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Wednesday, November 25, 2009

Wednesday, November 25, 2009

Pushing a New Measure of UC Budgets in Sacramento

UCOP's budget request for 2010-11 was good (see the summary).  It goes looking for a big bounce - from down over $800 million this year, to in principle up over $900 million next year. It's a restoration budget, and is an improvement in tactics after years of being limited to 3% increases by UCOP's timid interpretation of the Compact such that it failed to use the mid-decade boom to get out of the hole dug by the previous bust of 2002-05.

We've analyzed the budget on this blog quite a bit: a July 11 headnote provides some background and links, and references a post that estimates the funding crash under a scenario called Extreme Arnold.  That post summarizes six scenarios for the UC budget and offers an overview of what's happened to our state funding.

The chart there was an update of those of the Futures Report (2007) (or see the slides) and the Cuts Report (2008).   Now my Futures Report co-author Henning Bohn, an economics professor at UCSB, has also updated the budget data. It's a draft, he reminds me, but it is nicely convergent with the updates noted above.  Henning also updates the calculation of state personal income, so that "benchmark" line is better.

First, there's the brown line that shows that actual state funding is below the worst case scenario imagined in 2007 - a "public funding freeze" otherwise known as privatization - (the scenarios are summarized here).

The governor and legislature's appropriate for 2009-10 is literally falling off the chart.  The brown dot is UCOP's 2010-11 target.  Note that it is still below the level funding guaranteed by the Compact with the governor - the one he unilaterally abrogated.

Now comes the interesting part.  When people ask why UC got whacked beyond anything seen in higher education in three generations, the answer is always the same: Sacramento has no money.  If you think about money in terms of Sacto's insane budget brokering - which produces fake closures and infinite mystery holes not seen in nature - then there is money for nothing, and the state can do nothing, and we are all being sucked slowly into the budgetary version of Poe's maestrom until we are a state of certified morons - because there is just no money.

Here's where another of Henning's charts comes in handy:

State personal income: that's how much money we actually have. This inspired, illuminating chart compares UC's general fund to the state's actual personal income.  When state funding goes down because state income goes down - because the economy tanks, people lose their houses and jobs - then the ratio between the two stays the same, and the line is flat.  When people get poor, but greedy government services continue to suck their blood, then we have an upsloping line - the university would be taking more of a share of people's money than before.  We see a Benchmark that would indicate where UC's budget would be were its General Fund to have remained the same share of state personal income as it had in 2001.  Then we see three phases:
  1.  a 5 -year decline in UC's allocation as a share of state personal income - the money people actually do have to spend on various things - prisons, cars, big screens, hootche-kootche, education.   2001's 0.28%  personal income for the greatest public university in the world was already pretty darn low, and lower than it had been in the past. But it went down and down until 2005-6.
  2. 2005-2008 -the Compact allowed 3% annual increases, less than half that of other state agencies (see Cuts).  This kept UC funding exactly flat in relation to state personal income - each went up between 3 and 4% a year, hand in hand.  But there was no recovery to the 2001 norm.
  3. 2008-10: the 25% GF cut.  UC's budget dropped  not just in absolute terms, but as a share of state personal income.
This means that UC didn't get poor because the state's people got poor.  UC got poor because Sacto  skimmed a piece of UC's traditional share of the state's wealth. Sacto took a slice, and UC got poor.  It got poor because Sacto took out UC's earned money even though UC was as a worthy, stable provider of state services for a deservedly stable share of state income.

Here at UC, we not trying to do anything fancy this year.  We're not talking about improving UC. We're not talking about innovation. So here are two unfancy strategies with Sacto, performed I hope by some not very fancy people.

1. establish a historical baseline share of state personal income.  Henning has already provided this. UCOP should adopt it.  It will go up and down with the state, but not off a cliff as it is now doing with the state standing there giving a push.
2. detail the multi-year financial objectives that this baseline translates into - e.g. what GF we need in 2013, given an expected number of students and rate of inflation. It will be a compact with the students and state alike, will allow future planning. The measure would be flexible in a downturn, giving the taxpayers a break . It would also encourage UC to detail what they are going to do with the money.

It's simple. It's easy.  Do it!!!


Anonymous said...

A couple of questions -- does this factor in the federal stimulus? I think you need to treat the federal stimulus as state funds since the state did.

And how is your share of personal income floor any different than the Compact? The compact guaranteed California personal income plus enrollment growth plus a few percent on top of that.

Anonymous said...

Does Sacramento pocket the money for parties and vacations? spend it all on prisons? Or are there any competing budgetary claims with virtue, such as public health, poison control, K-12 education, aid to the disabled, workers comp, the courts, etc?

Might it ever make sense for UC to get a smaller share of total personal income? What if personal income declines, prisons and k-12 education get (or are supposed to get) fixed shares of the budget, and the only way to keep public health offices open during a swine flu year is to reduce funding to UC?

Ignoring these things produces some of the dangers of interest-group special pleading. Potential allies become enemies. The real structural problems are ignored in favor of regular old pluralist budget bargaining. And the galring holes in the analysis, if displayed in open public venues, render it more difficult to make a conving case that there is a broader public and societal interest at stake.

The underlying problems in California - the crash of an unstable economic system and anti-tax religion that knee-jerk disparages the very idea of public good - are not just California problems, they are national problems.

The political trump card against them is nationalism, not Californiaism or interest group politics or debates about public education. And structurally it is only the Federal government and a national demand that could force a correction of the Hooverite policies of the States.

Chris Newfield said...

the state cut UC by the same amount of the UC stimulus money, so the effect of the stimulus was deliberately reduced to zero. Sacto took money washington gave to higher ed and spent it elsewhere.

The Compact guaranteed UC an annual increase over its previous budget of 3% over previous years (and some other good things, like actually funding enrollment growth, which Sacto usually doesn't do). This was a percentage increment tied to the previous UC budget, and was quite explicitly not tied to state personal income.

What does Sacramento do? It shafts higher ed more than any other sector in state government, for longer. I don't think UC should get special treatment: it shouldn't be specially screwed year after year, decade after decade.

Might UC sometimes deserve less state money? Sure, but that's what it's gotten for 20 years: 66% less. Isn't that less enough for you, Anon #2? Do you want even bigger cuts?

I don't see the zero-sum claim here. I think public infrastructure and public services all deserve stable funding. I can make a priority list if you want. One of my brothers lives in a facility for those 100% disabled by cerebral palsy that the state has also cut year after year after year, endangering quality of service and even its ability to stay open - they deliberately fund only partial expenses and freeload off families and employees by forcing low wages, etc. I am hardly indifferent to competing claims for state money. Some programs should be closed, and all programs should always be reviewed. But termination or modification of services should be done through evaluation of means and outcomes, with the full participation of both clients and providers. I'm against restructuring - smashing, really - thorugh forced, repeated cuts. I don't think prisons should be cut by an arbitrary percentage either: they should be radically downsized, but through rational policy planning and debate, where people have to actually made arguments and explain how necessary functions will be maintained.

The point of pegging UC funding to state personal income shares is to debunk the patently false yet ubiquitous argument that we cut higher ed because we have no money. UC is cut as part of a successful, decades-old right-wing political program to cut the share of wealth and income that supports public infrastructure and services. UC is Exhibit A - the most cut. Sacto cuts higher ed no matter what, and it has been cut enough.

Anonymous said...


I know you value other public services, but it is not about you. It is about the chart of UC's sahre of total personal income, and that chart and your use of it brackets out any possibility that other services could be as important.

I think you are ignoring the reality of the national economic collapse, the fiscal crisis that California is in (along with other States!), and the highly constrained if not totally broken economic and political means California has for digging its way out of the problem.

Back to the chart of UC's share of total personal income: there is a lot that is distorting in that chart, including the regressive assumption that all personal income is equally taxable. And the chart leaves out more than just competing claims from other valued public services. It ignores the way that increasing taxes (in general) in a recession has the same effect as cutting spending: it diminishes demand, raises unemployment, and accelerates the downturn.

That doesn't mean solutions are impossible. But it does mean that the soultions need to come from the National govt more than the States, esp in the case of California.

The future of UC and the country depends on moving outside the interest group politics of intra-state budget battles in a time of near depression.

The future depends on establishing a new social contract, because the old one was hollowed out over the past 30 years and it was insufficient in many ways, too.

Chris Newfield said...

Anon - I completely agree about a need for a new social contract. I think the social institutions that would be restored to health in that context need to take the lead NOW in explaining the benefits that would result. Our current unmistakable crisis is being worsened by a Hooverization cycle that is being enforced by deliberate Republican policy. I would like to see UCOP and the Regents work with many other state agencies and partners - including the core group you've mentioned - to show how restoring and rebuilding high-quality social infrastructure is the key to recovery, to future prosperity, and, last but not least, to social reconciliation and development.

How would UC do this politically? It would need to stop operating within a conservative paradigm (the "era of public funding is over" etc), which would in turn require giving itself some freedom of movement within its Republican social networks. I am not optimistic on this point, and this is why I try to help get other UC perspectives into view.

How do we pay for it economically? For the moment, by borrowing in high Keynesian style, with strict accountability for the uses of the funds thus raised as social investments. This strategy would have to be national, as you point out. But California needs to take responsibility for its past decisions, and here we DO need to look at selective tax increases. I actually don't like increasing taxes "in general," but think that the belief that all tax hikes hurt business and productivity is part of the false Republican paradigm that we need to escape. This is where your desire for a more subtle account of personal income is useful. A faculty group is working on showing the different amounts that restored funding would cost different income brackets, and I hope to link to this data up on the blog next week. The principle is that selective and especially *progressive* tax hikes are better for both social justice and economic effectiveness than are flat or regressive taxes.

All this requires overcoming *minority" opposition to "revenue solutions" - the one-way cuts strategy is the economically dumbest and most destructive thing in modern California political history, worse than Prop 13 as such. This in turn requires a feasible transformation in the political climate. We can see a readiness for this in complicated poll results like the PPI poll that Andrew Dickson and Michael Meranze analyzed here a couple of weeks ago. The same is true nationally, where the public could hardly be more ready for economic intervention that helps Main Street this time around.

As a brilliant fusion of liberal arts education and "knowledge economy" contributions, UC is being run into the ground. To end this death spiral - when ending it can help end the crisis - UCOP and the Regents need to play a far more assertive role in making the case for public redevelopment in general and public higher ed in particular. They also need to provide the budgetary detail and public funding metrics that will help make UC need compelling. If the current leadership does not do this, they will be remembered as the ones who had the chance to help stabilize minority-majority California on its way to becoming a new and improved California 2.0, and blew it.

Anonymous said...

I agree with the idea of pegging UC's budget to some stable floor based on aggregate California personal, but if you look at the history of the compacts/paternerships that UC has had with Governors -- that is exactly what was tried. You make this political point:

"UC is cut as part of a successful, decades-old right-wing political program to cut the share of wealth and income that supports public infrastructure and services. UC is Exhibit A - the most cut. Sacto cuts higher ed no matter what, and it has been cut enough."

The irony is that in Sacramento, UC has typically been perceived a Republican priority (Deukmejian increases for example) and CSU and Community Colleges a Democratic priority (because of unionized faculty that fund Democratic politicians in those systems)

Anonymous said...

Here is $21 billion ripe for the picking http://caltaxreform.org/?p=211 "Low Hanging Fruit in the Tax System: 10 Policies for $20 Billion"

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