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Manhattan Institute

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On the Chopping Block: Rising State Pension Costs Lead to Cuts in Higher Education

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On the Chopping Block: Rising State Pension Costs Lead to Cuts in Higher Education

May 11, 2017
Public SectorPension Reform
EducationHigher Ed

Abstract

America’s public colleges and universities have long served as engines of upward mobility, intellectual innovation, and economic growth. But these critical institutions are increasingly under financial stress. From 2000 to 2016, public universities lost 25% of their state funding per student. During the same period, tuition and student debt skyrocketed.

Spending on public-worker pensions is driving these budget cuts. In the wake of the Great Recession, all 50 states enacted pension reforms of some kind. Unfortunately, these reforms didn’t go nearly far enough, and pension debt has continued to rise steadily since 2008.

Over the past several years, total state expenditures have increased, on average, across the U.S., and pension expenditures (and liabilities) have increased the most—by an average of 61% between 2008 and 2015. But states decreased per-student higher-education spending by an average of 22.4% over the same period. State funding for higher education is nearly $10 billion (adjusted for inflation) below what it was in 2008.

Squeezing higher education to fund pensions is not a trend confined to red states; the trends are similar in states governed by Democrats. As a result, states are confronted with a choice between generations: students and retirees. This report argues for rebalancing. States should reprioritize pension reform in order to boost higher education, for the good of younger Americans—particularly those from families of modest means—and for the good of the nation’s future economic health.

READ FULL REPORT

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Daniel DiSalvo is a senior fellow at the Manhattan Institute and associate professor of political science at the City College Of New York (CUNY). 

Jeffrey Kucik is an assistant professor of political science at the Colin Powell School of the City College of New York (CUNY).

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