Quantifying Uncertainty: Measuring the Volatility in State Appropriations for Higher Ed

Financial planners should consider three factors for state appropriations: absolute levels, trends over time, and volatility.

State appropriations are a critical funding source for colleges and universities. Despite this, many institutions often overlook a key metric for success when it comes to their financial planning around state appropriations: their volatility. Volatility measures how stable and predictable a revenue or expense source is over time, and can be an invaluable metric for institutional planning.

In his new white paper, Dr. Craig Rudick (Director of Product Strategy and Data Scientist) develops a metric for assessing the degree to which this funding source is changing year-to-year, in order to facilitate future planning: the Annual Volatility Index for state appropriations for higher education. Using data from the FY22 State Higher Education Finance (SHEF) report* published by the State Higher Education Executive Officers Association (SHEEO), he calculates the Annual Volatility Index over the last four decades. In addition, he identifies trends in this data, implications for policy planning in higher education, its role in rising tuition rates, and more.

*SHEEO. (2023). FY22 State Higher Education Finance (SHEF) Report. https://shef.sheeo.org/