The State Response to the State Audit and the Future of UC Funding

I have met recently with several legislators, the Legislative Analyst, a member of the state auditor’s team, and people from the Brown administration to discuss the audit of the UC system. All of these stakeholders stated that the audit requires follow up, and in fact, the UC is required to report in sixty days, six months, and one year on how they are responding to the auditor’s recommendations. In order to ensure that UC does indeed respond in an effective manner, a legislative hearing is being considered for early next year.

The two main issues that the state is looking at is how does the UC spend state funds and how much does it cost to educate each additional undergraduate, graduate, and professional student. While the UC’s response to the audit was that the process was a waste of taxpayers’ money, and nothing important was found, several legislators do think that the UC needs much more transparency in its budget. The biggest concerns include the high cost of medical education and the unequal distribution of funds to the campuses.

Of course, the UC can now say that it is making the system more transparent by allowing the campuses to keep all of the revenue they generate, but there is still the question of state funds, which I have shown accounts for most of the inequality of funding among the campuses. This issue of state funding will be discussed at a Regents meeting at the end of the year after the committee on “rebenching” finishes its analysis.

As I have stressed, the big tension is between keeping any new funding model “revenue neutral” or moving to a more equitable system. In order to accomplish either of these tasks, the UC still has to open up and reveal how it has been distributing state funds to the campuses and what it plans to do in the future. It turns out that the state audit is also looking at these same issues, and so it is possible that the two processes, internal and external, will work together. Yet, it is clear that the wealthier campuses will fight to keep their high levels of funding, and in order to maintain the status quo, the push will be to keep the spending of state funds nontransparent.

Already, we find an indication that the medical centers are being privileged by the Office of the President. In a July letter to President Yudof from the Academic Council, we find the following: “Council advises that the full $650 million reduction in State funds in the 2011-2012 budget year be allocated among the campuses under the methodology applicable to State fund reductions developed in the Funding Streams Proposal of December 21, 2010.” As the letter continues, it clarifies that, “The allocation of budget reductions was based in part on a principle that the proportionate allocations to campuses reflect each campus’s relative ability to offset reductions by raising nonresident tuition (NRT) and Professional Degree Supplemental Tuition (PDST).” The idea here is that the campuses that have increased their revenue by increasing the number of high-paying nonresident undergraduates and professional students should receive a higher budget reduction.

It turns out that UCOP did not follow this method, and the Academic Council was not notified by this change: “we were surprised to learn only last Friday, July 22, that allocations were likely to be based on the proportions derived from the Funding Streams Proposal provisions for allocating augmentations rather than reductions.” In other words, when it was distributing cuts to the campuses, UCOP did not take into account the different abilities of the campuses to generate their own income to make up for any reductions. Thus, the poorer campuses will get poorer, and the wealthier campuses will get wealthier.

The Academic Council hints that a major driving force behind UCOP’s decision to protect the wealthier campuses is the high cost of medical education: “The San Francisco situation is far more complex. A new business model to support medical education in a time of diminished state funding is urgently needed. I note, however, that the relative scarcity of tuition income at UCSF means that UCSF’s share of the $500 million cut is a substantially smaller fraction of UCSF’s total state support. The relative scarcity of tuition at UCSF cannot also be used to justify shielding UCSF from the effect of the $150 million cut.” The Academic Council makes an important argument here, which is that the UC cannot continue to disadvantage the other campuses in order to use state funds to subsidize medical education at UCSF.

Everyone in the UC system should be concerned about how UCOP and the regents decide to distribute state funds. Since the campuses will be able to keep their own revenue, there is an incentive for the wealthier campuses to increase their wealth by increasing their number of nonresident students and decreasing their number of Californian students. Moreover, the medical centers will continue to use their enormous resources to fight for more funding, while the smaller campuses will suffer from a lack of new revenue. All of these trends will force continual tuition increases for undergraduates at a time when undergraduate budgets are being downsized. Let us hope that the state audit pushes the UC system to find a more equitable balance.