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Friday, May 15, 2020

Friday, May 15, 2020

Our Converging Crises IV: Democrat Hoovernomics (Updated May 19th)

Its a simple story, as budget stories really are.

In 2019-20, the University of California received $3.724 billion of its revenues from the Golden State. That was a bit under ten percent of UC's gross revenues, budgeted to be $38.394 billion.  "Core" revenues on the campuses are about a quarter of that. The rest are medical centers and revenues from auxiliaries like housing.  That means that state general funds are about 40 percent of UC's educational core.

In November, the UC Office of the President got the Board of Regents to ask for an increase.  The base increase was a bit over $264 million.  Throw in some other line items, like paying for undergraduate enrollment growth !!, and you had $447 million in requested increases.

It looked ambitious, but it wasn't, for reasons of withdrawn one-time funds, etc.  It was a treading- water budget. Most campuses were already projecting structural deficits in a couple of years, even after years of good-pupil pursuit of non-public revenue streams like international students and for-profit masters programs.  The system projected a deficit as well. Base conditions on the campuses have long been bad--a whole concealed story in itself--and these increases kept this status quo.

This was  too rich for Gov Gavin Newsom.  In January, he offered UC half of its request - $217 million. It was a deed of anti-chivalry I heralded in my budget poem.  Then Covid-19 arrived and swept across the land.

Like every other university, and like every hospital system, UC took massive hits. Half were to the medical center, and half were to the campuses, more or less. The campuses had big losses in housing and dining as those were mostly emptied out. UC hospitals emptied beds and other facilities expecting a Covid-19 flood.  Long story short, UC projects total losses of $2.7 billion -- by June 30, 2020, for the current fiscal year.  Teresa Watanabe's story in the LA Times was rightly titled, "UC Reeling Under Staggering Coronovirus Costs.'

The current best case, the thinking goes, is that Covid-19 disrupts UC through Fall 2020 but then normalcy returns. 2021 would then be a fairly normal year-- face-to-face instruction, laboratories at full throttle, much higher cleaning, testing, tracing, and monitoring costs but also normal revenues.  In this best case, UC assumed a no-cut state budget.  If the state held firm, losses would be only another $4.4 billion or so for 2020-21. They would come from lost non-resident tuition and various Covid-19 expenses in the fall (testing, temporary classrooms for social distancing, etc.), and not losses from the state.  UC would be out $7 billion or so from March 2020 through end of June 2021, but could possibly cover that with borrowing and additional stimulus funds--emphasis on possibly. That was still at least a 10 percent loss for 2020-21--as the best case.  And it depended, to repeat, on a flat state budget -- neither the $447 million nor the $264 million increase, but merely a $0 increase for next year.

$0 was too much for Gavin Newsom. He has now come back again with another cut. Rather than just under $4 billion for UC, in the already-reduced January offer, Newsom proposes $3.369 billion, down about $629 million, a cut in the state share of 15.72 percent.

This pushes the best-case 2020-21 losses (on the January budget for that year) to more than $5 billion.  I'll put this another way.  About half of the $4.4 in losses were on the campuses--around $2.2 billion.  Newsom's cuts have just increased UC's core campus loses by nearly 30 percent.

States are supposed to help their major public systems, not disable them.  California forgot this long ago. It has forgotten this most completely with the educational pillars of its storied knowledge economy.

Sacramento looks for the cheapest deal, and it has gotten it with the University of California.  Newsom's new general fund figure, around $3.4 billion, is about what the state gave UC  in 2001-02, two decades ago.  Since then, inflation has run 46 percent, and undergraduate enrollments are up 52 percent.  A flat state general fund share for UC, reflecting both, would be $7.8 billion next year. Newsom has decided UC isn't worth even half of that.

In effect, the state is planning yet again to do serious damage to UC quality.  Research, doctoral education, undergraduate education, and their basic infrastructure have not recovered from the 2008-11 cuts, and the governor proposes to hit them again.

I'll just pull out two major issues.  UC doctoral students are the backbone of UC teaching and research.  Those in private housing need a COLA to afford rent in most UC locations. Where is that money supposed to come from when the UAW contract is renegotiated?

Secondly, racial disparity.  Undergraduate graduation rates vary by race: the 4 year rates are 54/57 percent for African American and Latinx students and 73/76 percent for white and Asian American students.  This is the most rudimentary quality measure--not what did you learn, but simply did you finish--and yet UC lacks the funds to achieve racial parity in basic grad rates.  It costs money to (a) make up for weaker preparation coming from California's de facto segregated high schools (many lack 2nd year algebra or calculus, for example); and (b) give enough financial aid to keep poorer students from working too much. State cuts = more racial disparity, plain and simple.

Think of the difference between Newsom's $3.4 billion general fund offer and the inflation-enrollment corrected amount UC should have, $7.8 billion, like this.  In 2001, Underrepresented Minority (URM) students were 16 percent of UC's undergrad population. This year, they are 29 percent.  The state now invests half as much in a student body with twice the share of black and brown students.

Everyone decries this textbook structural racism--the Regents, the governor (p 48), and every liberal Democrat who also does respectability politics by saying there must be "sizable reductions in services", or saying, "a hand up, not a hand out."  Herbert Hoover would be proud. If Democrats don't want racial disparity, they should stop producing it with austerity, as though Keynes never lived, the New Deal never happened, civil rights were a chimera, and stimulus funding didn't actually build the country.

It's economically illiterate for California Democrats to revive Hoovernomics when it will hurt the most. The legislature should reject Newsom's cuts to the state's core systems.

UPDATE 5.19.  Yesterday, UC president Janet Napolitano announced a pay freeze for "policy-covered staff employees," 10 percent salary cuts for her and the campus chancellors, and the continuation of ladder-faculty merit reviews (the coded language here will need careful parsing, and will probably be implemented somewhat differently on the various campuses).

Towards the end, she noted,
From mid-March through April alone, we estimate that systemwide financial losses totaled nearly $1.2 billion, and we anticipate these losses will continue to climb in the months ahead. Needless to say, this significant loss of revenue is having an enormous negative effect on our budgets. Additionally, Governor Newsom last week announced a revised State budget for 2020-21 that includes a 10 percent funding reduction for UC of $372 million.
Newsom's May cut takes UC down to $3.369 billion.  Why does Napolitano describe this as a ten percent cut for 2020-21, not 15.72 percent?  It depends on how you count. It's a
  • 10 percent cut from 2019-20's general fund appropriation of $3.724 billion.
  • 16 percent cut from Newsom's January budget proposal (see Dept of Finance)
  • 20 percent cut from the UC Regents' November budget proposal (of $4.228 billion).
With a 20 percent cut, Newsom joins Arnold Schwarzenegger and Jerry Brown in the 20 Percent Higher Ed Cuts Club.

I don't know why Napolitano is minimizing the size of the state cut, making it seem like half of what it actually is when compared to the University's official request in November.  That November request was not large enough to make UC solvent (second budget slide here): many UC campuses were projecting deficits on its basis.  Add in the non-state revenue losses and UC's 2020-21 is an unprecedented budget disaster.


California Policy Issues said...

Hoover had the Fed which could have averted the Great Depression, but he didn't understand it (nor did the Fed understand itself at the time, nor did just about anyone in the economics field). Newsom doesn't have the Fed, except indirectly through whatever Pelosi can get from McConnell (who is really the Hoover today). Much depends on the fate of the economy now. If you think there will be a quick rebound, then you blow out state cash this coming year and hope for some kind of normality the year after. But with no magic serum in sight, it's not clear why you would expect a snap-back. And the longer things go on as they are, the more drawn out the recovery is likely to be. In any case, Newsom is not the sole decider in budgetary matters - we have a legislature. And we have the Regents meeting coming up. Let's see what they have to say, including the political types. Napolitano said very little in response to the May Revise, but she is departing.

Chris Newfield said...

all true Dan. There needs to be much more pressure from UC people overall. Student protests ended in-state tuition hikes. What's the UCOP/ faculty equivalent for a stability / rebuild budget? @California Policy Issues

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