* Decline in state aid means higher tuition at two-year schools
* Community colleges are lynchpin of Obama workforce strategy
* In Illinois, rising concerns about students being squeezed out
By Andy Sullivan
PALATINE, Ill., March 5 (Reuters) - Some schools rally around a football team. Harper College has rallied around a number.
When President Barack Obama called for 5 million more community-college graduates by the end of the decade to boost U.S. competitiveness, this commuter school 30 miles (48 km) northwest of Chicago figured out it would need to produce 10,604 additional graduates to do its part.
It won't be able to count on much government help.
Even as Harper and many of the nation's 1,200 other two-year community colleges try to deliver on Obama's vision of a revitalized manufacturing sector and a better-skilled work force, support from the federal and state governments is eroding.
"I've been in this business for 42 years. I've never seen anything like this - the pressure on the business model, the pressure on the whole institution of higher education," Harper College President Ken Ender said in an interview.
The problem is especially acute in Obama's home state of Illinois, where decades of mismanagement have led to a fiscal crisis that is squeezing state spending on education.
State funding covered 5.8 percent of Harper's budget last year - a record low and down from 13.3 percent a decade ago. Next year is likely to be worse, Ender says.
It reflects a trend in Illinois and across the nation that threatens to make education less affordable to millions of students at two-year colleges, which can provide a start for those working toward a four-year bachelor's degree or enable older workers to learn the skills needed for new careers.
Since he took office in 2009, Obama has lavished attention on two-year schools; last year he visited 10 community college campuses. Last month, he flew to North Carolina after his State of the Union speech to Congress to highlight a manufacturer that was working with a local school to train workers.
The attention hasn't translated into more financial support.
Obama's efforts to expand spending on education, job training and other elements of what he has termed an "innovation agenda" have fallen flat as Republicans have pushed for spending cuts to rein in trillion-dollar budget deficits.
Deficit-reduction efforts, including the across-the-board "sequester" cuts that kicked in on Friday, have fallen largely on the discretionary part of the federal budget that funds these areas, rather than the health programs that are projected to drive up the nation's debt in the decades to come.
Obama won $2 billion for community-college training programs when his Democrats controlled Congress in 2009, but last year's $8 billion proposal went nowhere.
He has had more success expanding the Pell grants that help nearly half of all community-college students pay tuition. But budget pressures have led to cutbacks in that program as well.
Meanwhile, state and local governments have slashed their higher-education spending during recession-induced budget crises. As a result, students have been forced to pay more for their education.
According to the American Institutes for Research, the average annual community-college tuition rose by 41 percent, to $3,269, from 2000 to 2010. The average subsidy per student received by community colleges fell by 24 percent during that period, to $6,223 per year.
Public funding for four-year public colleges has ebbed as well, but the trend has been most pronounced at the community-college level, the nonprofit group found.
As tuition has climbed, students have taken on more debt, and there are signs that many may not be able to keep up. Student debt has nearly tripled since 2004 and loan delinquency rates have been climbing, the Federal Reserve of New York says.
Businesses that consider community colleges to be an essential source of skilled workers view the trend with alarm.
"We need to continue to have government funding for these vocational schools," Natalie Schilling, vice president of human resources at aluminum giant Alcoa Inc, said during a recent panel discussion in Washington.
Like other manufacturers, Alcoa relies on community colleges to replace its aging work force and produce students who can operate the computer-controlled machines that are increasingly common in U.S. factories.
"We can't do it alone - it's got to be a shared responsibility among the public and private sector," Schilling said.
NEW FINANCIAL REALITY
In Illinois, the state's fiscal crisis has put its pension fund $98 billion in the red and dropped its bond rating to one of the lowest among U.S. states.
Since fiscal 2008, pension costs have grown from 8 percent to 20 percent of state revenue, according to the State Budget Crisis Task Force, an independent research group co-chaired by Paul Volcker, a former chairman of the U.S. Federal Reserve. State spending on the government-run Medicaid health program for the poor and disabled has doubled since 2000.
Meanwhile, state spending on higher education in Illinois has dropped by an inflation-adjusted average of 3.3 percent per year over the past 10 years.
Community colleges in less affluent areas have been hit especially hard in a pattern that could undermine some of Obama's efforts to help the nation's poor work their way into the middle class.
The president of Southeastern Illinois College in rural Harrisburg worries that continued tuition increases could drive students away as state contributions shrink from 45 percent of the college's budget to 35 percent in the next several years.
"At some point, depending on your demographic and your tuition charge, you're going to push students off the cliff," Jonah Rice said. "We're doing the best we can, but it's tough when the rubber band is stretched."
Nestled in Chicago's high-cost suburbs, Harper College has been somewhat shielded from the state's fiscal crisis because it can rely on local property taxes for about half of its operating costs. Schools in areas where property values are low, like Southeastern, are more exposed.
Budget woes, however, have not stopped Harper from forging ahead on its goal to boost graduation rates, which have jumped in the past two years.
Education groups point to Harper as a model for how to train a generation of tech-savvy manufacturing workers, and Republican presidential candidate Mitt Romney praised its manufacturing program during a campaign stop last year.
"To say we can't do things because there's no money is frankly unacceptable," Ender said. "There is no money. So that means we're not ever going to do anything?"
Harper has set up an outreach program with local high schools to try to reduce the number of incoming Harper students who need to take remedial math and reading courses.
Guidance counselors work with students to keep them on track toward their goals, whether that is a welding certificate or a transfer to a four-year college.
'WHEN IS THIS GOING TO STOP?'
Harper also has set up a paid internship program with local manufacturers that allows students to earn money while they learn - an important consideration for many.
"When I found out it was affordable, I jumped in. Every other type of training I've been looking at has not been affordable," said Peter McManus, 47, who is interning at a nearby packaging plant as part of the school's advanced-manufacturing program.
Like many others at Harper, McManus doesn't fit the mold of a traditional college student.
Seeking a career change after his job as a technical theater director was eliminated, McManus learned about Harper's manufacturing program through his teenage son. When he's not in class, McManus works at Transparent Container Company Inc. as he pursues a degree in automation.
"I grew up a mechanic's son and a tinkerer. To me, this is just another lab to tinker in," he said as he gazed at Transparent's $500,000 machines that stamp out plastic packaging.
Harper has gotten some recent government help: The school won a $13 million grant from the U.S. Labor Department last fall to expand its manufacturing internship to other community colleges in the region.
Nevertheless, Harper has been forced to raise tuition rates steadily as state funding has receded. Full-time students will pay $3,735 in the next academic year, an inflation-adjusted increase of 16 percent since the 2008 school year.
The college aims to keep tuition increases in line with inflation, and Ender says the school remains affordable for most.
Students who live with their parents should be able to cover tuition by working full-time in the summer and part-time during the school year, while less affluent students can apply for Pell grants to cover tuition, he says.
Still, 25 percent of students who drop out of Harper do so for financial reasons, said Maria Moten, the school's enrollment dean. Student leaders say they're worried that further tuition hikes will squeeze out more students.
"Most people at community colleges are working full-time jobs and coming to school. They're paying rent; some are paying for children," said Scott Leitzow, a member of the school's student senate. "When is this going to stop? I don't think it ever will."