Regent Blum Wants to Raise In-State UC Tuition to $40,000

No, Richard Blum didn't actually say that.   But that's where the plan he mentioned at a Wednesday Regents' session ends up.  Let me explain.

On Wednesday afternoon, the Regents were treated to a helpful budgetary presentation by senior UCOP budget officials Patrick Lenz and Nathan Bostrom - helpful because it looked at the next five years, was frank about the acute shortfalls that UC faces, and and quantified a range of options for dealing with these shortfalls. Everyone involved with UC should give each slide in the deck their undivided attention. The whole exercise will take you about half an hour. You can't understand  the meaning of Regent Blum's call for high tuition unless you understand the slides that came before.

Display 4 shows what has been happening to tuition: gross tuition has tripled over the past decade, and what you see here is that net tuition, the yield to the university's budget after financial aid has been deducted, has doubled. The lesson here is that tuition increases produce less money than most people assume. In November 2009, I estimated that the massive 32% tuition increase would add about 2% to two years of UC's core budget.  This should remind us of how gigantic the state funding cuts are, how dependent core campus operations are on state funds, and how hard it is to replace public with private funds. Even if you like privatization of funding sources, you have to start from the fact that the scales don't match.

Displays 8 and 9 identify the 1 year 2011-12 funding gap.  The Jerry Brown cut is $500 million for UC, but mandated cost increases bring the total gap to $862.5 million.  The campuses have been asked to plan for cuts of this scope, which is about 30% of UC's current general fund provision.  President Yudof's position prior to this week has been that there would be no tuition increase for 2011-12 beyond the 8% already voted.  The current default  policy is "pay more to get less," since tuition goes up at 2-4 times the rate of annual inflation even as educational services (things like a place in a course) continue to decline.

A strong point of the UCOP presentation is that it identifies the damage done. Display 11 quantifies the damage in terms of layoffs: 4400 UC employees have already lost their jobs (or about 2.5% of the 2009 workforce), and another 3700 positions have been left unfilled. Displays 32-33 note the financial sacrifices made by employees who remain, Display 34 invokes the suffering of buildings and grounds (they can't appreciate having had their maintenance abandoned by the state in the early part of the decade).  Displays 30-31 and 39 actually do dip their toes in the scalding water of declining educational quality at the University of California, which they call "cost avoidance."  This is a valuable encounter with campus reality, since normally UC officials insist that this decline is being avoided, or is anticipated but has not yet actually occurred.

The real action begins with Display 36. With the only new revenues coming from tuition from 1% annual enrollment growth, UC's core revenues stay around $5 billion per year but expenses grow to about $7.5 billion, creating a deficit in 2015-16 of $2.4 billion.  In other words, if the state refuses to increase general funds while UC refuses to raise tuition, UC rapidly becomes insolvent.

The next set of slides (Displays 38-44) chip away at the funding gap.  They offer conservative assumptions about cost increases (Display 38), meaning that costs could easily rise more quickly than assumed here. The next slides propose a series of  cost reductions.  They reduce the 2015-16 deficit by $500 million  (that legendary recurring $500 million in systemwide efficiencies).  Improving indirect cost recovery, raising more unrestricted private funds, adding out-of-state students (a quite small gain there), and professional school tuition increases double the savings, reducing the 2015-16 gap to $1.5 billion without adding state funds or increasing tuition.

It's best to think of Display 45 as a best case scenario.  If we use Jane Wellman of the Delta Project's rule of thumb of 2% annual efficiency savings (on $5 billion), and cut the other savings in half, $500 million is $100 million in the first year, $200 m in the second and could get to $500 m in year five with heroic effort. The other $500 million becomes $250 million. Instead of saving $900 million we've saved $750 million. Any slippage and we have a $2 billion problem rather than a $1.5 billion problem.  And that excludes greater-than-expected cost increases.  In other words, $1.5 billion is a minimum shortfall in 2015-16.

My favorite slides are 46 and 47.

46 gives a series of combinations of state general fund and tuition increases which 47 simplifies into 4 alternatives.  Note that the more one goes up, the less the other one does.  The logic here bears spelling out. UC officials have never admitted that annual tuition increases have helped reduce state funding because they teach the state that UC has other revenues options. But this is admitted in the logic of this slide. It also reflects Jerry Brown's January statement that state funding at level of 2010-11 minus $500 million would not be forthcoming in the case that UC decides to raise tuition again.

Here's the even worse news.

The alternative that closes the gap, Alternative A, proposes an 8% annual state funding increase, matched by an 8% annual tuition increase.  The first half of this doesn't seem likely.  The semi-plausible alternative D imagines the state cutting $500 million this year and then increasing general funds each year by 4%. Tuition rises by "only" 10% a year, increasing tuition by another 50%, bringing it to somewhere between $18,000 and $20,000 per year for in-state students by 2015-16. But there's still a gap of $350 million remaining of the (minimal) gap of $1.5 billion. In other words, UCOP sees no solution to the budget shortfall, even under its best case scenario.

One can hear in the discussion that the Regents are grasping what this all means. The tape I'm using begins at about Display 30, and almost exactly an hour later, Regent Alfredo Mireles, the student Regent-designate, says the following:

This may be a bit morbid but on Display 46, we have a scenario where I think Nathan said tuition is increased by 18% a year unti l15-16. Do we know what that number would be? How much would students pay if that were to be the case?

There is stricken silence, and Regent Mireles feels compelled to add, "just so we know understand how much."

Nathan Bostrom replies, "In rough terms, 18% compounded over 4 years, almost doubles tuition."

The committee chair says, "just a reminder, we're just laying out the extremes, so, ok?"

Actually it's not that extreme.  Say the state cuts UC $500 million for 2011-12, and then freezes general funds at that level, perhaps in response to UC freezing overenrollments plus a Hoovernomics-induced non-recovery.  In that case, an in-state UC undergraduate would be paying about $25,000 per year in 2015-16.

The icing on this poison cake is that the 2015-16 student, perhaps Regent Mireles' little sister, will be paying $25,000 per year for UC's impaired 2011-12 condition. That $25,000 doesn't get the university back even to 2007-08, to saying nothing of this blog's regulative baseline of 2001-02.  So the option that includes no major increases in state funding  means paying more -- double -- for less. Let's call it "UC Minus," our 2010-2011 version (see Display 48, which typically pushes this into the future).   One of the presenters mentioned the Regents' quality goals, normal annual improvements in a University that lives in a world where the competition is not standing still.  In the Cuts Report, UCPB priced these priorities at about $1 billion a year beyond existing funding levels (Figure 7). "UC Plus," that is, UC that keeps up with the rest of the world, cannot be bought at even $25,000 per year.

We are now finally ready to appreciate the intervention of Regent Richard Blum, appearing on this tape at 1:11 (excerpted):

I don't really think we've done a very good job of letting the people of California know what our problem is and of trying to raise money to get us through this, now and in the future. . . . There is a way out of this, and let me get through my entire statement before you come over and decide to lynch me. There is really only one way out of this problem, and a lot of other universities, particularly that ones that we compete with have adopted this. and that is higher tuition, and higher amount of scholarship money [sic]. . .. I actually believe,  if we took the top 500 companies in California, and we divided them up and said look we want money not for this project for that project, we want it for scholarship funds, so that we can say to our students, whatever we increase this by, if you come from a family that makes less than, pick some number, $150,000, you're not going to have to pay for it. if you look at who the campuses - Berkeley, UCLA, the others, compete with, the cost is triple what we charge. if you go to Stanford it'll cost 58,000.and if you can't afford it, they may pay for the whole thing.   . . you [could] go out and raise several billion dollars. Maybe you get to the point where you have a pool of money where you can add an additional $500 million dollars a year to pay for whatever those increases are. . . . a few years ago michigan went out and did this and raised in excess of $3 billion dollars. if michigan can raise $3 billion dollars for this kind of funding, we sure as hell can raise more.  . . I think you have to go out, divide this up.  Major corporations. I have discussed this with the governor. he is willing to help us . . .it is not the kind of marketing that is going on now. it's not that it's bad, it just isn't good enough. . ..

Regent Blum is quite right that private universities have these kinds of scholarship programs - he's thinking of Harvard rather than Michigan.  But the rest of the framework doesn't hold together.  I assume he is referring to the Michigan Difference Campaign, which raised $3.2 Billion over a period of 8 years. This was the gross total, and it included $545 million for student support.   This was arguably the most successful funding campaign in the history of public universities, and about 17% of its yield was for students - which is a great number.  But at a 5% payout this yields less than $30 million per year to support student tuition, which as the above discussion shows will pay for at most 1200 of UC's 175,000 undergraduates at 2015-16 rates.

Regent Blum focused on "high aid," but we are still left with the "high tuition" component of the program.  Given UC's needs in a "post-public" phase that some key Regents believe is inevitable, $25,000 a year is not high tuition: it is merely the tuition that fills in the minimum likely funding gap for "UC Minus" in 2015-16.  How do we get the billion dollars on top of that to produce "UC 2007-08," or $2 billion to create some approximate version of UC 2001?  A 6.4% increase in tuition (on the current base of $12,150) yields $100 million net of aid (Display 50).  We would need ten of those units to get UC 2007, or $7776.  This would come on top of 1015-16's $25,000, bringing us to $32,776 for an in-state student in that year.

But if it's Stanford that we're competing with, then we need funding for small seminars, interactive lab work, directed study, undergraduate research opportunities, and many more graduate students to reduce overall PhD candidate teaching loads.  Add another billion to recreate UC Plus (or UC 2001). That is, add another $7776, which gets tuition to $40,000 - $40,552 to be exact.

I think these hikes would be a terrible idea, and am opposed to them.  My point here is that when we start taking with real numbers, even the rough estimates of this post, we can see that giving up on public funding is simply not a financial possibility.  The Regents at some point will need to refocus their attention on rebuilding the revenues UC gets from the state.