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.