Universities and Colleges as Economic Drivers

10. The Impact of the 2008 Great Recession on College and University Contributions to State and Regional Economic Growth

277 10 tHe impaCt oF tHe 2008 great reCession on College and University ContribUtions to state and regional eConomiC growtH D. bRucE JoHnsTonE aBstraCt at the time of the September 2011 SUNY conference on Universities as Economic Drivers, the United States and most of its colleges and universities were recovering from, or accommodating to, the collapse of state budgets, endowments, and family incomes. These economic changes stemmed from the Great Recession of 2008–10, which by the start of 2012 still left most states with serious budget shortfalls. Ironically, public colleges and universities, which are generally assumed to be one of the keys to restoring the nation’s economic competitiveness in the increasingly competitive global economy, were themselves suffering from worsening austerity due to, in part, significant cuts in state appropriations. This chapter examines the linkages between their heightened financial austerity and their ability to contribute to the state and regional economic recovery, concluding that states must elevate the budget priorities of higher education, but also that public colleges and universities can enhance their contributions to economic restoration in spite of the worsening austerity. 278 JohNstoNE INtroDuCtIoN The Great Recession of 2008 began with a crash in the United States market for mortgage securities and derivatives, and then spread quickly to the entire financial sector and to the rest of the U.S. and most of the industrialized world economies. By early 2012, the U.S. economy was recovering very slowly, with unemployment still just over 8.5 percent . In late 2011, however, the central concern of the advanced industrial economies was moving from America, where the worldwide economic downturn began, to Europe, and especially to Southern Europe (Greece, Italy, Portugal, and Spain), where a combination of slow economic growth, high deficits, and exploding (and unfunded) future pension and health care obligations threaten the Euro Zone itself—and are threatening America’s economic recovery as well. As of the end of 2011, the usual monetary and fiscal tools for supporting economic recovery, such as lower interest rates and enhanced governmental spending, appear to have been insufficient to the task as well as mired in a political stalemate. The American Recovery and Reinvestment Act (ARRA) of 2009, which included more than $30 billion in part to address college affordability and access and $7.6 billion for scientific research, helped to stave off some of the recession’s effects on America’s colleges and universities; in particular , the effects stemming from the collapse of state treasuries and the loss of income of so many U.S. households with students in college. However, the ARRA money has since dried up, and many economists believe that the stimulus was insufficient to restore the United States economy anyway, quite aside from its ability or inability to shield American higher education from the effects of the 2008 recession. The U.S. president and most Democrats, joined by most academic economists, continue (as of early 2012) to call for more federal fiscal stimulus, which in turn calls for either higher federal deficits in the short run or increased taxation or both. The Republican Party, animated by its right wing, but also encouraged by a widespread malaise with government generally, calls for more cuts in federal and state spending, lower taxes (especially on individuals and corporations ), and priority attention not to the current high levels of unemployment or relief to hard-pressed state and local public sectors, but to the size of government itself and to the high and increasing levels The Impact of the 2008 Great Recession 279 of government debt. The Republicans, who, as of 2012, controlled the House of Representatives and many statehouses, saw the priority need to cut government spending, cut taxes, and attempt to bring down what they believe to be the increasingly unsustainable entitlements for pensions and health care. Public higher education, like all state revenue-dependent sectors and services, is vulnerable to collapsing state revenues, which, unlike federally funded services, are unable to be relieved by deficit financing . But public and private colleges and universities alike are also vulnerable to the anticipated cuts in federal financial assistance (especially federal Pell Grants and the federal subsidized student loan program), as well as to cuts in federal research support. This chapter examines the impact on public colleges and universities of the economic downturn that began with the 2008 recession and the effect that the ensuing austerity of public higher education may...