UC's Zero-Degree State Budget, and What the University Should Do

The central facts about UC's budget for next year are first, that tuition will not go up, and second, that the state will provide no new operating funds after last year's 25% cut.

Both of these outcomes remain hog-tied to the passage of Gov Jerry Brown's tax initiative in November.  If it fails, UC will receive a "trigger cut" of another 10% of its remaining state funding (or $250 million), and students will see tuition go up, probably around 20%.

UC's status as a political football puts it in the company of the entire educational sector of California. The California Budget Project offers a graphic (above) showing that Jerry Brown's trigger cuts would fall on education in a proportion of 98.4 percent. 

Politicians continue to trumpet their commitment to an educated California workforce, since it is obviously stupid to produce an ever-less-qualified population in a global economy in which everyone else is elevating theirs.  But in practice, both parties have lumped all levels of education together with public health and welfare and downgraded their quality and scope year after year.  The reality of the New California is reversion to a (declining) American mean.

In the context of the state's well-known failure as a political entity, it's understandable that UC officials would want to decouple the University from the state. But this decoupling only further degrades UC's fiscal, educational, political and ethical position, and we have to say for the hundredth time that the Office of the President needs to resist the decoupling temptation.

This month's proof comes in the form of the lousy budget deal itself.

 You'll recall that in November 2011, the Regents approved a request for a $411 million increase for 2012-2013, to claw back in part the $750 million one-year Brown cut for 2011-12.  In January 2012, Gov. Brown proposed an increase of $300 million.  I discussed Brown's proposal in detail in a January 6th post, "Jerry Brown Gives UC Just About Nothing," which includes our traditional historical budget chart.  I noted then that for 2011-12, "The final number for state general funds to UC is $2.273 billion, erasing any gains made in the past fifteen years (during which time enrollments grew 50%)."  This implied an obvious need for major restitution.

UCOP would seem to agree. At the May 2012 Regents' meeting, UCOP reminded the Regents that UC carried forward a $847 million deficit from the big cuts year that we have just finished (2011-12), and anticipated another that would bring the 2012-13 cumulative two-year deficit to about $1 billion.  This is not a deficit pegged to measures of educational quality or state personal income but to new, actual operating shortfalls on the campuses (e.g. page 3).

In contrast, Gov. Brown's proposal was to add nothing back to the instruction and research budgets of the campuses.  $90 million was for the state to resume its contribution to UC's pension to help match existing employee contributions, and the rest was to cover capital costs which were to be put in the operating budget for the first time.

After playing a full season of negotiating games, UCOP has been unable to move the ball.  The vaunted "4.2 percent increase" consists of "nearly $89.1 million for employer contributions to the UC retirement system, $5.2 million for annuitant health benefits, and $11.6 million for lease revenue bond debt service payments" (page 1).  The exception was the buy-out of a six percent tuition increase for 2012-13. It is a one-time buyout contained in legislation that is separate from the funding legislation (see Pres. Yudof's breakdown).  The buy-out offers important relief to students--if and only if the November tax initiative passes--but the budget deal does nothing to improve their educational resources on the campuses.

UCOP's accomplishments lie elsewhere.  First, they reached tentative agreement with the governor's office for a new Compact-- a four-year funding agreement in which both state funding and tuition would go up 6 percent a year. Second, they managed to eliminate targets for resident undergraduates.   Unfortunately, both of the achievements will cause more problems than they solve.

First, the neo-compact or framework, at least on its face, repeats the mistake of the 2000s in which UCOP brokered a deal with the Governor to which the legislature had no commiitment. When the university really needed the Compact, during the crisis of 2008-09, Gov. Schwarzenegger tossed in aside in a minute and cut UC and CSU 25%.

Though the current proposed framework may have some value as a guideline for negotiations, the numbers are way too low.  As recently as last fall, UCOP presented a multi-year planning analysis that suggested a minimum of 8 and 8 -- 8 percent annual fee increases coupled with 8 percent increases in state support.  If state support increased 6 percent, under UCOP's own calculations, then tuition would need to go up 10%.

Note too that these increases merely allow UC to tread water by filling in an existing deficit, not to recover pre-existing levels of quality or to address contemporary needs for higher quality than before.  The 8+8 calculation also assumed very large efficiency savings that in practice would mean continuing program cuts, staff layoffs, and reduced educational capacity -- in other words, permanent austerity with somewhat slower decline.  Expressed in another way, a 24% increase over four years will not restore Brown's one-year 25% cut, with inflation and enrollment increases cancelling compounding.  Even if the new compact is put in place, and holds for four years, it would lock in UC's structural deficit.

Second, ending in-state enrollment targets ends enforcement of the Master Plan (Robert Meister cites the language here). I won't repeat my earlier discussion ("Ending the Master Plan Won't Even Help the Budget") or do more than link to  Meister's call to preserve Master Plan enforcement.  Suffice it to say that ending state enrollment targets opens the door for campuses to make up in part for continuous loses in state funding by replacing California resident students with non-Californians who will pay far more.  The net increase for replacing a Californian with a non-California student would be around $20,000.

One can see the political benefit to UCOP in offering the increasingly restive campuses an enlarged revenue stream in the form of non-resident tuition (NRT).  But UCOP is responsible for the public reputation of UC as a whole, and ending UC's formal commitment to resident students will accelerate the reciprocal reduction of state commitment to UC, continuing the feedback loop in which higher tuition receipts lead to lower state funding revenues.  Since tuition increases make up only a quarter, a third, or a half of lost state funding, depending on the UCOP document one is reading at the time, this swap-out has resulted in net declines in operating funds. NRT seems like it will work better because the net revenue is so much higher per student.   But to work better it needs to be used at volume, not on the margins.   Rapid NRT growth, in which many campuses try to match the UC Berkeley boom all at once, will turbocharge the downward spiral in which the state simply no longer sees an urgent need to restore or even maintain state funding, since UC has this juicy alternative source.  State students are already voting with their feet, weakening the future commitment of their legislators, who can myopically continue to hope that other people's money and now other states will pay for a decent higher education for Californians.

Since Sacramento has zero ambition for the public sector that it controls, each branch of that sector needs to announce its ambitions and advocate them.  UCOP has not done this.  Whitman-like it celebrates itself and sings itself, and even more strangely celebrates the governor that cuts it without restitution (page 2).  It needs to do at least several other things instead.

1. Stop thanking Sacramento for miserable budgets tied to triggers. This dilutes any sense of urgency of state funding need.
2. Offer consistent information to the Regents, the UC community and the public.  Do we need 8 + 8 or 6 + 6 or something else?  Is the state an "unreliable partner," or is it about to "again become a reliable partner with the University of California" (page 3). How can a framework tied to a trigger cut make up for it? What happened to the $2.5 billion structural deficit described in September?  Are we saving $500 million in efficiencies, or $100 million, or much less?  Doubts, uncertainty, questions, confusion:  these have reduced UCOP's credibility. UCOP should focus on restoring this credibility with consistency and clarity, and avoid lurching from dire warnings to celebration depending on the situation at hand.
3. Calculate a full budget for research university quality and devise a multi-year plan to pursue it. 

On this last point, the problem with 6 + 6, etc. is that it is a set of numbers tied to other numbers rather than a set of budgets for specific educational functions.  So it can be changed here and there with no obvious consequences ensue.

Instead, UCOP should use in its favor the funding inequalities among campuses that "rebenching" tries to address.  It could say, look, the budget at the Los Angeles campuses, with a (reduced) state funding of $9867 per student (Appendix A), reflects what is needed to support UCLA's combination of excellent instruction and great research, both scaled-up to the necessary proportion for the talent required by a huge economy.  We tried for decades to bring the newer campuses to the same overall level. This plan worked in the 80s (after the first round of Jerry Brown cuts in the 1970s), stalled in the 90s, and fell apart in the 2000s. So we have the Santa Barbara campus supporting many top-10 departments and all sorts of great work with half the state funding per student of UCLA.  We can't live forever on the heroic efforts of underfunded campuses. And we haven't given up.  Our goal is to support all UC students at the same high level that reflects their great potential and our undiminished goals.  Here is what that will cost.

If UCOP can't or won't do this then the campuses should.  The public still hasn't heard the budgetary story that is grounded in our actual educational goals.