FISCAL ISSUE BRIEF
Higher Education
Expenditures in Minnesota,
1970-2015
OFFICE OF SENATE COUNSEL,
RESEARCH, AND FISCAL ANALYSIS
FEBRUARY 2017
QUESTIONS
Contact Andrew Erickson, Senate Higher Education Fiscal Analyst at (651) 296-4855 or e-mail
[email protected].
BACKGROUND
Higher Education spending represents the fourth largest category of general fund expenditures in
the Minnesota state budget. The FY2016-17 biennial budget included $3.076 billion in general
fund appropriations for higher education and $3.081 billion from all funds. Those numbers
constitute 7.4 percent of all general fund spending, and 4.1 percent of all funds spending. Most of
these appropriations provide funding for the University of Minnesota and the Minnesota State
Colleges and Universities, and state appropriations to these public postsecondary educational
systems are complemented by tuition and other resources generated by the institutions. The
remainder of state spending on higher education largely goes to the Office of Higher Education,
which in turn operates the Minnesota State Grant Program, the primary source of state funded
financial aid for students, among other programs.
HIGHER EDUCATION GENERAL FUND EXPENDITURES IN MINNESOTA, 1970 – 2015
This analysis examines trends in higher education spending from fiscal year 1970 through fiscal
year 2015. Two measures of inflation are used to compute real-dollar comparisons—the
Consumer Price Index (CPI), which is a measure of general price inflation in the economy, and
the Higher Education Price Index (HEPI), which is a measure of inflation in higher education.
These measures are used to inflate nominal dollars for prior years to reflect constant funding
levels in 2015 dollars.
As depicted in the graph below, expenditures for higher education increased from 1970 through
2015 in both nominal and real dollars. The rate of growth after adjusting for inflation is slower
than the growth in nominal dollars. The fluctuations in appropriations are generally consistent
among all measures, although the increase in the 1976-77 biennium, which is due to the transfer
to the general fund of funding for vocational/technical education, appears much more significant
when adjusted to reflect inflation.
____________________________________________________________________________________________
Fiscal Issue Brief: Higher Education Expenditures in Minnesota, 1970-2015
Senate Counsel, Research, and Fiscal Analysis
February 2017
$2,400,000
2015 Dollars - HEPI
$2,000,000
$1,600,000
2015 Dollars - CPI
$1,200,000
$800,000
Nominal Dollars
$400,000
1975-77 Biennium;
Voc. Ed. to General Fund
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
$0
1970
EXPENDITURES (DOLLARS IN THOUSANDS)
State of Minnesota
Higher Education General Fund Expenditures
1970-2015
YEAR
Sources: Minnesota Management and Budget, Commonfund Institute
Since 1970, nominal expenditures increased an average of 5.6% each year. When adjusted to
reflect inflation, expenditures increased by 0.8% using the HEPI and 1.3% using the CPI.
However, since funding for vocational/technical education was moved into the general fund in
the 1976-77 biennium, nominal expenditures increased an average of only 3.7% per year.
Furthermore, inflation-adjusted expenditures since 1976 decreased by 6.2% using the HEPI and
remained essentially flat using the CPI (decrease of 0.01%).
NOMINAL EXPENDITURES
Nominal expenditures represent the amount spent in the higher education budget area each year
with no adjustment for inflation. As noted above, nominal expenditures for higher education
generally either increased or very slightly decreased from 1970 to 2015, though there is a fairly
wide range of changes in spending from year to year. From 1975 to 1977, the biennium during
which funding for vocational education was moved to the general fund, expenditures increased
73.7%. Since that time, the largest annual percentage increase was in 1982, when spending
increased 19.6% over the previous year. Expenditures for higher education were less than the
preceding year in 1981, 1983, 1992-1993, 2003-2004, and 2009-2012. Total nominal spending
on higher education reached its highest level during the period examined in 2008 at $1.56 billion.
____________________________________________________________________________________________
Fiscal Issue Brief: Higher Education Expenditures in Minnesota, 1970-2015
Senate Counsel, Research, and Fiscal Analysis
February 2017
REAL DOLLAR APPROPRIATIONS (2015 DOLLARS)
There is not a universally accepted measure of inflation in higher education. Some research
suggests that the CPI, a measure of general price inflation, understates budget pressures in higher
education because the goods and services purchased by higher education institutions do not
coincide with those included in the CPI. The index created to address the problems in measuring
inflation in higher education, the HEPI, may tend to overstate inflation in higher education
because it is “self-referential.” This index relies chiefly on expenditures in higher education,
primarily salaries, and thus reports that inflation in higher education is a specified amount
because spending in higher education has increased. Also, the institutions that submit data for
constructing the measure are the chief proponents of its use.
Real Dollar Appropriations using the Consumer Price Index (CPI) (2015 Dollars):
Using the CPI to calculate real dollar appropriations, higher education expenditures trended
generally upward from 1970 to 1991 with some fluctuation in the early 1980s. The significant
increase in nominal expenditures in the 1976-77 biennium appears particularly dramatic when
adjusted with the CPI. In 1991, total inflation-adjusted expenditures were $1.74 billion. CPIadjusted spending then slightly dipped and stabilized before again rising in 1998 and peaking at
its highest level in 2002 at $1.85 billion. Since that time, expenditures have generally declined,
though CPI-adjusted increases occurred from 2006 to 2008 and again from 2014 to the end of the
study.
Real Dollar Appropriations using the Higher Education Price Index (HEPI) (2015 Dollars):
When the HEPI is used to calculate real dollar appropriations, the dollar value of inflation
adjusted expenditures is higher than when using the CPI, reflecting the higher costs of providing
higher education that the HEPI intends to measure, though the trend lines tend to follow the same
patterns. The large increase seen in the 1976-77 biennium is magnified again when viewed
through the prism of the HEPI before spending levels decrease and fluctuate through most of the
1980s. The highest sustained rates of spending when adjusted with the HEPI is the period from
1987 to 1992, peaking in 1991 at $2.09 billion. The highest level of HEPI-adjusted spending
occurred in 1999 when expenditures reached $2.10 billion before generally trending downward.
After falling to $1.36 billion in 2013, the expenditures at the tail end of the study show a slight
increase.
Fiscal Issue Briefs offer background information and analyses on the budget process and specific budget issues
related to matters that have been or are likely to be addressed by the Legislature. Senate Fiscal Issue Briefs can be
viewed on the Minnesota Senate web site at www.senate.leg.state.mn.us/departments/. Follow the links to the
Office of Counsel, Research & Fiscal Analysis.