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Thursday, June 18, 2015

Thursday, June 18, 2015

New Budget, Little Improvement

As you have probably seen, the Governor and the Legislative Leadership have agreed on a final budget bill.  From a funding standpoint, there is little in the new bill regarding UC to change Chris's critical analysis of the Governor's May Revision.  UC is scheduled to receive up to $25M beyond the Governor's original call for a 4 percent general fund increase on condition of a continued tuition freeze.  CSU fared somewhat better.  It will receive approximately $50M over the Governor's May proposal.  It too, though, has a variety of conditions placed on the money.  For UC the key pages of the bill are 105-113 and for CSU 113-117.  I'm going to focus on UC in this post because I am less familiar with the implications for CSU. But I hope that people at CSU will use the comments section to expand the discussion.

There are several key points to make about the total budget package.

First, it includes a one-time payment of $96 million for the UC pension.  But this money is dependent on a dramatic reduction in the benefits of UC's defined benefit pension plan (as was clear from the Regents agreement with the Governor).  After a new system is put into place, the maximum salary that can be counted in a pension calculation for new hires will be approximately $117,000.  The Regents have proposed a supplemental Defined Contribution Plan and have also floated the possibility of allowing new hires to go entirely into a DCP.  If the latter should happen it is possible that the DBP will become unsustainable in any form.

Second, the Legislature was able to get the Governor to agree to an additional $25M above his May proposals.  But this money is contingent on the University enrolling an additional 5000 resident students by the 2016-2017 academic year (107).  There are a couple of things to be said about this situation.  First, as Dan Mitchell pointed out, UC is unlikely to increase numbers in a dramatic fashion for the upcoming year.  That means that these increased numbers will hit with great impact in 2016-2017.  Having been at UCLA when it attempted a dramatic increase in numbers I can say that without proper preparation and expanded faculty and student services the effects are quite serious. Secondly, the Legislature is assuming $5000 of the marginal cost of each new resident student.  This figure is even lower than the LAO calculation that, as I pointed out in an earlier post, would lead to the permanent under-funding of the University. In addition, the money will arrive long after the students have both enrolled and had their presence documented by UCOP.

Sacramento is also insisting that this money, itself inadequate for the simple increase without a lot of supplement, also be used to increase and quicken graduation rates.  Now increasing graduation rates is something that we can all support--but Sacramento appears to be concerned with increasing graduation rates no matter the effect on education.  It wants more students to pass through more quickly with inadequate support--a position that ties in nicely with the Governor's vision that costs can be driven down by pushing students into online courses or reducing requirements.  There is, in all of this, a general disregard for academic expertise and an apparent conviction that quantity is the most important variable.

Although less explicit, it seems as if the Legislature and the Governor are willing to make the University more dependent on non-resident students even as they insist on increasing the number of resident students.  Although the Legislature and the Governor have insisted on a continuation of the tuition freeze for resident students through the 2016-2017 academic years (106), President Napolitano has been empowered to increase tuition for non-resident students up to 8% annually.  Both the Governor and the Legislature have apparently agreed to the assumption that non-resident students can be used to underwrite resident students so that the State can continue its long-standing failure to support higher education in the state.

Thirdly, and more positively, the Budget Bill demands greater administrative and spending transparency (108-109).  The bill directs the University to finally clarify the nature and distribution of the Manager and Senior Professional category (long one of the black holes of administrative transparency), to clarify the financial sources it considers applicable to educational activities, and to provide forecasts of costs and resources through 2018-2019. Although this transparency will not accomplish anything in and of itself, it will allow for a more open discussion of priorities than has been possible in the past.  The bill also demands that the University include state employee salaries in any market calculation for the Senior Management Group.  In effect, Sacramento is challenging the University's insistence that its administrators should be paid more than other public executives. Given the University's recent practice of hiring administrators without prior background as educators it is perhaps not surprising that the Governor and Legislature are now wondering why they should be treated differently than other public administrators.


At this point in time, it is difficult to see how President Napolitano and the Regents efforts to provoke public support for the University were successful.  Nor is it clear that the continued willingness of the University to act as if the Governor is the only player in town makes any sense.  In the end, the University received approximately 25-30M extra dollars compared to what the Governor had promised in previous budgets.  But this additional money comes with some very crucial strings, including a drastic reduction of pension eligibility, agreements to look into reducing graduation requirements, increased auditing of faculty and staff, increased dependence on NRT, and the possibility of even greater state intrusion into university affairs. It is also true that President Napolitano was able to get the Governor to promise a longer-term funding commitment to the University.  But as we learned from Schwarzenegger's "compact," those promises are easy to make and easy to break.  So, the bottom line seems to be minimal increased funding, seriously increased auditing of academic life, continued pressure to sacrifice educational quality to cost cutting, and a commitment to substantial cutbacks in retirement benefits for future employees.  Not a good budget round.


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