Budget Lessons for 2010

The good news in 2009 was that a few truths went public.  Today I'll start with two cats in particular that got out of the UCOP bag:

• Major cuts in public funding are bad for UC.  This seems obvious, but UCOP minimized or denied the problem for years.  Less than a year ago, UC's President Yudof thanked the governor for cuts that were not "disproportionate" and that "helped to protect the university’s base budget from potentially even deeper cuts."  It was progress when Yudof began to publicize the state's long-term disinvestment in UC and CSU, and then at the September Regents meeting to call the state an "unreliable partner."   UCOP has in effect adopted the Futures Report's notion of "core campus funds" in debunking the myth that the state cuts are just a small part of UC overall budget, so don't matter much.

•  Students object to major fee increases.  For years, UC has been boiling the student-fee frog slowly enough to keep the frog in the pot.  The Compact for Higher Education built in 7-10% annual fee increases year after year.  The 32% increase voted in November changed all this, and the student protests on most UC campuses got impressively sympathetic coverage in the press (see this blog's section on "November 2009 Regents Meeting").  The Governor's chief of staff claimed that the student protests were the "tipping point" in pushing the Governor's office to now call calling for better higher ed support.

Where does this leave UC?  In big, big trouble.

Repeated and severe state funding cuts force UCOP and the Regents to be desperately willing to raise student fees, as structurally the only alternative revenue stream large enough to replace even part of the lost general funds.  But in November, students raised the political cost of fee hikes.  Hikes will continue, but much more cautiously, and the Regents will need to be creative in looking elsewhere.

Where?

The federal government is source number 1. Schwarzenegger's proposed state budget relies on future federal money for 35% of his deficit reduction.  UC officials have started calling on the feds to begin direct support of basic operations at selected state universities.

The plan was already unlikely, since the federal government decided four decades ago to support higher education through research funding, student grants and loans, and  other major outlays (Pell Grants alone are around $20 billion per year) as a cost-sharing partnership with the states.  In addition, President Obama's State of the Union message has just promised a 3-year freeze on all non-military discretionary federal spending.  There is a report that some education programs like Pell Grants would be spared, but Wednesday night Obama killed any chance for important new educational programs and for a second stimulus.

The second non-student revenue source is increased state revenues.   This week, Oregonians got these by defying conventional wisdom and voting for tax increases, specifically to avoid further cuts in public education.  The opposite is happening in California: the Governor proposed no new money now in exchange for promises of future money later, if the voters modify the state constitution to force it.

Even if Governor Schwarzenegger's proposal were to pass, it would move higher ed funding from 7.5% to 10% of a state general fund base that has just shrunk 20%.  A meaningful future promise would have been rooted in real dollar outlays to UC and CSU corrected for inflation. This is how actual revenue needs and expenditures are calculated, and how the baselines in ours and other budget reports are measured.  The Governor is promising only a low "new normal," with the hook being that the higher ed low would at least be higher than that of the prison system.

None of this is going to happen for years, if ever.  In the meantime, were Governor Schwarzenegger to make good on his recent discovery that universities produce more social value than do overcrowded prisons, he would reverse the cuts that he himself imposed on UC and CSU last year.  He would grant the Regents's budget request for an additional $913 million over last year's slashed base.  Instead, he is proposing the restoration of  40% of the Regents modest restoration request, or about the same amount as the one-time February 2009 cut, leaving the new low baseline intact.

The Governor has absolutely no political reason to do any better than this.   UCOP and the Senate's Top Two immediately lined up behind his proposal for better funding in the future.  This removed any pressure on the Governor to produce better funding now.

In a better world --  for example the state of Oregon -- the higher education establishment would be hammering the capitol for the kind of tax increases and tax rationalization that would put the state's public services  on the level that basic Keynesian recovery requires, to say nothing of future growth.  This would mostly involve reversing Arnold's own foolish tax cuts, and plugging new corporate loopholes opened as recently as last year.

But with UC's leadership publicly back in Arnold's camp, there is no united higher ed front pushing for immediate, decisive, stimulus-producing public funding.  UC faculty, staff, and students are forced back in the position of pushing well beyond their own leadership, and state hooverizing, stagnating and downsizing can continue as envisioned and implemented by minority Republican rule for the past 30 years.

This minority has no idea what to do with the eclectically brilliant internationally multiracial California that we actually have -- other than to cut public sector capacities and  increase inequality.  So in 2010 it will be up to us to represent UC and CSU financial needs that make universities central actors in the rebuilding of California society.