State higher education funding in the U.S. plays an important role in enabling a state’s residents to access postsecondary education but recessions, competing spending priorities and institutional features of a state’s political system put downward pressure on such funding. On the other hand, states that have significant state savings in the form of a rainy day fund (RDF) are less subject to spending tradeoffs, cuts in government spending or increase in taxes. Using data from Pew Charitable Trust, Urban Institute and the U.S. Bureau of Economic Analysis, this study finds that states that have more fiscal cushion in the form of RDFs spend a higher proportion of their general budget on higher education. The concern that higher RDF balances would benefit other spending areas while negatively or weakly affecting higher education funding is not confirmed. Instead, states with stronger fiscal health appear better equipped to prioritize investments in higher education.
AdairJohn LucasKatsinasStephen G.GrantPhillip D.BrayNathaniel. 2020. “Federal Spending for Higher Education.” Journal of Education Finance46 (2): 220–37.
2.
AlesinaAlberto. 2000. “The Political Economy of the Budget Surplus in the United States.” Journal of Economic Perspectives14 (3): 3–20.
3.
BarrAndrewTurnerSarah E.2013. “Expanding Enrollments and Contracting State Budgets: The Effect of the Great Recession on Higher Education.” The ANNALS of the American Academy of Political and Social Science650 (1): 168–93.
BoundJohnBragaBrenoKhannaGauravTurnerSarah. 2019. “Public Universities: The Supply Side of Building a Skilled Workforce.” RSF: The Russell Sage Foundation Journal of the Social Sciences5 (5): 43–66.
6.
BoylanRichard T.HoVivian. 2017. “The Most Unkindest Cut of All? State Spending on Health, Education, and Welfare During Recessions.” National Tax Journal70 (2): 329–66.
7.
BrownPaul S.2024. “Political Ideology as Determinative of Higher Education Funding: Exploring the Distinctions Between Community College and University Funding Under Differing Political Regimes.” PhD diss., University of South Dakota, Vermillion, SD.
ChatterjiAaron K.KimJoowonMcDevittRyan C.2018. “School Spirit: Legislator School Ties and State Funding for Higher Education.” Journal of Public Economics164:254–69.
10.
CorniaGary C.NelsonRay D.2003. “Rainy Day Funds and Value at Risk.” State Tax Notes29 (3): 563–7.
11.
FosterJohn M.FowlesJacob. 2018. “Ethnic Heterogeneity, Group Affinity, and State Higher Education Spending.” Research in Higher Education59:1–28.
12.
GándaraDenisa. 2020. “How the Sausage Is Made: An Examination of a State Funding Model Design Process.” The Journal of Higher Education91 (2): 192–221.
13.
GándaraDenisaBillingsMeredith S.RubinPaul G.HammondLindsey. 2024. “‘One of the Weakest Budget Players in the State’: State Funding of Higher Education at the Onset of the COVID-19 Pandemic.” Educational Evaluation and Policy Analysis46 (3): 458–82.
14.
GonzalezChristian Y.PaqueoVincent. 2003. “Social Sector Expenditures and Rainy-Day Funds.” World Bank, Policy Research Working Paper No. 3131.
15.
GramlichEdward M.GordonRobert J.1991. “The 1991 State and Local Fiscal Crisis.” Brookings Papers on Economic Activity (2): 249–87.
16.
GuetzkowJosh. 2020. “Common cause? Policymaking Discourse and the Prison/Welfare Trade-Off.” Politics & Society48 (3): 321–56.
17.
HellerDonald E., ed. 2001. The States and Public Higher Education Policy: Affordability, Access, and Accountability. Baltimore, MD: JHU Press.
18.
HokenmaierKarl Glenn. 2002. “Education, Social Security, and the Welfare State: Alternative Policy Choices in the United States and Germany.” PhD Dissertation, Western Michigan University.
19.
HolzerHarry. 2015. Higher Education and Workforce Policy: Creating More Skilled Workers (and Jobs for Them to Fill). Washington DC: Brookings Inst.
20.
HouYilin. 2003. “What Stabilizes State General Fund Expenditures in Downturn Years—Budget Stabilization Fund or General Fund Unreserved Undesignated Balance?”Public Budgeting & Finance23(3): 64–91.
21.
HouYilin. 2006. “Budgeting for Fiscal Stability Over the Business Cycle: A Countercyclical Fiscal Policy and the Multiyear Perspective on Budgeting.” Public Administration Review66(5): 730–41.
22.
HoveyHarold A.1999. State Spending for Higher Education in the Next Decade: The Battle to Sustain Current Support. New York: National Center for Public Policy and Higher Education.
23.
JoycePhilip G.2001. “What’s So Magical About Five Percent? A Nationwide Look at Factors that Influence the Optimal Size of State Rainy Day Funds.” Public Budgeting & Finance21 (2): 62–87.
24.
KaranikolosMarinaMladovskyPhilipaCylusJonathanThomsonSarahBasuSanjayStucklerDavidMackenbachJohan P.McKeeMartin. 2013. “Financial Crisis, Austerity, and Health in Europe.” The Lancet381 (9874): 1323–31.
25.
KelleyNathaniel F.2015. The Influence of State Politics on State Rainy Day Funds. MPA Thesis, The University of Alabama at Birmingham.
26.
LiAmy Y.2017. “Dramatic Declines in Higher Education Appropriations: State Conditions for Budget Punctuations.” Research in Higher Education58:395–429.
27.
LiuLarry. 2025. “AI and the Crisis of Legitimacy in Higher Education.” American Journal of STEM Education4:16–26.
28.
MartinChristopher. 2017. “Should the Public Pay for Higher Education? Equality, Liberty, and Educational Debt.” Theory and Research in Education15 (1): 38–52.
MountainTravis P.CaoXiangKimNamhoonGutterMichael S.2020. “Millennials’ Future Homeownership and the Role of Student Loan Debt.” Family and Consumer Sciences Research Journal49 (1): 5–23.
31.
NauMichaelDwyerRachel E.HodsonRandy. 2015. “Can’t Afford a Baby? Debt and Young Americans.” Research in Social Stratification and Mobility42:114–22.
32.
NazukovaNataliia. 2020. “Public Funding of Education as a Factor of Economic Growth.” Economy and forecasting2:72–90.
33.
O’ConnorJames. 1973. The Fiscal Crisis of the State. New York: St. Martin’s.
34.
OkunadeAlbert A.2004. “What Factors Influence State Appropriations for Public Higher Education in the United States?”Journal of Education Finance30 (2): 123–38.
35.
OlsonMancur. 1965. The Logic of Collective Action: Public Goods and the Theory of Groups. Cambridge: Harvard University Press.
36.
PollockRichardSuyderhoudJack P.1986. “The Role of Rainy Day Funds in Achieving Fiscal Stability.” National Tax Journal39 (4): 485–97.
37.
PopeJoEllen V.LelandSuzanne M.2019. “Isn’t a Flood a “Rainy Day?” Does the Political Nature of Disasters Impact the Use of States’ Rainy Day Funds?” Social Science Quarterly100 (7): 2555–66.
38.
PrasadMonica. 2006. The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany, and the United States. Chicago: University of Chicago Press
39.
Rodríguez-TejedoIsabel. 2012. “The Determinants of the Structure of Rainy Day Funds.” Public Administration Review72 (3): 376–86.
40.
RuebenKimRandallMegan. 2017. Budget Stabilization Funds. Washington, DC: Urban Institute.
41.
SobelRussell S.HolcombeRandall G.1996. “The Impact of State Rainy Day Funds in Easing State Fiscal Crises During the 1990–1991 Recession.” Public Budgeting & Finance16 (3): 28–48.
42.
SpireAlexis. 2023. “Fiscal Sociology.” In The Routledge International Handbook of Economic Sociology, edited by ZafirovskiMilan, 461–474. London: Routledge.
43.
St. ClairTravis. 2013. “The Impact of Budget Stabilization Funds on State Pension Contributions.” Public Budgeting & Finance33 (3): 55–74.
TandbergDavid A.2010. “Politics, Interest Groups and State Funding of Public Higher Education.” Research in Higher Education51:416–50.
46.
TandbergDavid A.NessErik C.2011. “State Capital Expenditures for Higher Education: ‘Where the Real Politics Happens’.” Journal of Education Finance1:394–423.
47.
TaylorBarrett J.CantwellBrendanWattsKimberlyWoodOlivia. 2020. “Partisanship, White Racial Resentment, and State Support for Higher Education.” The Journal of Higher Education91 (6): 858–87.
WagnerGary A.SobelRussell S.2006. “State Budget Stabilization Fund Adoption: Preparing for the Next Recession or Circumventing Fiscal Constraints?” Public Choice126 (1): 177–99.
52.
WangQiushiPengJunGuanZhenXiaoYan. 2022. “The Fiscal Effects of US State Budget Stabilization Funds (BSFs): Evidence from a Meta-Analysis.” International Public Management Journal25 (6): 980–1004.
53.
WeertsDavid J.RoncaJustin M.2006. “Examining Differences in State Support for Higher Education: A Comparative Study of State Appropriations for Research I Universities.” The Journal of Higher Education77 (6): 935–67.
54.
WeiW.2022. “Fiscal Slack, Rule Constraints, and Government Corruption.” Public Administration Review82(5): 850–65.
55.
WeiWenchiDenisonDwight V.2019. “State Rainy Day Funds and Government General Fund Expenditures: Revisiting the Stabilization Effect.” Public Finance Review47 (3): 465–92.
56.
ZahradnikBobRibeiroRose. 2003. Heavy Weather: Are State Rainy Day Funds Working?Washington, DC: Center on Budget and Policy Priorities, May13.
