What the HEROES Act Means for State Higher Education Funding

The House of Representatives passed its fourth legislative response to the COVID-19 pandemic on May 15, a bill called the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act. Among other higher education-related provisions, the bill includes specific support for state higher education budgets, reflecting a need to address both short- and long-term funding due to looming state budget cuts to higher education. The legislation represents a good first step to supporting state higher education funding, though it does not reach the scale of investment needed.

State Budget Cuts and Higher Education

While the CARES Act helped address some short-term funding challenges, states are facing deep revenue declines and have already cut budgets by dramatic margins. According to the Center on Budget and Policy Priorities, states may experience an average decline in state revenues of 15 percent for 2020 and 25 percent in fiscal year 2021. The shortfalls in state budgets add up to a total of $765 billion over three years. The state budget cuts are beginning to translate into crippling effects on higher education funds.

In some cases, states have already begun to make cuts to their higher education budgets. Ohio announced a $775 million cut for the remainder of this fiscal year, including $110 million in higher education, and Indiana announced a $103 million cut to public universities. Iowa has cut public university spending by $8 million. The Center for American Progress has outlined how some of the cuts will interplay with added expenses from the pandemic to leave institutions with significant shortfalls: Table 1 below is from their report on their findings.

table 1

Other states are proposing budget cuts, and will likely finalize those soon as budget deadlines roll through. For example, Oregon Governor Kate Brown told colleges and universities to prepare for an 8.5 percent cut over the coming two-year budget cycle, and the Nevada Board of Regents anticipates up to a 14 percent cut to college budgets. Louisiana plans to cut higher education by at least $21 million.

These state actions make clear how critical federal intervention will be—the states are waiting with bated breath to see what, if anything, the federal government will do.

Still others are preparing for the worst, while holding out hope that the federal government will intervene. In California, budget plans from Governor Gavin Newsom and the state legislature both feature 10 percent cuts to the state’s two public university systems, and under these plans, community colleges will see 10 percent of funding delayed. These cuts and delays would be automatically suspended if sufficient federal stimulus is delivered by September. Similarly, Missouri Governor Mike Parson stated that Missouri schools and universities will “most certainly” see a cut in state funding, but Missouri decided to put on hold a 10 percent cut in higher education funding to see if Congress sends more funding. These state actions make clear how critical federal intervention will be—the states are all but waiting with bated breath to see what, if anything, the federal government will do.

The HEROES Act Provides State Budget Relief for Higher Education—but Is It Enough?

As a part of the HEROES Act, the House proposes sending $37 billion in total for higher education. Of those dollars, $27 billion of that amount would go directly to the states to offset revenue declines impacting public higher education systems.¹ The bill provides states with funding based on their share of 5–24-year-olds, incorporating weights found in the Elementary and Secondary Education Act of 1965. It then instructs states to distribute funds based on a combination of Pell Grant recipients (75 percent of that which is apportioned to states relative to share of Pell Grant holders) and relative share of total enrollment of students (25 percent of apportionment).

It is critical that the bill allocates a specific fund, $27 billion in total, solely for use by state higher education institutions. And by sending the dollars to institutions by the number of students each institution serves, rather than by the number of full-time equivalent students, it will provide under-resourced community colleges serving large numbers of part-time students with a greater share of dollars than the CARES Act formula provided.

However, the HEROES Act’s allotted amount ultimately still falls short of the $46 billion advocated for by dozens of higher education organizations. As the budget shortfalls described earlier warn us, states may face significant budgetary crises over the next few years, and Congress may have limited opportunities to come back and supply needed support in the future. Furthermore, without an “automatic stabilizer” provision, which would increase the amount of support states receive if unemployment in their state persists, any dollars that are provided could also fall well short of what is needed. With all the uncertainty concerning budget cuts and the intensity of the growing recession, the fund as proposed may still leave public education underfunded in the next few years, mirroring the disinvestment experienced during the Great Recession.

The fund does provide some protections to avoid some of those historical mistakes. In order to receive the funds, the HEROES Act requires that states agree to a maintenance of effort (MOE), meaning that they must maintain spending levels for higher education at levels equal to or greater than the average of the previous three fiscal years. For example, if a state spent 8 percent, 9 percent, and 10 percent of the total budget on higher education in 2018, 2019, and 2020, respectively, the state must maintain at least 9 percent total spending on higher education in 2021.

Unlike the MOE requirement included in the American Recovery and Reinvestment Act in 2009, however, the MOE in the HEROES Act requires that a state’s support for higher education in 2022 must be the same or higher than it was in 2019 per full-time equivalent student. This means that even if a state sees growth in enrollment, it must return its per student spending to a level similar to the one it had before the onset of the recession. This provision could help to avoid the Great Recession experience, when states maintained aggregate funding for the duration of the time they received federal support, but did not keep it up with growing enrollment. Additionally, this new MOE rule requires that states maintain their funding for state financial aid programs as well as operational dollars, reflecting another lesson learned from the last recession, when states cut their aid programs.

Waiting on the Senate

While the HEROES Act falls short of what will likely be needed, the bill is a substantial and necessary step to curtail the projected devastating impact that the COVID-19 pandemic will have on state higher education funding. The Senate should now act to preserve state higher education systems.

photo header: A woman wearing a protective mask walks on the Columbia University campus on March 9, 2020 in New York City. Source: Jeenah Moon/Getty images

1. An additional $10 billion would be delegated directly to higher education institutions and would remain available until September 2021, with a provision to heavily weigh an institution’s Pell Grant recipients as well. $1.4 billion of the $10 billion fund sent to higher education institutions would flow directly to institutions that teach exclusively through distance education and have unmet needs related to the COVID-19 pandemic. The funds also allocate $20 million to Howard University and $11 million to Gallaudet University.

Tags: higher education funding, HEROES act