.

As is so often the case these days, even comparatively good budget news like the pending Medicaid extension might not be enough to bring fiscal relief to California. The most recent budgets put forward by Schwarzenegger in May and by Democratic legislators this week count on an enormous amount of Medicaid money ($3 billion and $4.1 billion, respectively), and while a good chunk of that could still emerge as soon as next week through the Congressional compromise, political leaders in the state are "pretty far apart" on an overall budget plan, said Patrick Lenz, vice president for budget at the University of California system.

The governor's budget plan would restore a $305 million cut that the UC system has absorbed in recent years (and a comparable amount for the California State University System) and provide an additional $65 million to allow for enrollment growth. It's not clear how much the public colleges would receive if, as seems likely if not certain, the federal Medicaid contribution is less than anticipated.

So the federal aid is far from a panacea for California, Lenz acknowledged.

Interestingly, the Medicaid money could represent a bigger boon for the 20-odd states that did not bank on receiving it. (This article on Stateline.org contains two charts showing the amounts that states did and did not build FMAP money into their budgets.) For those states, like Ohio, Minnesota, Tennessee and Wisconsin, the Medicaid money could mean avoiding midyear cuts if revenues fall short of expectations or, imagine this, actually give legislators some unexpected funds to add enrollments or otherwise bolster public higher education.