State System Error: Proposed Scholarship Program is a Bailout

Governor Wolf is currently touring the state to promote the Nellie Bly Scholarship, a tuition grant program he proposes to fund with $204 million from slot machine revenue. Wolf has paired the scholarship plan with about $46 million of increases to higher education funding from the General Fund.¹ This is a clever political move. Opponents of the plan now risk looking like partisans of the horse racing industry, which currently gets the money via the Race Horse Development Fund. The Commonwealth Foundation has long objected to the Horse Fund's existence, but Wolf’s scholarship plan is a poor alternative and should be opposed.

The scholarship plan should be called what it is: a bail-out for state colleges. Nellie Bly scholarships will only be usable at the 14 colleges that constitute the Pa. State System of Higher Education (PASSHE). Enrollment at these schools has declined 20% since 2010, according to the Pittsburgh Tribune Review. The system has $5.7 billion in debt and a $1.6 billion gap between its assets and its liabilities, according to its most recent financial statement. It lost $36 million in fiscal year 2019 and $90 million the year before.

The administration is trying to stabilize enrollment when they ought to be asking whether the state system should be preserved at all. While state colleges were once an important means of training teachers, Pennsylvania now has hundreds of private of institutions that train professionals while using less taxpayer support. Moreover, other public colleges have long surpassed the original state system in facilities, programming and reputation. PASSHE, rather oddly, does not include Penn State, the University of Pittsburgh, or Temple. These state-related schools and their satellite campuses constitute wholly separate public university systems. Together they have the same geographic coverage as PASSHE, raising the question of why the state is duplicating efforts.

A particularly strange aspect of the proposed aid program is that the government would be paying itself. Instead of giving a student one dollar of state revenue as a grant to attend PASSHE, the government could simply cut the price of tuition by one dollar and the financial effect would be the same. There are problems with the program in basic principle as well, including the questionable economics of the college model and the questionable ethics of using slot machines to fund it.

Slots money isn’t the governor’s to spend. The automatic flow of revenue into the Race Horse Development Fund is part of the shadow budget, tens of billions of dollars collected and spent by special funds every year without being voted upon. The administration should make a move for fiscal reform and transfer the slots money to the General Fund, where its use can be debated in the proper constitutional manner. More productive and ethical uses for gambling revenue could include tax relief, debt paydown, or helping to plug the state’s pension deficit. In any case, the legislature should decide.