The paper discusses funding principles and policies of higher education during the recession period. The role of state appropriations for the viability of public higher education institutions is emphasized. State funding affecting institutional behaviour is another issue raised. The paper analyzes the possibility of expanding state funding for higher education institutions instead of cutting during economic recession. The examples of Midwestern states is discussed for this purpose. Funding higher education institutions is perceived as an important component of the process of investing in human capital. Referring to scholarly findings, Leader-Laggard Model and Event History Analysis are suggested as optimal methods for evaluating the implementation of new policies as they spread from one state to another.