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The Looming Financial Crisis Facing Connecticut Public Higher Education
December 18, 1997

Section Table of Contents
  Executive Summary
  Introduction
I Approaching the Task
II The College Enrollment Scenario for Connecticut
III Revenue and Cost Assumptions
IV The Gap Between Resources and Needs
V Filling the Gap
VI Sharing the Cost of Public Higher Education
VII What Can Connecticut Do To Change Its Future?
VII Appendix

 

Board of Governors for Higher Education
Alice V. Meyer, Chair
Thomas Mondani, Vice Chair
James H. Bates
William A. Bevacqua
Lile R. Gibbons
Margaret O. Goldberg
Joan R. Kemler
Dorothy R. Leib
Maria I. Mojica
Albert Vertefeuille
Andrew G. De Rocco
Commissioner of Higher Education
 

Executive Summary

In this study, the Department of Higher Education attempts to forecast the future enrollment and costs of Connecticut public higher education using historical patterns to conduct its analysis. Its purpose in so doing is to alert state policy-makers of a potential significant gap between the system's resources and needs and to suggest strategies for averting crisis.

Among its findings, the study notes that enrollment in Connecticut public higher education is unlikely to exceed the peak reached in 1989 for at least 25 years. Boosting enrollment will be difficult given Connecticut’s already strong high school graduation rate, traditional exodus of students to colleges outside of the state and stable pool of adult learners.

To project future costs, two enrollment scenarios based on demographic trends are used — one for modest growth, the other for continued stability. Combined with cost assumptions, the analysis reveals a significant gap between system resources and needs, ranging from an annual revenue shortfall of $87 million, at best, to $113 million by 2012.

As in the past, the system will likely attempt to fill this gap from one of two sources: the state or the student. For the state to pick up the shortfall, annual appropriations will have to rise by 20 to 25 percent over the next 15 years.

If students bear the burden, tuition will rise sharply: by 90 percent at the University of Connecticut, 63 percent at Connecticut State University and 85 percent at the Community-Technical Colleges. Without enrollment growth, tuition will climb even higher, with increases ranging from 77 to 105 percent. Increases of this magnitude will significantly jeopardize student access, especially for the economically disadvantaged, and likely intensify Connecticut’s already strong flow of young people to colleges outside of the state.

The study concludes that higher education is too important to the state’s economic survival to keep Connecticut students from attending its public colleges and universities. The major choices facing Connecticut appear to be relatively straightforward: either to infuse public higher education with a massive investment of new funds (raised from either taxpayer dollars or student tuition) or to seriously reconsider the system’s array of programs and delivery of services to state citizens. Given the unlikelihood of the former option, the urgent task facing the system is to rethink the way it manages its resources in order to meet its obligations. Convening a statewide discussion around this topic is the priority of the Board of Governors for Higher Education as it considers a vision for guiding Connecticut higher education into the 21st century.

Introduction

Concerned about rising college costs and shrinking student enrollment, the Board of Governors for Higher Education asked its staff in June to compare these trends to historical patterns as a basis for planning the future of Connecticut public higher education.

By laying out possible enrollment and cost scenarios, this study seeks to highlight the key issues facing the system as it enters the 21st century. Most important, it addresses the urgent question of whether Connecticut faces a significant gap between the system’s needs and resources and, if so, how large. Its findings are intended to help policy-makers anticipate challenges facing the system and to provide a base for the Board of Governors’ task of defining a vision for guiding Connecticut higher education through the coming pivotal years.

In conducting its study, the Department of Higher Education looked to a similar report issued in May by the Council for Aid to Education’s Commission on National Investment in Higher Education. "Breaking the Social Contract: The Fiscal Crisis in Higher Education," offers a startling forecast of the financial condition of American higher education. In this report, the Commission states that "the present course of higher education — in which costs and demand are rising much faster than funding — is unsustainable." By the year 2015, warns the Commission, the national system will be $38 billion short of the funds needed to educate its students. Tuition may well double if current trends continue. The net effect, according to the report, will be to deny access to virtually half of those seeking a college education.

To address this impending crisis, the Commission proposes a two-pronged strategy of 1) greater public investment and 2) comprehensive institutional reform to lower costs and improve services. The group stresses that the latter is a prerequisite to the success of the former.

Against this grim national backdrop, the Department of Higher Education began its exploration of what lies ahead for Connecticut public higher education.

I. Approaching the Task

At the heart of the Department’s task is the question of whether a gap will occur between the system’s resources (i.e. revenues) and its needs (i.e. costs) over the next 15 years. For an answer, this study presents projections for future enrollment and expenses. It then goes a step further in determining how much of the system’s budget will be borne by the state versus the student, and at what price to each. The forecasts are based mostly on historical trends.

No matter how accurate the historical record, however, predicting the future using the past as a guide is risky business. Many unknown factors can and will influence future enrollment and costs. Nonetheless, this study employs past attendance and financial practices — still the most reasonable means available — to depict a likely scenario of the future of Connecticut public higher education. In so doing, the analysis will highlight those factors most likely to affect enrollment, cost and affordability.

Although this report contains cost projections for the entire public system in Connecticut, it focuses on the system’s three major service providers: the University of Connecticut, Connecticut State University and the Community-Technical Colleges.

II. The College Enrollment Scenario for Connecticut

National projections show that over the next two decades, college enrollment will surge across the country — but not in Connecticut. Unlike the rest of the nation, Connecticut’s population is disproportionately older and has fewer young people. While the number of Connecticut’s traditional college-aged students (ages 18 to 24) will grow, the increase will only be moderate. Further, the number of older persons (ages 25 to 44) who might attend college will continue its current precipitous drop until after 2010 (see Appendix).

Using these demographic findings to create four separate planning models, the Department reached a critical conclusion: it is unlikely that public system enrollment will exceed the peak of 1989 for the next 25 years. Most likely, enrollment will continue to shift within a range of 95,000 students (first reached in the late 1970’s) and 110,000 students (the 1989 high) until 2020 (see Figure 1 and Appendix). In this best case scenario, enrollment will grow by about one-and-a-half percent to two percent annually through 2006 before falling through 2012.

Complicating these projections, however, is the reality of the state’s current enrollment situation. While demographic data strongly suggest that enrollment should now be growing, in fact it continues to decline (see Figure 2). Using this trend as a guide for a stable scenario, current enrollment will prevail through 2012.

Clearly, either enrollment forecast — the first of modest growth, the second of continued stability — paints a troubling picture. Connecticut’s economic well-being rests upon a highly skilled workforce. Lacking a sufficient supply of available talent, many businesses may be faced with the uncertainty of recruiting workers from other states, or worse, re-locating to more "fertile" territory.

Figure 1: Connecticut Public College Headcount Enrollment Projections

Figure 1: Connecticut Public College Headcount Enrollment Projections

Figure 2: Fall Headcount Enrollment 1990 - Preliminary 1997

Figure 2: Fall Headcount Enrollment 1990 - Preliminary 1997

Influencing the course of future enrollment will not be easy. Connecticut already has one of the highest college-going rates in the nation (75 percent). Boosting this rate higher will be difficult, requiring, at the very least, stepped-up intervention efforts to assure that even more students finish high school and proceed onto college.

An obvious strategy, often cited, is to entice more Connecticut students to attend college within the state. Currently, more than half of Connecticut’s high school graduates leave the state for colleges elsewhere. This is not a new phenomenon, nor is it particularly surprising given Connecticut’s size, wealth and locale. But with future enrollment growth looking modest at best, the continued loss of many of our "best and brightest" may become too large an economic risk to let go unchecked.

Another potential for raising enrollment is the adult learner. Yet, the college-going rate of these students has remained virtually unchanged over time. Capturing more of this pool will be especially challenging unless colleges change the way they offer courses. Often colleges cannot respond quickly enough to the immediate training needs of older students, and struggle to compete with ever-expanding private service providers. Flexible schedules and convenient times and locations are critical considerations to busy, working adults.

Enrollment patterns, however, only partly address the question of whether Connecticut higher education faces a major gap between system needs and revenues. Financial considerations make up a second and, perhaps, more complex component.

III. Revenue and Cost Assumptions

In order to forecast future costs and revenues, this study makes several assumptions about the system’s continued financial growth. It is important to emphasize that these assumptions are conservative in nature.

First, state appropriations and fringe benefit allocations are expected to grow about 2.8 percent, based on average growth between 1988 and 1997, and current inflation rates. Second, tuition revenue is projected to mirror the growth both in state appropriations and inflation (unlike recent trends in which tuition rose faster than inflation to compensate for losses in state support). Third, the revenue model employed here assumes an optimistic annual growth in private gifts and grants of five percent, and only a one percent increase in federal grants and contracts.

Compared to revenues, projecting costs — the other side of the financial equation — is more complicated given the unpredictability of technological advances and wage settlements. Surely, colleges will have to keep up with changes in technology. They will have to invest significantly over time in equipment, software, training and new programs.

Yet, personnel costs loom as the far larger cost-driver given the labor-intensive nature of higher education. Because the vast majority of its higher education employees belong to collective bargaining units, Connecticut’s salary levels consistently exceed national averages. Between 1991 and 1997, for instance, compounded salary increases for Connecticut’s higher education collective bargaining units averaged 20 percent compared to a growth of 14.4 percent in the CPI over the same period. Recent wage settlements, however, have been more in-line with inflationary trends. This study, therefore, uses more conservative growth assumptions for personnel expenses than historical trends would suggest.

Based on these calculations, projected annual increases in costs average only about 3.5 percent. Under the "best case scenario" of modest enrollment growth, costs are somewhat higher since they take into account funds for new faculty and staff as well as expenses incurred by planned new facilities.

Given these projections for enrollment, costs and revenue, what is the potential gap between resources and needs facing Connecticut public higher education?

IV. The Gap Between Resources and Needs

We conclude that Connecticut public higher education faces a significant gap between resources and needs, the magnitude and timing of which depend on student attendance.

Assuming modest enrollment growth until 2006 (the best case scenario), the system’s costs could reach $1,992 million by 2012. Revenues, on the other hand, will increase to only $1,905 million, leaving a projected shortfall of nearly $87 million as illustrated in Figure 3 on the next page. In the short term, however, modest enrollment growth will have a positive effect on the budget, with small surpluses predicted from 1999 to 2002.

Figure 3: Projected Revenue Shortfall under Best Case Scenario

Figure 3: Projected Revenue Shortfall under Best Case Scenario

Continued stability in enrollment (the second scenario described) would present far more serious financial consequences for the system. Current enrollment levels coupled with cost increases would push operating costs to $1,977 million by 2012. Revenues, in contrast, will only grow to $1,864 million, leaving a substantial gap of more than $113 million (see below in Figure 4).

Figure 4: Projected Revenue Shortfall with Stable Enrollment

Figure 4: Projected Revenue Shortfall with Stable Enrollment

Figures 5 and 6 illustrate the expected revenue gap for the University of Connecticut, Connecticut State University and the Community-Technical Colleges under each enrollment scenario. Given the conservative cost estimates used, the deficits could be significantly larger than portrayed here.

Figure 5: Revenue Gap by Unit – Best Case Scenario

Figure 5: Revenue Gap by Unit – Best Case Scenario

Figure 6: Revenue Gap by Unit – Stable Enrollment

Figure 6: Revenue Gap by Unit – Stable Enrollment

The University of Connecticut’s budget will benefit from higher enrollment between 1999 and 2001. Beyond this point, however, enrollment growth alone will not help preserve its bottom line. By 2012, UConn could face an annual operating deficit of nearly $48 million, or more than six percent of its budget. Continued stable enrollment could considerably worsen the situation, leading to a deficit by 2012 of nearly $61 million, or eight percent of its budget.

Similarly, enrollment growth will help Connecticut State University achieve budget surpluses (albeit small) over the next nine years. By 2007, however, this trend will reverse, leaving this institution with a deficit of some $17 million — amounting to 3.5 percent of its budget — by 2012. Without enrollment growth, this deficit could balloon to more than $31 million, or six percent of its budget.

Given the smaller enrollment growth forecast for the Community-Technical Colleges under either scenario, this system is headed almost immediately for deficits that by 2012 could exceed six percent of its budget, or nearly $22 million.

Another way of measuring the impact of these projections is to look at costs on an individual student basis. Assuming modest enrollment growth at best, the system will not see any tangible benefits from economies of scale. The actual funds needed to educate a student, therefore, could well double over the next 12 years if current costs remain the same (see Figure 7). By 2012, the average cost per full-time equivalent (FTE) student at the UConn could rise more than 56 percent (from $19,588 to $30,612). Similarly, the cost per student at Connecticut State University and the Community-Technical Colleges could grow by almost 52 percent.

Figure 7: Cost Per Student

Figure 7: Cost Per Student

Although cost projections are necessarily estimates, one conclusion is inescapable: Connecticut public higher education is headed for a financial crisis. Since costs grow faster than revenue, raising enrollment will not help nor will adding institutions or programs.

V. Filling the Gap

For Connecticut public higher education to sustain a revenue gap of between $86 or $113 million, the system will need to find resources from either one or two sources: the state or the student, based on past practice.

For example, during the height of the state’s 1991-92 financial crisis, the University of Connecticut, Connecticut State University and the Community-Technical Colleges faced a combined deficit of nearly $39 million. To close the gap, tuition rose significantly (16, 29 and 21 percent, respectively) and tuition reserves were tapped. Similar shortfalls the next year led tuition to climb another 13, 17 and 13 percent, respectively.

To fill the prorated gap for the coming years without prohibitive tuition increases, the state would have to raise annual appropriations to higher education by 20 percent, or $86 million by 2012, assuming modest enrollment growth. Appropriations would have to rise another $113 million, or almost 25 percent a year, if stable enrollments persist.

Placing the burden squarely on students would cause tuition to skyrocket. Assuming modest enrollment growth, tuition would nearly double at the University of Connecticut, and jump 63 percent at Connecticut State University and 85 percent at the Community-Technical Colleges by 2012 (see Figures 8 to 10).

Figure 8: Projected Tuition Rates to Meet Gap at UConn

Figure 8: Projected Tuition Rates to Meet Gap at UConn

Students would pay almost $9,960 to attend UConn, excluding room and board, up $4,718 from $5,242 today. Student charges at Connecticut State University would increase to $5,873 (up $2,264) and rise to $3,364 at the Community-Technical Colleges.

Figure 9: Projected Tuition Rates to Meet Gap at CSU

Figure 9: Projected Tuition Rates to Meet Gap at CSU

Figure 10: Projected Tuition Rates to Meet Gap at the CTCs

Figure 10: Projected Tuition Rates to Meet Gap at the CTCs

Should enrollment remain unchanged, the impact on tuition worsens: increases of 105 percent at UConn, 77 percent at Connecticut State University and 88 percent at the Community-Technical Colleges. This analysis does not take into account other costs such as room, board, books and supplies. Increases beyond inflation in these expenses will make attending a public college or university in Connecticut an impossibility for many more students.

VI. Sharing the Cost of Public Higher Education

What portion of costs should be borne by the state versus the student obviously depends on the level of the state’s commitment to its public system of higher education. If state appropriations follow past trends, Connecticut students will carry the bulk of the burden. As illustrated in Figures 11 to 13, the student share of educational costs could grow from 33 percent to more than 41 percent at the University of Connecticut, from 40 percent to 45 percent at Connecticut State University and from less than 30 percent to nearly 36 percent at the Community-Technical Colleges by 2012.

Figure 11: Cost Per Student at UConn

Figure 11: Cost Per Student at UConn

Tuition increases of this magnitude will undoubtedly deny access to higher education for thousands of needy students. To help, the state could boost dollars for financial aid. This strategy, however, has a major drawback in that it pits students against institutions in the quest for ever-more-needed but limited state dollars.

In this scenario, students lacking the means to attend college in Connecticut will simply go elsewhere or not go at all. Connecticut and other Northeast states already have the highest tuition and fee rates in the nation. Asking our students to pick up an even greater share of educational costs will only heighten the exodus from Connecticut and deny access completely for others.

Figure 12: Cost Per Student at CSU

Figure 12: Cost Per Student at CSU

Figure 13: Cost Per Student at CTCs

Figure 13: Cost Per Student at CTCs

 

VII. What Can Connecticut Do To Change Its Future?

The prospects for Connecticut’s public higher education system outlined in this report are alarming and unacceptable. The state cannot afford its current system for much longer, nor will the system be able to balance its books on the basis of population. Like the Commission on National Investment in Higher Education, we conclude that the major choices facing Connecticut appear to be relatively straightforward: either to infuse public higher education with a massive investment of new funds (raised from either taxpayer dollars or student tuition) or to seriously reconsider the system’s array of programs and delivery of services to state citizens.

Given the unlikelihood of the former option, the urgent task facing the system is to rethink the way it manages its resources in order to meet its obligations. Higher education is simply too important to the state’s well-being — and, indeed, its economic survival — to keep Connecticut students from attending its public colleges and universities.

VIII. Appendix

Population and Enrollment Projections

Population projections for the State of Connecticut come from the official state projections done under the direction of the Office of Policy and Management (OPM) and published as Connecticut Population Projections: Population Projections For Connecticut And Its Municipalities By Age And Sex: 1995-2020. Series 95.1. Policy Development and Planning Division, Office of Policy and Management. September, 1995.

PROJECTIONS OF THE 18 TO 24, 25 TO 44, AND 45+ AGE
COHORTS FOR THE STATE OF CONNECTICUT TO THE
YEAR 2020
  18 to 24 25 to 44 45+  
1990 336,333 1,094,878 1,097,224 Census
1995 272,215 1,062,654 1,158,635 Estimated
2000 259,429 994,175 1,250,366 Projected
2005 291,567 902,643 1,364,791 Projected
2010 320,397 850,682 1,473,421 Projected
2015 327,962 859,529 1,537,532 Projected
2020 309,830 907,060 1,570,810 Projected

Four methods were used to project public system enrollment from these population projections; each builds on the fact that 90% or more of public college enrollment in Connecticut's are state residents.

Method One: Calculate the ratio of the 18-24 year-olds enrolled in Connecticut public higher education to the total number of 18-24 year-olds residing in Connecticut in 1990. Calculate the comparable ratios for the 25-44 and 45+ cohorts as well. Adjust each of these ratios up or down to approximate the actual enrollment of each age cohort in the public system in 1995. Multiply each of these adjusted ratios by the projected size of each of the respective cohorts in 2000, 2005, etc. to 2020. The sum for each year is the projected total public system enrollment for that future target year. This method assumes that the student harvest from each age cohort will remain roughly what it was in the period 1990 to 1995 over the next 25 years. Using this same procedure, the Department also projected enrollment at the University of Connecticut, Connecticut State University, and the Community-Technical Colleges.

Method Two: Calculate the ratio of the total number of students in Connecticut public higher education to the total number of 18-44 year olds residing in Connecticut in 1990. Adjust this ratio up or down to approximate the actual enrollment of this cohort in the public system in 1995. Multiply this adjusted ratio by the projected size of the same cohort in 2000, 2005, etc. to 2020. The product is the projected total system enrollment for each of the future target years. Method Two makes the same initial assumption as does Method One.

Method Three: Calculate the simple statistical correlation between the size of the 18-24 population cohort in Connecticut and the public system enrollment between 1960 and 1990 (r>.9). The regression line from this statistical correlation was then used to project the size of future system enrollment based on the projected size of the 18-24 cohort in the years 2000, 2005, etc. to 2020.

Method Four: Calculate the simple statistical correlation between the size of the 18-44 population cohort and the public system enrollment between 1960 and 1990 (r>.9). The regression line is then used to project the size of the future enrollment based on the projected size of the 18-44 cohort in the years 2000, 2005, etc. to 2020.

Figure 1 of this report plots the projections for each of these four methodologies. The patterns which emerge derive from the basic driving force embedded within each methodology. Method One is the most complex, seeking to follow the different trends projected for the sizes of the 18-24, 25-44, and 45+ population cohorts over the next 25 years. Its projections play the increasing numbers of 18-24 year olds against the declining numbers of those 25-44, with the 45+ population thrown in as well. This method produces projections all within the 95,000 to 110,000 system enrollment range. Method Three, which depends exclusively on the size of the 18-24 cohort and follows the rise and later decline of this cohort, tends to produce the highest enrollment projections, especially for 2005 and 2010. By contrast, Methods Two and Four, which give greater overall weight to the impact of the 25-44 cohort, reflect the future declines in the size of this cohort in Connecticut and, as a consequence, tend to give the lowest enrollment projections.

ENROLLMENT PROJECTIONS FOR THE PUBLIC SYSTEM OF
HIGHER EDUCATION IN CONNECTICUT: 2000 to 2020
  Method One Method Two Method Three Method Four
2000 105,000 98,000 103,000 107,000
2005 108,000 94,000 116,000 98,000
2010 107,000 90,000 116,000 90,000
2015 104,000 89,000 106,000 88,000
2020 105,000 92,000 104,000 95,000

In fall 1995, public system enrollment in Connecticut stood at 99,341: somewhat below the predictions of each of the four methodologies. Thus, despite continued population declines in two of the three relevant cohorts from 1995 to 2000, all four methodologies project public system enrollment for 2000 higher than the actual in 1995. In 1996, public system enrollment stood at 96,336; preliminary 1997 enrollment for the public system was 94,824.


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