DALLAS - Supported by higher funding and favorable demographic trends, Texas colleges and universities can expect to outperform those elsewhere in the nation over the next five years, according to a report from Moody's Investors Service.
"Among the 20 states with the largest number of 15-to-19 year-olds, Texas is the only one experiencing growth in this age group," the report noted. "With 52% growth in Hispanic student enrollment since 2000 and ample opportunities to transfer between two-year and four-year institutions, demand for Texas' affordable education options will remain strong."
The Texas Higher Education Coordinating Board anticipates that public university enrollment will grow 7% over the next five years. While community college enrollment has declined in line with national trends, the board projects 6.5% growth from 2015 to 2020 based on shifting state demographics, analysts said.
The two-year budget approved by the Texas Legislature this year will increase general revenue appropriations by 17% for four-year public universities in fiscal 2016 before leveling off in fiscal 2017, outpacing Moody's projections for 3% growth nationwide.
"This includes not only additional state support for operations and capital needs, but also enhanced funding for research, a statewide priority that has boosted the national reputations of Texas' public universities," analysts wrote. "From a research perspective, the state funds universities through both direct general revenue appropriations and specific research programs. For example, funding for the Texas Research Incentive Program will grow to $138 million combined over 2016 and 2017 from $36 million in the prior biennium."
The largest beneficiaries of the growth in this program will be the University of Texas System, rated Aaa with a stable outlook by Moody's, the University of Houston System, rated Aa2 and stable, and the Texas Tech University System, rated Aa1 and stable.
"By the end of the biennium, state funding for four-year public universities will eclipse 2009 funding levels on an absolute basis, though funding per student will remain below prior highs due to enrollment growth," the report said. "Overall, the 2016-17 budget represents a significant shift in Texas funding trends from recent years, particularly given a 6% cut in state appropriations in fiscal 2015 that trailed 4.5% growth in aggregate state support across the country."
While community colleges suffered a 1% cut in state funding over the next two years, they are able to maintain stable operations due to their ability to levy property taxes in an environment of rising assessed values, the report said.
About $270 million of the $570 million increase in state appropriations for 2016 will go toward debt service reimbursement for new tuition revenue bonds which will provide significant support for new capital projects across the state's four-year universities. The legislature authorized more than $3 billion of TRBs, the first approval of the construction bonds in a decade.
In addition, the state plans to raise capital funding through the Higher Education Fund to $394 million from $265 million starting in fiscal 2017.
"This improvement to state capital support reverses a trend of stagnant funding for most Texas universities over the last six years," the report said. "The exceptions to this trend have been the University of Texas System and the Texas A&M University System, which have maintained strong levels of capital investment due to rapidly growing disbursements from the Permanent University Fund.
The PUF is a public land grant endowment that generates investment revenue for its beneficiaries. In fiscal 2017, these two university systems are expected to receive a combined $889 million from the fund, a 64% increase over 2010, driven by favorable investment returns and strong oil and gas revenues generated from PUF lands.
Texas lawmakers enjoyed a surplus of funds after 2014 proved to be one of the best years in the state's economic history. With oil prices falling, the economy is showing signs of weakening. The Texas PUF derives most of its wealth from investment of royalties on oil and gas producing state lands. Moody's sees the reliance on oil and gas as a potential weak spot.
From 2000 to 2014, enrollment at Texas higher education institutions grew by 583,000, with the percentage of the overall population enrolled in higher education growing to 6.1% from 5.0%, according to Moody's.
Hispanics accounted for 52% of the state's overall enrollment growth from 2000 to 2014. With development of the University of Texas Rio Grande Valley and UT and Texas A&M campuses in San Antonio, that number is expected to grow steadily in coming years.
