UCOP’s Failed Funding Model

The first thing to say about the UC’s five-year plan to raise tuition 5% each year is that it is neither predictable nor logical.  President Napolitano has said on several occasions that students need this plan so they can predict and plan for tuition increases, but she has also said that the 5% tuition increase is contingent on the state increasing UC’s funding by 4% each year.  I have asked several UCOP officials, what happens if Governor Brown keeps his promise of only giving 4% if the UC freezes tuition?  The only coherent response I have gotten to this question is that UC will be forced to increase the number of non-resident students and decrease the number of students from California.

Before we get to the question of non-resident tuition, we have to realize that several things may happen that make UCOP’s tuition plan anything but predictable: 1) the state eliminates its 4% increase and UC raises tuition by 5%, and thus gets a 1% gain for all of its efforts; 2) the state eliminates its 4%, and UC raises tuition 9%; 3) the state keeps the 4% increase and UC raises tuition 5%; 4) the states decides to increase its contribution beyond 4% and UC decreases its tuition increase by the same amount.   So tuition may go up in the next five years, anywhere from 0% to 53% or even higher if there is another fiscal crisis. Making matters more complicated is that this negotiation has to happen every year for five years, and no one has asked what happens if there is another budget crisis, and the state cuts UC funding? So the first problem with the sustainable five-year plan is that it is neither logical, nor predictable, nor long-term.

The next problem with the plan is the way it was rolled out.  As Gavin Newsome argued, UCOP gave the plan to the media before it discussed it with key state players.  Moreover, UC never engaged in any real negotiations over the plan ahead of time, and it has presented the plan as a done deal.  It is also strange that UCOP thinks that the way to get more money from the state is to attack the governor, the legislature, and Proposition 30.  Although UC may need more money from the state, Prop 30 did increase revenue and prevent an even worse state budget cut. 

The next major problem with the tuition plan is that UC continues to resist calculating how much it costs to educate students; so it is unclear how they can make any argument about the need for more money.  For example, how do they know if bringing in more students will increase or decrease revenue if they do not know how much it costs to educate each student?  Although, UCOP is required by law now to make these calculations, it has resisted so far, and the governor and the legislature are not very happy about this.

Related to the issue of not knowing the cost of education is the problem of how money is distributed among the campuses.  As I have previously pointed out, the reliance on non-resident tuition means that the rich campuses get richer and the poor campuses serving under-presented California students get poorer.  Present Napolitano knows this because I discussed it with her in great detail, but the UC plan says nothing about evening out the disparities among the campuses.  While the rebenching program is supposed to help make up for disparities, it is only redistributing $37 million each year, which is a little more than 1% of state funds, and is dwarfed by the $246 million of new revenue brought in through non-resident tuition.  

Another huge issue with UCOP’s tuition plan is that it is highly selective in its recounting of the recent past.  Although, UCOP claims that the system has been cut a billion dollars since 2007-8, it fails to mention that state support for Cal Grants and the Middle Class Scholarship has increased by over $1 billion during the same period.  UC loves to hide this fact because it does not want to reveal that as the state has reduced its funding for UC, it has replaced direct support with financial aid.  Following the high tuition/high aid mode, UC knows that it can raise tuition because state and federal aid can make up for most of the new costs to students.  Meanwhile during this period when state support was replaced by financial aid, UC continued to increase the number of high-paying, non-resident students, and so UC core funds have actually gone up by $1.3 billion since 2007-8, and this is after subtracting institutional aid.

As I wrote in Why Public Higher Education Should Be Free, the current way we fund and support higher education institutions is completely incoherent and counter-productive.  If we just took the money we are currently spending on the irrational mix of state aid, federal aid, higher ed tax breaks, institutional aid, and subsidized student loans, we could make higher ed free to the students.   However, free public higher ed will not happen if our leaders continue to march towards the high tuition/high aid model of backdoor privatization.      

The Problems with UC’s New Tuition Plan

The university has engaged in a major media campaign to promote a new plan to raise tuition a maximum of 5% each year for the next five years.One major problem is that Governor Brown and the legislature have already said that they will only give UC an additional 4% this year and next year if the UC continues to freeze tuition.  It looks like the UC will raise tuition 5%, and the state will eliminate the 4% increase, and so UC will increase its funding by less than 1%; however, in the process, UC has angered the state and has moved further in the direction of privatization. 

UC received $2.8 billion from the state this year and issupposed to get $2.98 billion next year (this includes the 4% increase).  In 2013-14, its net tuition (after subtracting financial aid) was $2.6 billion, and next year they plan to bring in an additional $50 million in tuition (mostly from non-resident students).  This means that UC could lose the state increase of $140 million, in order to increase tuition by $132 million unless they significantly increase the number of non-resident students and decrease the number of in-state students in the following years.   

Although many people want to put all of the blame on the governor, one also has to look at four tragic UC decisions that have shaped the current funding situation: the twenty-year pension contribution holiday, the secret redistributing of state funds and tuition, the 32% tuition increase in 2009-10, and the false accounting of the cost of educating undergrad students. 

Many people blame the UC Regents for these problems, but my experience is that the regents usually rubber-stamp what UCOP puts in front of them.  For example, the twenty-year pension contribution holiday was based on UCOP’s projections and strategy; after all, the regents have to rely on what UCOP tells them, and if UCOP uses bad math and strategy, the regents have to make decisions based on this information. 

The problems with the pension holiday are threefold: the university and its employees must now come up with massive contributions to make up for the under-funded pension; the state and other parts of the university got accustomed to not paying for their share of the pension, and so it is hard to reverse the initial policy; and during the twenty years that the university did not pay into the pension, they used the freed up funds to expand the number and compensation of a growing administrative class.

We cannot reverse the bad pension decision, and so will have to live with the consequences.  In a similar way, when UCOP urged the regents to raise tuition 32% in one year, they created a new system of university funding that will be hard to change.  For example, the LAO now includes tuition as part of its public funding calculation, and this means that there is no incentive for the state to return to a tuition-free model.  While some may say that the 32% increase was inevitable, UCOP pushed it through by not counting $716 million of federal stimulus money that was earmarked to replace the state reductions to the UC system.

The pension mistake and the tuition mistake are dwarfed by the secret funding mistake.  As my work and a state audit showed, for decades, UCOP was secretly taking in all of the tuition money and state funding from the campuses and redistributing it according to some unknown formula. The result was huge disparities between campuses, and while they are trying to correct this situation, it will take a very long time, and it will never make up for the historical imbalances between the campuses.  In short, UCSB and UCSC will never catch up to UCLA, and as I have shown, the campus imbalances areactually increasing.  

Making matter worse, UCOP’s refusal to calculate how much it costs to education undergraduate students has resulted in a situation where the governor and the legislature wrongly believe that the cost of undergrad instruction is driving UC budget increases, and so they have proposed online education as the solution. In reality, UC has driven down the cost of undergraduate instruction through the use of large lecture classes and non-tenure-track faculty, but they cannot make this argument because they need to hide the real cost of research and graduate education.   

In all of these cases, UCOP has dug a hole that will be hard to get out of.  These faulty accounting moves have also increased the distrust that many lawmakers have towards the management of the UC system. Moreover, the failure to have transparent budgets means that the regents are making their decisions on false and misleading information; in turn, many faculty representatives recycle UCOP budgets myths, and the end result is that no one knows the truth about how money circulates within the system.

If we want to argue for more money from the state, we have to know where the money is going.  We also have to identify where new funds can come from.  Since most of the state budget is now mandated, we need to find a way of raising revenue and dedicating it to the UC system, but this process will require the governor, the regents, UCOP, students and faculty all getting on the same page.    

Vote November 4th: Higher Education, Not Incarceration

One of the main reasons why funding for public higher education has decreased in California and around the country during the last thirty years is that states have been forced to pay for the increasing costs of healthcare and prisons.  While most parts of the state budget are now locked in because of ballot initiatives and legislation, higher education is considered discretionary, and so whenever there is a budget decrease, it ends up being cut. 

This November 4^th, you can vote to help support higher education by reining in the costs of healthcare and incarceration.  Proposition 47 reduces sentences for certain nonviolent crimes and invests savings in treatment programs. Overtime, this change could free up money to be used for public higher education.  Meanwhile proposition 45 requires insurance companies to justify premium increases and obtain pre-approval for rate hikes.  This measure will control healthcare costs, which can leave more funds for higher ed.    

Another way to support higher education is to vote for Tom Torlakson for Superintendent of Public Instruction.  Torlakson has been a strong supporter of public education and faculty and has worked closely with the California Federation of Teachers.  For the CFT voter’s guide, click here.   

Defending Scholarship

In 1971, Robert Nisbet published The Degradation of the Academic Dogma.  Although many parts of the book can be seen as being outdated and ethnocentric, the basic argument still is vital:  Universities are about the production and analysis of knowledge, and everything else a university does should be considered secondary.  Nisbet adds to this “dogma,” the notion that the university has always been about knowledge for knowledge’s sake, even though it can have profound social and personal effects. 

If we look around at the University of California today, and other similar institutions, we can see how this foundation of the modern university has been lost in a sea of competing interests.  Some believe that a university should focus on training students for future jobs, while others argue that the main function of the university is personal development.  At the same time, many recent university initiatives are directed at developing new technologies or raising funds or contributing to the local and state economy.  Many of these goals are worthy, but from Nisbet’s perspective, they should only be indirect results of the central focus on scholarship. 

The problem then is not so much that the university is being taken over by corporate managers or political officials; the problem is that the production and analysis of knowledge has become just one competing interest among others.  Basic research and instruction have thus lost their value because they are no longer the guiding priorities.   From Nisbet’s perspective, university knowledge can only remain central if it is treated with respect and faith.  While this displaced religiosity may be off-putting, the main point is that students and faculty have to believe in the incredible value of knowledge and the disciplinary methodologies that have been established to create and circulate scholarship.

Every time a school celebrates the building of a new stadium or corporate research park, a little part of the university dies.  Our schools have lost their way, and so they don’t mind staffing their classes with inexperienced, part-time people or hiring administrators with no academic background.  Of course, universities need funds to survive, but when every function is sold to the highest bidder and every learning experience is tested and quantified, there is nothing left to protect or cherish. 

In our fight to force our campuses to spend more money on undergraduate instruction, we are trying to return to an emphasis on scholarship and education.  No fancy technology or highly paid manager can substitute for the experience in the classroom or lab or library.       

The UC Campus Funding Imbalance

Two years ago, the UC system changed the way it distributes state funds and tuition revenue to the campuses.  In the past, all tuition dollars and state dollars were sent to the Office of the President and redistributed according to unknown formulas.  After a state audit showed that some campuses were being hurt by this process, the UC decided to let the campuses keep their own tuition dollars, and state dollars were redistributed through a method called “rebenching” to help out the campuses that were historically underfunded.  However, the statistics below will show that the problems have only gotten worse for the underfunded campuses.

Looking at the most recent enrollment statistics, we can multiply the number of non-resident students by $26,000 to see how much extra tuition each campus will generate next year (each non-resident student pays an additional $23,000, and they do not receive tuition discounts, which average 30% for in-state students).  For each campus, I have listed the number of non-resident students, the additional tuition dollars non-resident students generate, the amount of funds each campus will get this year through rebenching, the combination of additional non-resident tuition dollars and rebenching funds, and the amount the state auditor said each campus was overfunded or underfunded in 2009-10 before the change to the new system (Merced and UCSF are excluded for historical reasons):

Click image to enlarge

In most cases, the new system is making things much worse for the campuses that have been historically underfunded.   In fact, the auditor only looked at one year of imbalances, and if she had taken into account all of the state funds, the imbalance would have been much worse. 

One way of interpreting this data is combine all of the numbers to get a general sense of the funding distribution before and after the non-resident tuition gold rush.  For example, in 2009-10, if each campus received the same state and tuition dollars per student, UCSB would have received an additional $94 million dollars and UCLA would have gotten $99 million less.  To help rectify this situation, the rebenching gives UCSB close to $9 million in 2014-15 , and UCLA does not get any additional funding, but UCLA remains $184 million ahead, and this figure takes into account enrollment differences.  If we then add non-resident tuition to the mix, UCSB remains $210 million behind UCLA, and this is after years of imbalances.

It should be clear that the UC system needs to rethink its enrollment and funding model.  As the state auditor argued, the campuses that have been historically underfunded are the same campuses with the highest level of under-represented minority students.  The result is that as these students pay more for their education, they are being systematically underfunded.  UC should move to a transparent revenue sharing model for non-resident tuition. 

The Future of College Degrees and Jobs in California

The recent move to allow certain community colleges to produce bachelor degrees was in part driven by the argument that by the year 2025, the California economy will need an additional one million workers with BAs.  The research behind this claim appears to come primarily from the Public Policy Institute of California’s (PPIC) report, “Meeting California’s Need for College Graduates.” In this study, we are told that “Two strong forces are already at work in constraining California’s gradually increasing share of college graduates in the working population: the retirement of the large and relatively well-educated baby-boom cohort—adults born between 1946 and 1964—which will occur over the next 20 years, and demographic shifts toward groups that have historically low rates of college attendance and graduation.” The first half of the argument is a purely demographic projection of the future production of workers with bachelor degrees, and it makes the important point that we are now seeing a generation of people with a relatively high level of degree attainment replaced by a new generation, which suffers from a decrease in degree attainment. 

One of the driving forces behind this generational shift is the constant state defunding of higher education in California.  There is also a growing divide between the older, whiter workers who have college degrees and the younger, non-white workers who have been victims of several economic downturns and discriminatory educational practices.  The PPIC reports that “In 2006, California ranked 23rd among states in its share of 25- to 34-year- olds holding at least a bachelor’s degree, down from eighth position in 1960. California colleges and universities,
both public and private, award relatively few baccalaureates, given the size of the state’s youth population: California ranked 43rd among states in the ratio of bachelor’s degrees awarded in 2006 to high school diplomas awarded five years earlier.” In what we can call the “Fall of the Master Plan,” California has moved from being one of the most educated states to being one of the least. 

According to the PPIC, one of the results of this fall is the following: “we project the size of the education skills gap in 2025 and identify scenarios that could help close the gap. If current trends persist, California will have one million fewer college graduates than it needs in 2025—only 35 percent of working-age adults will have a college degree in an economy that would otherwise require 41 percent of workers to have a college degree.” One big question is how do these researchers know what jobs will require workers with bachelor degrees, and here is where things get very murky.  The PPIC makes the following claim: “Over the past 26 years, the share of college graduates in the state’s workforce has increased from 25 percent to 34 percent (Reed, 2008), but projections suggest that the state’s workforce demands will continue to increase and that 41 percent of jobs in 2025 will require a college degree.” The first thing to point out is that a college degree is here interpreted as a bachelor degree and not an associate degree, and so the entire realm of the community colleges is excluded.  The other major issue is the meaning of the phrase “jobs that require a college degree.”

It turns out that there are two main ways of interpreting the meaning of jobs that require a college degree.  Some labor economists use this phrase to describe jobs that are currently being held with people with certain degrees and other economists use the same phrase to indicate jobs that traditionally require a particular degree.  The difference between these two interpretations is huge and plays a major role in determining our educational and employment practices and policies.

The PPIC tries to finesse these opposing definitions of jobs requiring degrees in the following way: “For example, from 1990 to 2006, the share of workers with a college degree increased from 25 to 34 percent; our projections indicate that this trend will continue at about the same pace, so that by 2025, 41 percent of workers will need to hold a college degree if the workforce is to meet the demands of the California economy. This projected increase will occur partly as the state’s economy shifts to occupations and industries that require more highly educated workers but also as employers demand more highly educated workers within industries and occupations (Reed, 2008).” So we do not know if the need for more people with bachelor degrees is being driven by the supply of more high-skilled jobs or by the employer demand for more degrees in occupations that do not traditionally require degrees.

To answer this question, we must go to the cited source, Deborah Reed’s “Will There Be Enough College Graduates.” The first big move that Reed makes is to distinguish between her method for defining jobs that require degrees from the Bureau of Labor Statistics: “Our projections of demand for college-educated workers lead to very different conclusions than do estimates of employer needs derived from employer “education and training requirements” from the Bureau of Labor Statistics (BLS). According to BLS estimates of employer education requirements by occupation, the share of college-educated workers needed in the California economy in 2025 would be only 27 percent. The two measures are conceptually different. The BLS-based approach considers whether employers need college-educated workers to staff positions. Our measure considers whether employers are choosing workers with bachelor’s degrees.”  What Reed stresses is that what matters is not which degrees are required to do the job but which degrees employers can demand.  In other words, in a buyer’s market, employers can pick and choose whom they want to hire, and they often hire people with the higher degrees.

One of the effects of this labor system is that occupations with the highest level of growth and demand for people with bachelor degrees turns out to be janitors, cleaners, carpenters, waiters, office clerks, bookkeepers, retail sales people, manufacturers, and secretaries. Reed argues that this is not a case of over-trained or over-educated workers because employers are paying more for workers with bachelor degrees, and rational employers would only do this if they knew they were getting their money’s worth.  In fact, in these occupations, which once did not require a college degree, we find that employers are willing to pay workers much more money if they have a college degree. 

What Reed does not reveal is how much of the difference in pay between workers doing the same jobs but with different degrees is due to the depression of wages for people without college degrees.  According to a Federal Reserve study, in 1980, a worker with a BA degree or higher averaged $52,000 a year (in 2008 dollars), while the same group’s average in 2008 was $56,000.  In contrast, the average worker with only a high school degree made $45,000 in 1980, and in 2008 made $32,000.  So if the college premium in 2008 was $20,000, the part due to the reduction of wages for the person without a college degree was $13,000 or 65%.  What we are seeing then on both a state and national level is that employers are able to demand degrees from workers for jobs that do not traditionally require college degrees and the effect is to increase the wages for some workers with degrees but also decrease the wages for workers without degrees.

The point here is not that we do not need to increase state funding to produce more people with college degrees; rather we have to find a way to both increase the number of good middle-class jobs as we decrease the financial cost of individuals pursuing degrees.  We also have to question the notion that degrees produce jobs, and the only reason to fund public higher education is to increase an individual’s earning power. Educational policy does not replace employment policy, and both should work together.