A Small Stimulus for Colleges

In the area of higher education especially, but in most other areas too, the Stimulus bill looks more like an emergency measure designed to maintain current programs than a strategic package aimed to stimulate growth. Among others, college and university presidents are likely to be among those sorely disappointed.
Last November, shortly after the election, a group of college presidents took out a full page advertisement in the New York Times to make the case that the proposed stimulus package to be considered by the new administration should include some $50 billion for the construction of new buildings on college campuses across the country. The academic leaders argued that such expenditures were an investment in the future of the country and would, in addition, create new jobs in the short run. They estimated that this allocation would represent but 5 per cent or thereabouts of the total stimulus package, which by their reckoning would add up to something like $1 trillion. Like governors, mayors, and representatives of other interest groups, they were eager to get in line for a piece of this once-in- a-lifetime jackpot of federal largesse.

The results are now in and a cursory examination of the $800 billion package approved over the weekend by the House and Senate suggests that the college presidents got little of what they wanted. First of all, there are no funds in the bill allocated for the construction or repair of buildings on college campuses, nor any tax credits or incentives targeted for this purpose. It would appear that, on this point, the academic leaders emerged empty-handed with nothing to show for their efforts. They might even conclude that they have been slighted by the Congress, since there are significant allocations in the bill for the construction and renovation of federal buildings, local schools, and buildings on Indian reservations.
The major allocation for higher education is a $17.1 billion increase in Pell Grants and other forms of assistance for low income students. Under the bill, the maximum annual Pell Grant will be increased from $4,731 in 2008 to $5,350 in 2009 and $5,550 in 2010. This represents a significant increase in student aid over the two year period, since the current federal allocation for Pell Grants amounts to about $19 billion per year. The bill also includes a $200 million increase in federal work study funds and a $60 million increase in state student aid funds. Though the items in the stimulus package are supposed to be one-time expenditures, these increases will no doubt be absorbed into the budgetary baselines and will thereby be made permanent.
There is also in the bill a tax credit for individuals and families of up to $2,500 per year for college tuition and expenses which is estimated to total some $14 billion in such credits over two years.
Federal aid to students is primarily a subsidy to colleges and universities that underwrites rising tuitions. Since students can pay more, colleges can charge more courtesy of the federal subsidy. In this sense, the increase in student assistance is a boon to higher education that the industry would not have otherwise received without the stimulus bill. On the other hand, the funds are spread out to students attending more than 4,000 post-secondary institutions such that the advantages gained by particular institutions will be marginal at best.
The Congress also approved various expenditures for research for which some colleges and universities will be able to compete. There is, for example, a $1.6 billion allocation for research in high energy physics, nuclear physics, and fusion energy sciences, a $2.5 billion allocation for research and development of renewable and efficient energy technology, and a $400 million item for “high risk” research into energy sources and energy efficiency – all administered through the Department of Energy. There is also a large allocation in the bill — $9.5 billion – for biomedical research under the National Institutes for Health. Given the highly technical nature of these subjects, only the most advanced research institutions are likely to have the capacity to compete for these funds.
Thus it appears that higher education received some significant indirect aid in the Stimulus Bill in the form of student assistance and perhaps some research support for advanced institutions, but nothing in the way of direct support for buildings or campus renovation.
The great bulk of the education spending in the bill was directed to K through 12 public education which received, just for starters, $41 billion in the form of assistance to states to balance education budgets, $5 billion in incentives to meet performance targets, $13 billion in funding for educational programs for disadvantaged children, $12.2 billion for grants for special education programs, and $650 million in funding for school computer and science laboratories. There is also $22 billion in new tax credit bonds for the construction or repair of public schools – but no such credits for campus buildings.
After reading through the bewildering list of programs that received funding in the bill, it is easy to see why critics claim that it is really a spending bill rather than a strategic package designed to stimulate investment and economic growth. Most of the spending is directed to augment existing programs over the next few years or to prevent budget cuts in existing programs at the state and local level. In the area of higher education, the new expenditures are probably not significant enough to change anyone’s plans or behavior very much, nor do they break new ground in a way that might promote new forms of investment in education or research. Higher education received some significant indirect aid in the Stimulus Bill in the form of student assistance and perhaps some research support for advanced institutions, but as for buildings or campus renovation, the colleges got nothing at all.
For a summary of the Stimulus Package of 2009, go to: www.wsj.com