University of Louisville History Professor John Cumbler has an interesting piece in the Louisville Courier-Journal concerning the historical development of state higher education funding. He argues that higher education was mostly provided by elite institutions through the Civil War period. This changed with 1862 Morrill Land-Grant Act which led to 69 land-grant colleges designed primarily to educate teachers. These new colleges were not as academically rigorous as the elite private institutions, thus leading to a bifurcated system of higher education.

This changed at the beginning of the 20th Century based on the “Wisconsin Idea” model. Cumbler states:

The heart of the Wisconsin Idea was to initiate a graduated tax and pour the additional revenue into the university, making it a university of excellence which would serve the state by providing both the highest quality education for its citizens, regardless of their economic status, and by being a center for research and invention which would serve the state. The Wisconsin model became so successful that other states around the country looked to combine excellence and accessibility in higher education by pouring public funds into higher education.

It was not until the advent of the GI Bill in the post-World War II era that affordability and quality were joined together at state universities. States began viewing universities as a source of economic development, both through the jobs they provided in college towns and the educated workforce they provided.

However, in recent years the notion of a high-quality, inexpensive public university has begun to fall out of favor. Cumbler argues that

despite the obvious advantages of this model, which combines excellence with accessibility, because it is expensive at a time when there are other legitimate demands on limited state funds, increasingly states are slowly retreating toward the older two-tier model of higher education.

He concludes that

[i]n the short term states will save money. In the long term it is a strategy for stagnation and loss.