Funding models of community colleges in 10 Midwest states.

The extent to which community colleges in 10 Midwest states relied on 12 current funds revenue sources between 1990 and 2000 is presented in this study. Four models of funding were identified and evaluated. All models generated revenue in excess of the change in the Higher Education Price Index (HEPI), a measure of inflation over the period studied. Implications for practice are discussed.

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Because community colleges were created in part to make higher education

financially accessible to the populace, it has been necessary for their primary funding to come from sources other than tuition and fees. According to Stringer, Cunningham, Merisotis, Wellman, and O'Brien (1999), enrollment tends to drop when tuition and fees increase. Stringer et al. observed a 0.5% to 1.0% decrease in college enrollment for every $100 increase in tuition, a finding that leads to the conclusion that the mission of the community college can be compromised when tuition and tees increase disproportionately.

Shifting proportions of revenue from local taxes, state aid, federal aid, and tuition have marked the funding of two-year colleges over the years. For example, for the years 1918, 1950, and 1999, revenues from local sources such as property taxes declined from 94%, to 49%, to 18%, respectively (Cohen & Brawer, 1996; Vaughan, 2000). In 1918, no state aid was provided to public two-year institutions, but by 1950 and 1999 states were contributing 26% and 39%, respectively, to community college revenue (Cohen & Brawer, 1996; Vaughan, 2000). Federal aid to community colleges was just 1% in 1950, but it grew to 13% in 1999 (Cohen & Brawer, 1996; Vaughan, 2000). Reliance on tuition and fees increased between 1929 and 1968 (Lombardi, 1976), although tuition was low as a proportion of all revenues (Martorana, 1958).

Although current information about community college revenue sources is limited, it appears that costs and funding patterns have changed in recent years. Harvey, Williams, Kirshstein, O'Malley, and Wellman (1998) reported that for public two-year colleges, "... total costs per student increased by 52 percent between 1987 and 1996, from an average of $5,197 to $7,916. Sticker prices increased 85 percent, from $710 to $1,316 ... [while] subsidies ... declined for part of this period" (p. 5). Watkins (2000) examined the effect of the 1991 recession on the inflation-adjusted current funds revenues of public community colleges by analyzing data from the annual Integrated Postsecondary Education Data System (IPEDS) Finance Surveys for the years 1989 through 1994. He found that while community colleges experienced a loss of governmental appropriations per student, the average community college made up for this decline through increased revenue from tuition and fees and governmental grants and contracts. In a study of 212 Midwest community colleges between 1990 and 2000, Kenton (2003) found that tuition and fees tended to increase as government appropriations went down.

The funding mix for community colleges varies considerably by state. Kenton (2003) found that some states rely heavily on tuition and fees for income (Ohio, Minnesota, North Dakota, Indiana, and Iowa), whereas others do not (especially Nebraska, Kansas, Illinois, and Wisconsin). Some states, including Minnesota, Indiana, Ohio, and North Dakota, receive comparatively generous state appropriations, while others receive less funding from this source. Local appropriations are an important revenue source in Wisconsin, Kansas, Illinois, and Michigan, but almost no income is derived from local appropriations in Indiana, North Dakota, Minnesota, and Ohio. The reasons for these differences in funding formulas may be diverse, such as historical patterns of community college finance in the various states, the philosophy of a state (e.g., whether community colleges are perceived as grades 13 and 14 or are regarded as the first 2 years of college and therefore separate from the K-12 school system), or the culture of the state. Governance also may be an issue in that no specific model for the governance of community colleges has been adopted by the various states.

The key issue guiding the current investigation was to determine if states employ different models of funding community colleges. Funding models can be of particular interest to community college leaders. Pennsylvania, for example, has struggled with a funding formula that places responsibilities for a substantial proportion of funding commitments on local sponsors who "historically have fallen short in fulfilling their commitments to provide two-thirds of community college operating costs" (Myers, 1999, p. 297). Moreover, the relationship between funding models and mission is important because, according to Wattenbarger (1985), "... most researchers have not attempted to establish a connection between the special mission of the community college and the financial support of these institutions" (p. 65).

A second and related issue guiding this study was that if different funding models could be identified, do some yield more robust funding than others? If administrators can utilize a planning process that ties the mission of the institution to its financial resources, they may be able to meet the goal of keeping college affordable and accessible while at the same time achieving financial accountability (Hay, 1990).

Purpose of the Study

This study was designed to determine if different models of funding were utilized to finance community colleges from 1990 to 2000 in the 10 states included in this study. The following two questions guided this research:

1. Did the states included in this study use different models of funding for community colleges between 1990 and 2000?

2. If different models of funding emerged, did these models provide similar or different amounts of funding over the decade?

Theoretical Framework

Slaughter and Leslie (1997) point out that "the key to organizational survival is the ability to acquire and maintain resources" (p. 69). As a public institution, the community college depends upon securing financial revenue from a variety of sources. In this context, resource dependency theory is relevant because it assumes that organizational stability depends upon the stability of resources.

Resource dependency theory is a social organizational theory that "seeks to explain organizational and interorganizational behavior in terms of those critical resources that an organization must have in order to survive and function" (Johnson, 1995, p. 1). One of its theoretical constructs--external constraint--addresses the notion that various external pressures and demands limit organizational choice and action. "Organizations will (and should) respond more to the demands of those organizations or groups in the environment that control critical resources" (Pfeffer, 1982, p. 193). According to Pfeffer (1982), "Managers and administrators attempt to manage their external dependencies, both to ensure the survival of the organization and to acquire, if possible, more autonomy and freedom from external constraint" (p. 193).

This study is based upon the proposition that if one is interested in understanding how community college administrators manage their revenues, one needs to understand the history, cultures, and norms of the individual states in which they are located. "[A] good deal of organizational behavior ... can be understood only by knowing something about the organization's environment and the problems it creates for obtaining resources" (Pfeffer & Salancik, 1978, p. 3). Given the constraints present in various state funding environments, a variety of funding models may have been developed for supporting community colleges.

Method

Instrumentation

The National Center for Education Statistics (NCES) provided the data for this study through its Integrated Postsecondary Education Data System (IPEDS). Specifically, the Finance Survey, conducted by NCES for the survey years of 1990, 1995, and 2000 for community colleges in the Plains Region and Lakes Region, was utilized (National Center for Education Statistics, 2000). According to the IPEDS Web page, the Finance Survey is used to collect each institution's current fund revenues annually (National Center for Education Statistics, 2000). Institutional representatives with access to the appropriate data collect the information, complete the survey, and provide it to NCES for analysis.

Variables

This study was concerned with various revenue sources that are aggregated to form a variable called current funds revenues. Current funds revenue sources include the following revenue sources: tuition and fees, federal appropriations, state appropriations, local appropriations, federal grants, state grants, local grants, private gifts, endowment income, sales and services of educational activities, auxiliary enterprises, and other sources not covered by a separate specified source. The definition of each revenue source as provided by IPEDS is included in the appendix at the end of this article.

Sampling

The population of institutions targeted in this study was the 244 public two-year Associate of Arts degree-granting institutions located in 12 upper Midwest states that comprise two NCES-defined regions: the Plains Region (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota; n = 96) and the Lakes Region (Illinois, Indiana, Michigan, Ohio, and Wisconsin; n = 148). Tribal, religiously affiliated, independent, proprietary, and for-profit institutions were not included.

Institutions in the state of South Dakota were excluded when it was discovered that, in the 1990 and 1995 surveys, these institutions were K-12-governed vocational and technical schools that were not designed or funded as community colleges. In addition, it was discovered that Nebraska's funding pattern shifted from one with a major emphasis on local appropriations to a pattern emphasizing state appropriations. Consequently, because it did not utilize a consistent funding pattern over the 1990s, Nebraska was not included in the data analysis. Data from only those 208 institutions in the 10 states studied that completed the Finance Survey for all 3 years were included in the analysis.

Data Analysis

For each state, an average percent reliance on each funding source across the 3 years of the study was calculated. For each of three revenue sources (state appropriations, local appropriations, and tuition and fees), groups of states were compared using the one-way ANOVA. Tukey post hoc tests were conducted if significant overall effects were found. A level of significance, or alpha level, of .05 was selected for this study because it is used generally for educational research (Agresti & Finlay, 1997).

Results

This study was designed to determine it the states of interest used different models of funding community colleges during the decade of the 1990s. Another purpose was to compare the different funding models in terms of their ability to generate sustained or increased revenue for community colleges in the 1990s.

Table 1 lists the twelve sources of current funds revenue in descending order of overall mean percentage (right-hand column) for the 10 states that had consistent funding patterns over the decade. Three sources that had a mean percentage of at least 15% of their revenue (state appropriations, tuition and fees, and local appropriations) were used as the basis for grouping the states into four funding models.

The states were grouped by their relative dependency on each of these three revenue sources using the scheme depicted in Table 2. The levels of dependency and their associated percentages are as follows: Very High (40% or more of their revenue came from this source), High (dependency between 30% and 39%), Moderate (20% to 29%), Low (13% to 19%), Very Low (3% to 12%), and Extremely Low (0% to 2%). When at least two of the three states fell in the same category, that category was selected as the level of dependency.

For each model, averages were calculated for each of the three funding sources, and the data are shown in Table 3. As can be seen, the averages fall within the ranges set for each dependency category described above.

For each of the three sources of current funds revenue that were used in defining the models, a data set containing the mean percentages for the states within each model was created. For each revenue source, a one-way ANOVA was used to determine if the four models depicted in Table 3 were significantly different from one another. Results of these tests are shown in Table 4. The significant F-ratios indicate that at least one pair of models differs significantly for each revenue source.

Tukey post hoc test results are shown in Table 5. The test for state appropriations indicated that there were significant differences between Model 1 and all other Models (p < .01). Models 2 and 3 were significantly different from each other (p < .01), but not significantly different from Model 4 (p = .09 and p = . 11, respectively). In the tuition and tees category, Models 1, 2, and 3 were significantly different from each other (p < .01 top = .02) but Model 4 was not significantly different from any other Model (p = .06 to p = .98). The Tukey follow-up tests for local appropriations indicated that there was a significant difference between all pairings of Models (p < .01 top = .01) except Model 1 and Model 2 (p = .08).

The second research question examined how various funding models have provided sustained or increased revenue over the decade of the 1990s. For each model shown in Table 2, the average amount of total current funds revenue dollars per institution in the states represented by the model was calculated for 1990 and 2000, and the percentage change between the 2 years was calculated, as seen in Table 6. For example, Model 1 includes the states of Minnesota (18 institutions included in the study), Indiana (14 institutions), and Ohio (41 institutions).

In Minnesota mean funding per institution was $12,062,330 (total current funds of $217,121,948 in 1990 divided by 18 institutions). In Indiana the mean per institution was $11,541,232 (total current funds of $161,577,251 divided by 14 institutions), and in Ohio the mean per institution was $12,817,664 (total current funds of $525,524,219 divided by 41 institutions). The total by combining the means from each of the states was $36,421,226 for the three states included in the model for 1990. Similar calculations were made for the other states in 1990, and then the total was calculated in 2000 to reflect the growth over the decade. This total then was compared to the change in the Higher Education Price Index (HEPI) between 1990 and 2000 (39.84%). The right-hand column of Table 6 shows that all of the funding models generated considerable revenue in excess of the change in the HEPI. Model 1 (very high state appropriations, moderate tuition and fees, and extremely low local appropriations) generated the greatest increase in current funds revenue, whereas the balanced approach used only in Michigan ("moderate" reliance on all three sources) generated the smallest increase in current funds revenue.

Discussion

According to Brumbach and Villadsen (2002), "At its best, resource development in the community's college is a [sic] entrepreneurial operation that melds public and private resources, knowledge of college needs and operations, effective solution development and a visionary approach .... " (p. 85). The variety of funding patterns supports the concept of state individuality (Medsker & Tillery, 1971; Morsch, 1971; Wattenbarger & Stepp, 1978); that is, states go about funding community college operations in different ways, presumably consistent with the goals and culture of each state. In the states that are included in this study, four funding models emerged, and all of them seemed to be successful using Bowen's laws of higher education costs as a framework. Bowen (1980/1996) asserted, "Each institutions raises all the money it can," and "each institution spends all it raises" (p. 123). In the case of the four models, each succeeded in raising more money than the rate of inflation, thereby enabling institutions to spend at a rate exceeding inflation. Overall, the funding patterns for the community colleges included in this study are consistent with resource dependency theory. In states where the level of funding from one source is low (e.g., local appropriations), community colleges look to other sources to sustain their revenue stream within the context of their mission and philosophy.

For example, those states that advocate the importance of the unique "open door" mission of the public community college most likely will rely less heavily on student tuition and fees in order to encourage access (Griffith & Connor, 1994; Vaughan, 2000). Five Midwest states studied by Katsinas, Johnson, and Snider (1999) illustrate this point. In their study, the states with the highest participation rates (Illinois and Michigan), as defined by the percentage of the population enrolled in community colleges, had the lowest tuition and fee charges. In Indiana, Ohio, and Wisconsin, just the opposite was true; that is, participation rates were smaller and tuition and fee charges were higher.

Those states in which the mission of the community college is to meet the needs of the immediate local community may develop a funding pattern that emphasizes local appropriations (Fields, 1962). When a state-level governing body attempts to treat all community colleges equally, the funding pattern probably will depend heavily on state appropriations and state grants (Medsker & Tillery, 1971; Wattenbarger & Starues, 1976). When the constituents within a state believe that the individual, the local community, and the state in general all receive nearly equal benefits from higher education, the funding pattern may rely on equal proportions of funding from each of these funding sources.

To determine if any model provided consistent or increasing revenue dollars during the period of the study, current funds revenue for 1990 was compared with current funds revenue for 2000. This comparison involved an adjustment for inflation, as represented by the change in the Higher Education Price Index (HEPI) over the decade. "The HEPI is based on the prices (salaries) of faculty and of administrators and other professional service personnel; clerical, technical, service, and other nonprofessional personnel; contracted services such as data processing, communication, transportation, supplies and materials, and equipment; library acquisitions; and utilities" (cited in University of San Francisco, n.d., para. 4).

In the decade of the study (1990-2000), the various funding models generated a greater increase than the change in the HEPI, which was 39.84% (Halstead, 2001). In other words, taking inflation into account, a funding model would have had to generate 39.84% more current funds revenue in the year 2000 than in the year 1990 to maintain a constant purchasing level. All four models exceeded this amount, with Model 1 (very high state appropriations, moderate tuition and fees, and extremely low local appropriations) generating the greatest increase in current funds revenue. Based on the results of this study, reliance on state government yielded the most favorable growth in revenues for the states included in this study. While every state has its own culture, history, and other factors that affect how it chooses to support community colleges, this finding may be explained from the following perspectives. Citizens may prefer to pay state income or sales taxes rather than property taxes particularly in a period of rapidly increasing property values. Additionally, increasing tuition substantially may not be an option for institutional leaders given that community college students often come from modest economic backgrounds. Whether or not this strategy--relying heavily on state government for financial support--will sustain itself in the current decade is unknown, given the economic downturn of the early part of this decade and the economic shock caused by the events of September 11, 2001.

From time to time, institutions may decide to rely somewhat equally on multiple revenue sources to insure themselves against a drastic decline in revenue from a specific source. Michigan's funding pattern, identified as Model 4, is an illustration of this approach. The results of this study indicate that this model produced the most modest results over the 10 years studied. The balanced approach used by Michigan generated 62.81% growth in revenue, more than 10% less than the growth produced by Model 3 and about 18% to 23% less than Models 1 and 2. In other words, a balanced approach to financial dependency was the least successful in generating additional revenue, according to the findings of this study. To a certain extent this finding might appear to be counter intuitive, in that seeking balance from multiple revenue sources might appear to be the best way to protect an institution of higher education from external events that could jeopardize the institution's revenue stream. In fact, the results of this study did not sustain that perspective. The events of the 1990s (the time frame for this study) included economic boom and recession, a short war (Desert Storm), and a change in administrations in Washington, DC, as well as multiple elections of state legislatures and governors in the states studied. In spite of all of this activity and potential uncertainty, the balanced approach yielded the least positive results in terms of revenue growth.

The generalizability of the findings of this study is limited by at least two factors. First, it is possible that those who complete the annual finance surveys may make errors in the process. There is no way to account for such errors other than to assume that the sheer number of institutions included in the analysis mitigates the effect of minor errors that occur when the forms are completed. Second, this study concentrated on two regions of the United States (the Lakes and the Plains regions). It is entirely possible that economic conditions in other regions of the country were different during the period studied and, as a consequence, the experiences of community colleges in other regions may have been different. Nevertheless, this study provides a good point of departure for investigating the revenue sources of community colleges in other regions.

Appendix

Definitions of Revenue Sources

Current Funds Revenues: This includes "(1) all unrestricted gifts, grants, and other resources earned during the reporting period and (2) restricted resources to the extent that such funds were expended for current operating purposes. Current fund revenues do not include restricted current funds received but not expended because these revenues have not been earned" (National Center for Education Statistics, 1999, General Instructions, p. 1).

Tuition and Fees: "Report all tuition and fees (including student activity lees) assessed against students for education purposes. Include tuition and fee remissions or exemptions even though there is no intention of collecting from the student. Include here those tuitions and fees that are remitted to the state as an offset to the state appropriation" (National Center for Education Statistics, 1999, General Instructions, p. 1).

Federal Appropriations: "... all amounts received by the institution through acts of [federal legislation], except grants and contracts. These funds are for meeting current operating expenses, not for specific projects or programs" (National Center for Education Statistics, 1999, General Instructions, p. 1).

State Appropriations: "... all amounts received by the institution through acts of [state legislation], except grants and contracts. These funds are for meeting current operating expenses, not for specific projects or programs" (National Center for Education Statistics, 1999, General Instructions, p. 1).

Local Appropriations: "... all amounts received by the institution through acts of [local legislation], except grants and contracts. These funds are for meeting current operating expenses, not for specific projects or programs" (National Center for Education Statistics, 1999, General Instructions, p. 1).

Federal Grants: "... revenues from [federal] governmental agencies that are for specific research projects or other types of programs. Examples are research projects, training programs, and similar activities for which amounts are received or expenditures are reimbursable under the terms of a government grant or contract" (National Center for Education Statistics, 1999, General Instructions, p. 1).

State Grants: "... revenues from [state] governmental agencies that are for specific research projects or other types of programs. Examples are research projects, training programs, and similar activities for which amounts are received or expenditures are reimbursable under the terms of a government grant or contract" (National Center for Education Statistics, 1999, General Instructions, p. 1).

Local Grants: "... revenues from [local] governmental agencies that are for specific research projects or other types of programs. Examples are research projects, training programs, and similar activities for which amounts are received or expenditures are reimbursable under the terms of a government grant or contract" (National Center for Education Statistics, 1999, General Instructions, p. 1).

Private Gifts: "... revenues from private donors [including foreign governments] for which no legal consideration is involved and private contracts for specific goods and services provided to the funder as stipulation for receipt of the funds" (National Center for Education Statistics, 1999, General Instructions, p. 1).

Endowment Income: "... unrestricted income of endowment and similar funds; restricted income of endowment and similar funds to the extent expended for current operating purposes; and income from funds held in trust by others under irrevocable trusts" (National Center for Education Statistics, 1999, General Instructions, p. 2).

Sales and Services of Educational Activities: "... revenues derived from the sales ... incidental to ... instruction, research or public service. Examples include film rentals, scientific and literary publications, testing services, university presses, and dairy products" (National Center lot Education Statistics, 1999, General Instructions, p. 2).

Auxiliary Enterprises: "... revenues generated by ... operations that exist to furnish a service to students, faculty, or staff, and that charge a fee that is directly related to the cost of the service. Examples are resident halls, food services, college unions, college stores, and movie theaters" (National Center for Education Statistics, 1999, General Instructions, p. 2).

Other Income: "... revenues not covered elsewhere" (National Center for Education Statistics, 1999, General Instructions, p. 2).

Table 1
Comparison of States and Their Funding Pattern

Variable                 MN   IN   OH   ND   IA

State Appropriations     44   42   40   36   32
Tuition and Fees         26   24   37   25   22
Local Appropriations      0    0    2    0    7
Federal Grants           12   13    9   14   12
Auxiliary                 6    7    6   14    9
State Grants              4    9    3    4    2
Other                     7    1    1    2   10
Private Gifts             0    3    1    2    1
Sales and Services        1    0    1    2    1
Federal Appropriations    0    0    0    1    2
Local Grants              0    0    0    0    1
Endowment Income          0    0    0    0    0

Variable                 MO   KS   IL   WI   MI   Mean

State Appropriations     28   23   22   22   27    31
Tuition and Fees         21   14   18   16   22    23
Local Appropriations     12   33   27   41   23    16
Federal Grants           16   13   12   10   11    11
Auxiliary                 8    9    6    5    6    8
State Grants              7    1    9    0    4    5
Other                     3    4    5    2    4    4
Private Gifts             1    1    0    0    1    1
Sales and Services        1    0    0    3    1    1
Federal Appropriations    1    1    0    0    0    1
Local Grants              1    1    1    0    0    0
Endowment Income          0    0    0    0    0    0

Note. All cell numbers are percentages of funding sources
that each state uses.

Table 2
Four Models of Current Funds Revenue Funding

                          Model 1      Model 2    Model 3    Model 4

Source of Funding        MN/IN/OH      ND/IA/MO   KS/IL/WI      MI
State Appropriations     Very High       High     Moderate   Moderate
Tuition and Fees         Moderate      Moderate     Low      Moderate
Local Appropriations   Extremely Low   Very Low     High     Moderate

Note. Very High = 40% or more of revenue came from this source;
High = 30% to 39% of revenue came from this source; Moderate = 20%
to 29% of revenue came from this source; Low = 13% to 19% of revenue
came from this source; Very Low = 3% to 12% of revenue came from this
source; Extremely Low = 0% to 2% of revenue came from this source.

Table 3
Mean Percentages for Groups of States for Three Current Funds
Revenue Sources

                       Model 1    Model 2    Model 3    Model 4

Source of Funding      MN/IN/OH   ND/IA/MO   KS/IL/WI     MI
State Appropriations     41.8       32.3       22.1      27.1
Tuition and Fees         28.9       22.7       16.0      21.6
Local Appropriations     0.8        6.5        33.9      23.2

Note. All cell numbers are percentages of funding that each model
uses.

Table 4
One-way ANOVA Results: Comparing the Four Models on Each
of Three Primary Funding Sources

                      df      F       Eta squared    p

State Appropriation   3    60.248 *      .874       .000
Tuition & Fees        3    15.482 *      .641       .000
Local Appropriation   3    85.037 *      .908       .000

* p < .05

Table 5
Tukey Test Results Comparing Four Models

               State
           Appropriations         Tuition & Fees

Model    1     2     3    4     1     2     3    4

  1     --                     --
  2     .00   --               .02   --
  3     .00   .00   --         .00   .01   --
  4     .00   .09   .11   --   .06   .98   .18   --

        Local Appropriations

Model    1     2     3    4

  1     --
  2     .08   --
  3     .00   .00   --
  4     .00   .00   .01   --

Table 6
Total Current Funds Revenue Dollars for Each Model of Funding
Over Time and in Comparisons to the HEPI *

                                                  Percentage Point
                                                     Difference
             1990           2000       % change       Compared
                                                     with HEPI

Model 1   $36,421,226    $67,593,455    85.59          +45.75
Model 2   $36,361,420    $65,638,688    80.50          +40.66
Model 3   $59,544,493   $102,990,089    72.96          +33.12
Model 4   $24,029,400    $39,122,306    62.81          +22.97

* The HEPI increased by 39.84% between 1990 and 2000.

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Carol Piper Kenton is a retired community college faculty member and administrator. [e-mail]

John H. Schuh is distinguished professor of educational leadership and policy studies at Iowa State University. [e-mail]

Mary E. Huba is professor of educational leadership and policy studies at Iowa State University. [e-mail]

Mack C. Shelley, II, is professor of statistics and professor of educational leadership and policy studies at Iowa State University. [e-mail]