An Open Letter to UC Students
From Bob Meister,
President, Council of UC Faculty Associations
Professor of Political and Social Thought, UC Santa Cruz

(Download a PDF version of this document or view a one page summary.)

As students, you pay tuition in order to get an education at UC, and you know that the Regents plan to raise your tuition even higher. You may think that the tuition you pay is primarily or exclusively used for instruction, but this is not its only use. UC recently sold more than $1.6B in highly rated bonds one month after declaring an “extreme financial emergency.” Why is its bond rating excellent, even after UC says that without cutting employee pay it will have difficulty paying its bills?  The single most important reason that UC has an excellent bond rating, much better than the state’s, is that it can now raise your tuition at will. Your tuition is UC’s #1 source of revenue to pay back bonds, ahead of new earnings from bond-funded projects, which do not even come second. The bond interest UC now pays will be $300M this year, and is projected to go way up as UC greatly increases the private capital it raises through tuition-backed bonds over the next decade. UC should disclose its plans to issue new tuition-backed bonds before you are asked to accept this year’s 32% tuition increase, which will automatically become part of the collateral for those bonds.^[1]

Because UC pledges 100% of tuition to maintain its bond rating, it has also implicitly assured bond financiers that it will raise your tuition so that it can borrow more. Since 2004, UC has based its financial planning on the growing confidence of bond markets that your tuition will increase. (Why? Because you’ve put up with this so far, and because UC has no other plan. Its capacity to raise tuition is advertised in every bond prospectus.)

(Before I go on, you should understand that there’s a difference between using your tuition as collateral for construction bonds and actually spending to pay the interest on those bonds. UC now spends some tuition revenue on debt service, and is likely spend more for this purpose as it borrows more against tuition. Since 2004, all of your tuition has been pledged in the sense that it will be paid into an account held by the bond trustee in the event of default.)

In pledging all your tuition as collateral for its bonds, UC is relying on a simple notion which, if used by an individual trying to borrow money, would go like this: if you had a good paycheck and you expected to have steady raises in the future, you could pledge your whole paycheck to secure a loan. Your bank might offer you a lower interest rate for pledging it all without expecting you to use it all to service your debt. You could then still live off your paycheck as well as get a lower interest rate. UC has done just that with your tuition. It considers itself smart to have made this kind of deal. In 2008 it paid 0.2% less in interest for bonds backed by tuition (and all General Revenues)^[2] than for bonds funded by project revenues alone, such as those that paid for employee parking garages.

So, one reason that UC has pledged all of your tuition, including future hikes, may have been to get a better interest rate, and that is likely to be the explanation it gives publicly. But is lowering interest rates the only reason why UC pledged your tuition?

In fact, there are stronger explanations that are less benign. The first is that, although tuition can be used for the same purposes as state educational funds, it can also be used for other purposes including construction, the collateral for construction bonds, and paying interest on those bonds. None of the latter uses is permissible for state funds, so the gradual substitution of tuition for state funds gives UC a growing opportunity to break free of the state in its capital funding. A second explanation for the tuition pledge is based on the idea that a bank will pay less attention to whether you’re making a good investment if it has access to your entire paycheck in the event you haven’t made a good invetment. This means that UC can be much less transparent about how much revenue it earns from tuition-backed bonds, which are now more than half of its total borrowing and are expected to greatly exceed all other borrowing over the next decade. A third explanation for including your tuition in the pledge is that tuition is expected to rise no matter what happens, and is likely to go up even faster in bad budget years. UC’s pledged collateral rose by 60% ($4.2B to $6.72B) from the last pre-Schwarzenegger year through June 2008. Tuition, a large and growing component of that collateral, has risen much faster since the state economy collapsed in 2008–it will be up 109% by Spring 2010 We won’t know the effect of recent increases on UC’s total collateral until its next two financial statements come out, but it appears that UC has nearly doubled its borrowing against that collateral in 2009 alone. The fact that UC can (and does) raise tuition during state economic crises means that a bad budget year can be a good bond year.

Why haven’t you been told that UC has been using your tuition as collateral to borrow billions of dollars? The obvious reason is that tuition increases are justified (to you) as a way to pay instructional expenses that taxpayers refuse to pay. If that’s why they’re being imposed, it’s natural to assume that tuition increase will be used to minimize cuts to education. But when UC pledges your tuition to its bond trustee (Bank of NY Mellon Trust), it’s really (legally) saying that your tuition doesn’t have to be used for education, or anything in particular. That’s why it can be used to back UC construction bonds, and why the growth in tuition revenue, as such, is enough to satisfy UC’s bond rating agencies (S&P and Moody’s), whether or not UC can pay its bills. The effect of UC’s pledge is to place a new legal restriction on the use of funds that it must first say it could have used for anything, including education. Thereafter, construction comes ahead of instruction.

Some of UC’s new, and self-imposed, constructions costs will come off the top of its annual budget, despite this year’s “extreme financial emergency.” When UC chose t0 take on $1.35B in new construction debt for 70 projects in August 2009—one month after imposing employee furloughs that “saved” $170M—it committed to spending $70-80M in extra interest payments for years into the future –they’ve just released the interest rates for each new bond series. Earlier in the year, UC had already issued $.8B in tuition-backed bonds in spring 2009, only some of which were for refinancing older projects at lower interest rate. It’s thus likely that the interest due on new projects funded during 2009 alone will have eaten up more than half of UC’s “savings” from the furloughs. Would the furloughs have been “unavoidable” if UC were not secretly planning to incur additional interest expenses for new bond-funded construction? I’ve just today (October 9) received a list of the 70 tuition-funded projects that were not announced until after the furloughs, and that UC decided not to postpone in order to avoid furloughs. These projects are listed at the end of this document. You can judge for yourself how urgent they are, and how high your tuition would go to finance more like them.

Interest payments are not the only cost of issuing bonds that comes off the top of UC’s budget: there are also reserves. UC’s Bond Indenture provides for reserves to be held in the name of UC’s bond trustee (BoNYMellonTrust ), even while allowing the Regents to control the larger accounts maintained to pay for actual construction and to avoid holding reserves for interest alone. Do these trustee-held reserves (which can’t be spent for other purposes) show up in UC’s audited financial statement? There is a line reporting that “non-current assets held by trustees” as of June 30, 2008 were $753M—a number, perhaps coincidentally, close to UC’s current-year shortfall in state funds. Does this line refer to the bond trustees? If so, how much higher will this number be as a result of this year’s $2.5B in newly-issued bonds? President Yudof knows. He could have had this line in UC’s Financial Statement in mind when he threw off a number of $900M in apparently “unrestricted” reserves that he says are really earmarked for construction.^[3] But he could have been referring, instead, to a separate construction fund, held by the Regents, or to their deposit in its common pool of reserves (called STIP), which in recent years has totaled up to $6B, and could have swelled even higher as a result of UC’s 2009 bond issues. The bottom line is that you should demand further disclosures about UC’s bond-related reserves.

A further question is the extent to which UC promised to manage its budget so as to protect its bond rating. The “due diligence” documents that UC should have furnished to the bond trustee( BoNYMellon) and the bond ratings companies (S&P and Moody’s) would normally address the “best-” and “worst-” case scenarios. If UC prepared such documents, they might well contain assurances, made as early as the first bonds issued 2004, about what UC would do when its state funding fell to present levels, These reductions were already anticipated, although not quite this soon. If so, these documents would  explain, in a concrete way, why President Yudof now says that he had to cut pay (i.e., impose furloughs) and raise fees (especially tuition) as evidence that UC’s bonds are still good, indeed better than ever. The trust and ratings companies won’t release the documents UC furnished to get its bond rating, but President Yudof could do so. You should demand UC’s “due diligence” documents before you accept the claim that UC is raising your tuition as a matter of necessity, rather than as a choice to put construction first.

Even without such disclosures, UC’s shift in priorities from state-funded instruction to privately-funded construction is hidden in plain sight – in the text of the General Revenue Bond Indenture . The Indenture says (presumably the language is standard) that the Regents, in addition to avoiding default, “shall not permit to be done anything that might in any way weaken, diminish or impair the security intended to be given pursuant to the Indenture”^[4] (italics added). You would be foolish to regard this as meaningless lawyer-talk that leaves funding higher education intact as UC’s highest budgetary priority. It, rather, makes UC’s bond rating its highest budgetary priority.

The shift in priorities reflected in UC’s General Revenue bonds is even more important than the off-the-top costs, which will certainly rise over the decade unless UC’s priorities are reversed. The concept of a “General Revenue” bond is a hybrid between a “general obligation bond” and a “revenue bond,” and is as close as UC can come to backing each individual project with all it revenues without having the power to tax—although the power to raise fees comes close. By pledging “General Revenues” (everything it can legally pledge) for every project UC thus changed its spending (aka “budget”) priorities to suit the bond market. This shouldn’t be surprising—you, too, would change your spending priorities to suit that bank if you pledged your entire paycheck, or as much of it as you could.^[5] For UC this means increasing tuition for its own sake, because every tuition dollar can be added directly to the pledged collateral. It also means cutting spending when and where it can get away with doing so.  What this is means is that state budget cuts are actually good for UC’s bond rating, because they allow UC to raise tuition simultaneously. Construction funding is a reason why the Regent’s want to raise tuition, perhaps the most important reason, but, as students, you are unlikely to go along with big increases to fund UC’s list of construction projects. Cutting back on instructional budgets is how they get you to agree to higher tuition without telling you how much will go to fund construction. On my campus, the most visible instructional cuts typically become permanent, and we’re told that without higher tuition they would have been worse. Campus administrations can always say that no particular tuition increase is ever large enough to reverse whatever instructional cuts were imposed to persuade you that it was necessary. If you accept this claim, you’ll never question how much of your tuition is used to fund construction, and whether you would have found an increase justified had you known.

To people in the financial world, it’s already obvious that UC committed itself to raise tuition and cut budgets when it decided in 2004 to secure its bonds. Most of my UC colleagues—faculty, students and staff—nevertheless find it unthinkable that UC would actually raise tuition and cut instruction in order to fund construction. People understand that UC wants to build. What’s unthinkable is that UC would still want to build rather than protect its programs and people when other great universities, including Harvard, indefinitely postponed new construction when their endowment income fell. Why? Because protecting people and programs seem to be a higher priority for Harvard than for UC.

Obvious? Unthinkable? UC’s actions are both. The Regents were under no legal obligation to spend any of your tuition on education—that’s why they can promise to turn the entire amount over to bondholders in the event of default. But neither were they obliged to pledge every penny of your tuition (all its other available revenue) in order to protect their borrowing power in capital markets. President Yudof could be referring to UC’s bond rating when he says that all UC’s “unrestricted” funds are “tied up or must be maintained at a certain amount for the fiscal health of the university.”^[6] Those of you who have skipped my footnotes should note that the title of his piece is “Why UC Must Raise Tuition.”

What UC has done was not inevitable, and went far beyond anything that the world of bond financing could have legally required of it. Before you go along with this year’s increase of 32% (which is compounded over last year’s increase), you should ask whether UC promised to manage its budget (your education) so as not to lower its bond rating.

It should be unthinkable that the Regents could have made such a commitment in 2004.^[7] To think that they actually did this means that, since 2004, UC’s highest priorities have been set by bond raters, and not by the State of California. I’m going public with my concerns about what this means for you, the students of our university, because I’m tired hearing that it will always be too soon to protest UC’s privatized future until it is already too late. By then, “the inevitable” will have happened by a thousand cuts, and taxpayers will believe that UC is determined to privatize no matter how much money it gets from the state. I, thus, see no point in waiting to know more before urging you to say “no” to the November tuition increase. More information won’t persuade my more cautious colleagues who think now is never the time to reverse the trend toward privatization—not even during a budget crisis when jobs are on the line, much less during good times when funds are flowing.

UC has a leadership problem, a problem of direction. So, yes, your tuition is pledged to finance UC’s plans to raise increasing amounts of capital in bond markets, and you should know what these plans are before paying more in tuition. I’ve made a further calculation in deciding that this is the right time for you to question UC’s leadership. If UC’s leaders can answer your questions by showing that the net budgetary impact of tuition-backed bonds is thus far relatively small, then you still have time to reverse their direction. If they are planning to greatly increase the funds raised by such bonds by rapidly raising tuition, this means that your time is running out.

Based on what I’ve said thus far, here’s why you should conclude that now is the time to demand full accountability from UC, and each of its campuses:

• UC’s off-the-top diversion of funds from instruction budgets to construction finance is not transparent in any document available to you, the general public or even to me. (I’ve recently seen such a document, but was not allowed to keep it or take notes.)
• Had the full extent of UC budgetary diversion for construction been transparent, this year’s “emergency” cuts and fee increases would have appeared as what they were, a choice of priorities, rather than inevitable.
• UC’s most recent (post-“emergency”) construction bonds are just the beginning of a long-term (10-15 year) plan to borrow very much more against very much higher tuition in order to fund individual projects that no longer have to be approved by the state or paid for out of each project’s own revenue. The next step in this direction is this year’s 32% tuition increase, which the Regents plan to approve in November.
• Before you accept this, yet again, you need to find out how much of this additional tuition revenue will be diverted for construction and how UC’s shift from state funded to tuition-funded construction finance has affected its priorities as a still-public university – and in particular, how it will affect its ability to deliver the first class education you came her to obtain.  Is UC simply raising your tuition because it can, and because doing so automatically increases the collateral available for its bonds?

Some UC apologists will dismiss such questions about UC’s priorities, saying they are based on the naïve assumption that all your tuition money should go to the classroom, rather than, for example, research. In giving such an answer, they would be holding back a crucial piece of information that appears in UC’s non-public documents, which explicitly say that taxing research overhead is the #2 source of repayment funds for General Revenue bonds. This doesn’t mean that new buildings will be paid for by the additional research overhead they “earn.” Even federal grants, which pay UC the maximum “overhead” it gets from anyone, expect UC to “share” (i.e., eat) about 10% of the full budgetary cost on the grounds that doing research should be one of UC’s priorities.^[8] But once you see that no UC research ever fully pays for itself, you’ll see that UC must be assuming that all new research labs will add more costs than revenues. The bond documents don’t say that new projects will generate surplus revenue that could be used to support instruction: they are not like private sector “investments” that return a profit to the enterprise. Each new capital project that UC finances on its own, without state subsidy, is at best break-even. Most will be a permanent (perhaps growing) drain on campus resources that will be covered, first, by raising your tuition, second by spreading existing research support funds even thinner, and third by charging you more for other things, like student activities, while giving you less. The list goes on, but what you need to know is that even UC’s new research labs and sports facilities can’t be justified by how much new revenue they bring. Even if they earn some revenue, they’re being built for the prestige of the campuses (and thus the Chancellors) with no disclosure about how much they add to costs, how much tuition will be raised as a result, and whose instructional and research support budget will be cut.

UC has responded to criticism of its post-“emergency” bond issues by simply saying (to the press and on its website) that it would be irresponsible to issue bonds without having a revenue source to pay them back. You shouldn’t be bamboozled by this vague, well-crafted statement into assuming that this revenue source comes mainly from the bond projects themselves. It comes mainly from your tuition, and UC’s ability to raise it at will and, secondarily, from its ability to cut at will what it actually spends on instruction and on overhead support for researchers. As a result, it’s simply misleading for UC’s website to suggest that it can’t use these bonds to pay the costs of keeping class size down, keeping libraries open, preserving student access to lab courses, maintaining staff support for classroom instruction, and retaining the high quality faculty who make UC a magnet for California’s best students. UC now gets more than half of the revenue added by each new student from tuition, rather than from the state—and it expects tuition to rise as state funds decline. It is fine for UC to say that it won’t use the bonds to support instruction because the state underfunded enrollments by $122M, or that it shouldn’t pay for operating costs by borrowing. I’m not saying that it should. But, if it shouldn’t, this bears on the question of how much tuition should increase, and whether tuition-backed bonds should be used primarily to fund buildings that will be used primarily for instructional purposes. I’m open to the argument that using tuition to finance buildings devoted to cutting edge research might be justified by the prestige and value of the work done in them, but I doubt that this is true of the administrative and service buildings that may already be covered by voter-approved state bonds for which UC is unwilling to wait, even though recent layoffs have left it with a lot of unused space.

UC’s 2004 decision to become tuition funded for both its budget and its capital projects reflects a fundamental change in its priorities and purpose that goes far beyond anything the world of bond financing could require.

• The first way to understand this shift is conceptual: you need to grasp the fact that the revenue a public university raises through tuition (unlike its funding from the state) can be used as collateral to borrow capital markets. This means that a public university deciding to privatize will value tuition dollars more highly than state dollars—partly because it can more easily financialize tuition, and partly because the process of becoming tuition-dependent allows it to simultaneously blame all budget cuts on the state, and the fact that it can’t raise tuition enough.
• A second way to understand this shift is through its direct effect on your finances: a privatizing university will generate the higher tuition used to finance capital projects by requiring you (its median student) to borrow the same money from the home mortgage and student loan industries. It is, thus, requiring you to support UC’s excellent bond rating by taking on personal debt backed by your own credit rating. This is a surreal form of credit swap in which UC funds new construction by getting your parents to risk foreclosure and you to risk insolvency for much of your adulthood. In return UC takes on the risk of what? There are several scenarios, but most end with the risk of having to accept non-California students who can pay higher tuition to replace California students who can’t or won’t borrow enough to finance higher tuition. Such a “swap” works mainly to UC’s advantage, not yours, unless you would otherwise have taken on just as much debt for a worse purpose.^[9] This is yet another way in which UC is becoming debt-financed rather than taxpayer-financed.
• A third way of understanding UC privatization is budgetary: that it shifts UC’s spending priorities away from what the state will fund and toward producing revenue streams that it can treat as capital assets.^[10]
• A fourth way of understanding UC privatization is political in the sense that UC leaders now take an openly negative stand toward California taxpayers, and especially the state legislature. Instead of expecting – or trying to mobilize – political support for public higher education, UC now blames public indifference for what it is now “forced” to do, and implies that a legislature that won’t pay should have no say over how UC uses the money that it “raises” on its own, such as tuition. Once UC openly declares its intent to use “its own” funds to raise more private funds, regardless of how much the state still pays, why should the state pay more?^[11]

Should the State of California restore funding to UC? Of course it should. Otherwise, UC can’t continue as the great public university it still is. But, as a taxpayer, I would be reluctant to pay more unless UC also reverses course: it must, once again, be willing to use the revenue it holds in public trust to advance its state-mandated purpose. UC’s continuation as a great public university is impossible if advancing public higher education has ceased to be its own top priority.

Many will try to discourage you from becoming active in the effort to ”Save UC” by saying that its problems are typical of those facing public universities in the state and nation as a whole. They would encourage you to think that this is not the place to address these problems, or try to persuade you that now is not the time. But you should not conclude that, if a problem exists everywhere, it can’t be confronted anywhere; nor should you conclude that if a problem is ongoing, it can’t be addressed now. This is, in fact, a good place and time for us to confront a wider long-term problem. UC is a nationally prominent, and successful, public institution that has a deep reservoir of public support and a large body of students, faculty and staff who are ready to be educated and engaged in action.

There is also an immediate focus around which to mobilize—the Regents’ plan to raise tuition by 32% in November. If students, faculty and staff were to demand that funding public higher education be UC’s highest priority in the use of “its own” funds and assets, this would strengthen the moral case for restoring public funds.^[12] My severest criticism of UC’s leadership is that it has lost (or given up on) the moral case that must be made for public higher education, which has, according to President Yudof, “lost its shine.”^[13]

The fact that UC’s privatization reflects a national problem is not a reason to despair: it is, rather, a reason to make the fight against it our highest priority. The problem is here, the time is now, and we are building a movement that can produce new knowledge on which other movements could build. This kind of teaching and research in the public interest is what UC does best. Let it shine.

Want to know more?  Here are answers to questions on this issue raised by skeptical faculty.

Projects funded by UC’s August 2009 General Revenue Bonds: [Amounts are not provided]

Berkeley
Biomedical & Health Sciences Step I
SAHPC (Stadium)
3200 Regatta Renovations
Clark Kerr Renewal
2007-2008 Deferred Maintenance
2008-2009 Deferred Maintenance
Law Building Infill
Anna Head

Davis
Physical Sciences Expansion
West Village Backbone Infrastructure
Health & Wellness
Graduate School of Management Conference Center
Project Augmentation
Tupper Hall
Hotel Site & Preparation
Building Jl Renovation/Upgrade
Cruess Hall Deferred Maintenance
2007-2008 Deferred Maintenance
Robbins Hall
Coffee House

Irvine
Engineering Unit 3
Social & Behaviorial Sciences
Stem Cell Building Gross Hall

Los Angeles
Life Sciences Replacement Building
Police Station
Hilgard Student Housing
100 Medical Plaza Building
Northwest Campus Student Housing Infill
Lake Arrowhead
Weybum Terrace
Pauley Pavilion

Merced
Merced Campus Parking Lot G & H

Riverside
Health Sciences Surge
Creekside Terraces
Summer Ridge Apartments

San Diego
North Campus Housing Ph 11
Health Sciences Grad Prof Housing
Cogeneration Plant Expansion
Muir Stewart Commons Renovation
Telemedicine
Revelle College Apartments
Muir College Apartments
Health Sciences Biomedical Research Facility II
Marine Ecosystems Sensing. Observation & Model

San Francisco
CVRI
NGMAN
Aldea San Miguel Housing Renovation
2006-2007 Deferred Maintenance

Santa Barbara
North Hall Data Center
Bio Science II Cagewash

Santa Cruz
East Campus Housing Infill
Porter College Phase IIA Seismic
Cowell Student Health Center Expansion & Renovation
2007-2008 Deferred Maintenance

Systemwide
Systemwide State Energy Partnership

FOOTNOTES

[1] UC’s plan to increase tuition-backed borrowing is large—I’ve read through the internal document (which looked like a PowerPoint printout)—but wasn’t allowed to keep a copy or take notes. I was, however, able to handle the document alertly, focusing on specific questions, because I had just written a draft of the present document, based on UC’s bond disclosures. I have, therefore, been able to revise the present document using at least some of the bond-related information that UC is presenting internally, but has yet to disclose. The UCOP handout is my basis for saying that UC is using tuition increases as a revenue source for debt service, and not merely as a pledge. It is also my basis for saying that UC plans to increase this use tuition to both back and pay off bonds.

[2] Since 2004, UC’s “General Revenue Bonds” have been backed by the bond proceeds themselves (of course). But, instead of being backed by the income from bond-funded projects, as most revenue bonds are, they are backed by UC’s “General Revenues.” This is defined by the Indenture (authorized by the Regents in July 2003) as follows:

‘General Revenues’ means certain operating and non-operating revenues of the University of California as reported in the University’ s Financial Report, including (i) gross student tuition and fees; (ii) facilities and administrative cost recovery from contracts and grants; (iii) net sales and service revenues from educational and auxiliary enterprise activities; (iv) other net operating revenues; (v) certain other nonoperating revenues, including unrestricted investment income; and (vi) any other revenues as may be designated as General Revenues from time to time by a Certificate of The Regents delivered to the Trustee, but excluding (a) appropriations from the State of California (except as permitted’ under Section 28 of the State Budget Act or other legislative action); (b) moneys which are restricted as to expenditure by a granting agency or donor; (c) gross revenues of the University of California Medical Centers; (d) management fees resulting from the contracts for management of the United States Department of Energy Laboratories; and (e) any revenues which may be excluded from General Revenues from time to time by a Certificate of The Regents delivered to the Trustee.” (Indenture, p. 11, as quoted in every subsequent bond Prospectus based on it.)

By pledging “General Revenues” as security for each UC revenue bond, the Regents are pledging everything that they can, including tuition. This means that when any source of General Revenue goes up—including student tuition and fees—UC’s ability to borrow on private capital markets goes up, and its dependency on state capital funding goes down, After 2004, any revenues produced by a bond-funded contract would be added to General Revenue (unless this were limited by that contract); but any such projects could also be subsidized by each other, or by revenues from sources such as tuition, student activities, grant “overhead,” endowment, etc.

NB. UC’s use of “General Revenue Bonds” does not preclude access to its traditional source of funding for capital projects, State of California Bonds. Many California bonds must be voter-approved; all are (in effect) approved by the Governor and legislature. UC-issued bonds are authorized only by the Regents, who make bond proceeds available to campus projects they approve.

[3] Yudof, “Why the U. of California Must Increase Tuition” (Chronicle of Higher Education, September 29, 2009).

[4] The General Covenant in the common Indenture for all post-2004 bonds says (See Indenture p. 16, and p. c-16 of the prospectus for UC’s August 11, 2009 bond offering)

[5] General Revenues include, essentially, all UC income that is not legally restricted by obligations to an outside party, such as the state, a contractor, or a donor.

[6] Mark Yudof, “Why the U. of California Has To Raise Tuition,” Chronicle of Higher Education (September 29, 2009).

[7] I didn’t think so, and I served on the UC Committee on Budget and Planning 2003-when it happened, along with Stan Glantz and Chris Newfield .We knew about, and objected to, UC’s agreement with Governor Schwarzengger to make UC increasingly tuition-dependent, but we were never told that the Regents had already voted (in July 2003) to use tuition as collateral for capital projects, which would allow more projects to be funded independently of the state as tuition rose. This The prospect of increasing freedom on the capital side, would have given the Regents a reason to seek tuition-sourced dollars whether or not doing so was part of a viable plan to fund UC’s operating budget.

[8] UC knows the full budgetary cost of federally-funded research. It negotiates the federal overhead rate by demonstrating that it loses money (overall) on this research. It then assures bond-holders that it is free to spend even less than it gets to support that research, so that 100% of its income for overhead can be added to the pledged collateral for new buildings.

Many of UC’s private sector research “partners” pay considerably less in overhead  than the federal government (i.e., they are subsidized more heavily). They are also free to contractually obligate UC not to use whatever research overhead they pay for other purposes. Such contractual restrictions would keep overhead on these projects out of UC’s General Revenue Fund. UC’s private sector partners on the National Labs (Bechtel, et al.) seem to have made such arrangements, as has the DOE in its latest contract with that “partnership.” As far as I know, the terms of these contracts are still kept secret, at the request of UC’s corporate partners. You should demand to know what profits UC makes on these DOE contracts (which have doubled since UC took on corporate partners), and why profits from the lab partnership are not available to fund UC during an “extreme financial emergency” that requires cutting employee pay.

[9] I didn’t make up this argument: I heard it as a private aside from a UC administrator who was arguing in 2003-4 that taxpayers could no longer be expected to pay for higher education now that personal credit was so easily available. Times have changed, but UC has no new ideas.

[10] Bob Reich (“What’s Public about a Public University and Why That Publicness is Important?”)and Wendy Brown (“Why Privatization is About More than Who Pays?) enumerated these priority changes in their brilliant speeches on September 24, now posted on You-Tube. http://www.youtube.com/view_play_list?p=53D65B03FF28A6C7

[11] Remember that your activities fees, housing fees, parking fees, dorm fees etc. are also part of the pledge. Why? Because UC can tell bondholders that these revenues don’t have to be used for the purpose for which they are collected and because it has promised to raise these fees to whatever extent is necessary to maintain its bond rating. As students you can demand to know why your activities are being cut when there has been no reduction in fees, some of which were approved by student vote.

But all fees that have been pledged can be used for purposes other than those that justify them. The General Covenant in the Bond Indenture, repeated in every offering based on it, says that “So long as the Bonds are Outstanding, The Regents shall set rates, charges, and fees in each Fiscal Year so as to cause General Revenues deposited in the General Revenue Fund to be in an amount sufficient to pay principal and interest on the Bonds and …on Ancillary Obligations for the then current Fiscal Year.”

In case you’re wondering, however, I don’t think that all of UC’s activities should bring in enough revenue to pay for themselves. That test is part of privatization, although UC now treats privatization as self-justifying, and rarely turns down sources of revenue because they cost more than they return. I think on the contrary, that UC’s public mission can justify unequal expenditures to provide an equal education. By this standard a student should not pay more in tuition or fees for choosing a major that uses a biology lab rather than a dance studio, or, for that matter, my own traditional lecture room. So, I say “yes” to cross subsidies—but let’s use them for the purpose of promoting exchange and synergy among academic fields that are equally valuable, despite their different cost structures. That’s what great public universities do.

[12] The California Constitution specifically subjects the Regents to “such legislative control as may be necessary to insure the security of its funds” (Art. 9, sec. 9a.)

[13] “Big Man on Campus,” Questions for Mark Yudof, New York Times Magazine, September 27, 2009.

Posted: October 11th, 2009, by: admin. Categories: Uncategorized. 14 Comments.

Is the privatization of UC just part of a national trend beyond the control of UC leadership and Governor Schwarzenegger?

No.

In a September 27, 2009, New York Times interview UC President Mark Yudof was asked: “UC is facing a budget shortfall of at least $753 million, largely because of cuts in state financing. Do you blame Governor Schwarzenegger for your troubles?” Rather than holding Schwarzenegger accountable for the massive cuts he has imposed on UC and CSU, Yudoff responded: “I do not. This is a long-term secular trend across the entire country. Higher education is being squeezed out. It’s systemic.”

This is a commonly repeated trope, but is it true? No. The blue line in the chart below tracks the amount of money per student (FTE), adjusted for inflation that all of the states’ public higher education systems have spent over the last three decades: the line fluctuates a bit but does not descend. In contrast, the gold line, which represents the State of California’s real spending per UC student drops markedly after 2002. (The gold line is far above the blue line because UC is a Tier 1 four-year university; the blue line traces the national average for all public higher education, including two-year community colleges.) This chart shows the rapid decline in state support for UC students is not typical of a national trend.

Sources: State Higher Education Executive Officers, California Legislative Analyst’s Office.

Since Arnold Schwarzenegger became Governor of California, state funding of UC, per student, has dropped 30 percent. The state contributes less than half of what it did a decade ago

As envisioned in the Compact for Higher Education  between the Governor and UC and CSU, UC has, for all practical purposes, abandoned the California Master Plan for Higher Education and is rapidly privatizing by dramatically shifting costs on to students. The chart below indicates that, adjusted for inflation, UC tuition (gold line) is well ahead of the rising curve of public four-year university tuitions (blue line) across the country. UC is not just following a national trend.

Sources: College Board, California Post Secondary Education Commission

This tuition chart also punctures the idea that UC tuition (and fees) is well below other public universities. While UC tuition tracked the average of other four year public colleges in the past, it increased dramatically faster in response to large cuts imposed by Republican Pete Wilson, recovered for a time under Democrat Gray Davis, then exploded after Gov. Schwarzenegger’s forced his Compact on UC and CSU in 2004-5. By 2008-9 UC cost students and parents 22 percent more than the national average. If the trend-line for all states continues in the 2009-10 and 2010-11 years, then UC tuition will be twice that of the average public university.

The red and blue bands demonstrate that gubernatorial party affiliation is not a strong predictor of support for higher education. Past Democrats have been both good and bad, as have past Republicans. In terms of cutting public support and transferring costs to UC families, however, Gov. Schwarzenegger is in a league of his own.

Posted: October 6th, 2009, by: admin. Categories: Uncategorized. 6 Comments.

UCOP’s press release:

The University of California Commission on the Future will meet for the first time on Tuesday, Sept. 8, at UC San Francisco’s Mission Bay Community Center. The commission was created by Board of Regents Chairman Russell S. Gould to help ensure excellence, innovation and access to opportunity across the UC system amid acute financial challenges. The commission is co-chaired by Gould and UC President Mark G. Yudof.; they will open the meeting at 1:30 p.m. and describe the charge to the commission. Jane V. Wellman, executive director of the Delta Project on Postsecondary Education Costs, Productivity and Accountability, will deliver the keynote speech following their remarks.

The commission and five working groups — focusing on the size and shape of UC, its education and curriculum, access and affordability, funding strategies and research strategies — will meet seven times through March 2010 to consider, among other issues:

• What is the right size and shape of the university going forward? Where should it grow, or should it?
• What educational delivery models will both maintain quality and improve efficiency for UC’s future?
• How can UC maximize traditional and alternative revenue streams in support of the mission?

A live audio broadcast of the meeting will be accessible at california.granicus.com/ViewPublisher.php?view_id=2. The agenda is posted at www.universityofcalifornia.edu/regents/regmeet/commission.pdf.

• WHEN: 1:30-5 p.m. PDT
  Tuesday, Sept. 8, 2009
• WHERE: Fisher Banquet Room, Mission Bay Community Center
  1675 Owens St.
  University of California, San Francisco, Mission Bay Campus
• RSVP: Media representatives planning to attend are encouraged to RSVP to Alfred White, UCOP Communications.

Electronic media should mention any special logistical needs as they RSVP.

Directions to the Mission Bay Community Center (1675 Owens St.): www.ucsf.edu/maps/directions-to-ucsf-mission-bay/

Parking is available, for a fee, in the Community Center parking garage.

UCSF shuttles run regularly from the 16th Street-Mission BART station to the community center. Shuttle timetables (red line) are available online.

Posted: September 4th, 2009, by: admin. Categories: Uncategorized. 2 Comments.

(Download PDF for printing)

Why are student fees skyrocketing at the same time courses are being cut and faculty and staff furloughed, reducing classes and services to students?

Throughout his term in office, Governor Schwarzenegger has cut state support for higher education and sought to shift most of its costs to its immediate users: students and their families.

In 2004, California’s higher education leaders accepted the Governor’s framework.  The President of UC, Bob Dynes, and his counterpart at CSU, Charles Reed, signed the “Higher Education Compact: Agreement Between Governor Schwarzenegger, the University of California, and the California State University 2005-06 through 2010-11,” which represented a fundamental shift in the model for supporting higher education in California. This abandoned the view of higher education as a public good and redefined it as a private good.  The University accepted a $169 million budget cut (out of its $4.4 billion core budget) and committed to fundamentally shift financing away from the state general fund and onto private sources such as student fees and wealthy donors. The Schwarzenegger-Dynes-Reed Compact states, “In order to help maintain quality and enhance academic and research programs, UC will continue to seek additional private resources and maximize other fund sources available to the University to support basic programs.”

The large annual fee increases over recent years are not short term responses to unanticipated fiscal problems, but are an implementation of the Compact’s plan to increase fees every year at least as fast as the rise in personal income, which is about twice the rate of inflation. Because incomes have increased mostly among the wealthy, this policy made higher education less affordable for most Californians.

The fee increases, while large, have not compensated for the cuts that UC and CSU accepted.  The result: a large drop in the money available to finance core functions. The net result has been a substantial and accelerating decline in the quality of our students’ educational experience — growing class sizes, fewer courses, greater difficulty enrolling in courses, fewer teaching assistants and less student access to labs.

If the Compact was so bad, why did UC and CSU leaders accept it?

The primary reason was that Governor Schwarzenegger was threatening even bigger cuts if UC and CSU leaders rejected the Compact. More importantly, cognizant UC (and, presumably CSU) budget officials knew that there would be a major budget crisis starting around 2008, and believed that the Compact would protect UC and CSU from large cuts at that time.  However, when the anticipated budget crisis came in 2008, Governor Schwarzenegger simply reneged on his own deal and imposed another massive $1.4 billion cut in 2008 and 2009.

Isn’t the University of Michigan a good model for UC in the face of inevitably declining state support?

When the University of Michigan moved to a semi-privatized model, it reduced access for residents to allow greater enrollment of non-residents who are charged much more for tuition. Admission standards were relaxed to increase out-of-state enrollment. Over half of Michigan’s 2003 freshman class came from families with six-figure incomes in a state where only 13% of families earn that much. The result has been significantly diminished access for the residents of Michigan, especially the most disadvantaged, and a reduction in the quality of the University as seen in its drop in rankings by U.S. News and World Report.

Why isn’t anyone in UC’s leadership effectively advocating for restoring the Master Plan and state funding?

The expectation at the UC Office of the President and among the Regents has been that state funding will continue to fall. The policy focus of the Regents and other leaders has been to accommodate UC to a privatized model, which will mean continuing declines in quality and access.

The debate over public higher education should not be framed as a debate over how to allocate scarce state resources during difficult times, but as what it actually is: An ideological debate over the public value of higher education.

The central policy document guiding higher education policy in California has been the 1960 Master Plan for Higher Education, which specified the coordinated roles of UC, CSU and the community colleges and established the system that promised every California student an affordable (initially free) seat at an appropriate institution of higher education. The Master Plan clearly established higher education as a public good provided by the state for its citizens.

While fees have increased over time since then, the Compact represents the first time that UC accepted the idea that the costs of higher education should be shifted from public onto private sources.

The real question is: Should higher education be treated as a public good (as envisioned in the Master Plan for Higher Education) or should it be viewed as a private good to be paid for by its customers (students and their families) and voluntary private donors?

It is time for those in positions of power and responsibility at UC to advocate for real restoration of the Master Plan for Higher Education in a strong and consistent way.  This is the necessary first step in changing the political environment and rebuilding higher education as a public good for all Californians.

To learn more and get involved in the campaign to rebuild public higher education, visit www.keepcaliforniaspromise.org.

Posted: September 4th, 2009, by: admin. Categories: Uncategorized. 4 Comments.

The issue of executive compensation at UC and CSU is regularly in the news, with top salaries, “stipends,” and other perks for leaders increasing at the same time that student fees climb, quality erodes, and faculty and staff salaries backslide. Also the rate of growth of administrator ranks compared to the rate of growth of students and faculty (see our posting “Soon every faculty member will have a personal senior manager: Is this a good way to spend money?”)

Regents justify these compensation packages (e.g. this San Francisco Chronicle article) in the current environment, as in the past, on the basis of the complex “business of running a $19 billion, 180,000-employee enterprise — 10 campuses, five medical centers, research laboratories and a multitude of programs.” They say, “The University of California competes with the world’s premier institutions, both in terms of recruitment and retention. And top talent requires competitive compensation, an unavoidable fact of life.”

This view reflects a corporate mentality that sees the quality of higher education as determined by top executives, not students, faculty and staff.

More important, it is a symptom of the creeping privatization of higher education. As the governors reduce public support for UC and CSU, more and more of UC and CSU’s leaders’ time goes to private fundraising, less to administering higher education as a public trust. From this perspective, privatized universities have to pay private sector salaries to the people at the top.

An alternative view? The universities need to compete for the best people at the bottom.  Because fees for graduate students are increasing rapidly, and their departments and research programs have to pay those fees, UC no longer offers competitive support packages for the best graduate students at the heart of its research programs.  (For these students, a $2,000 difference in a fellowship offer is a lot of money.)  University teaching and research are both declining because of this inability to win the competition for the best graduate students (e.g. see this Competetive Graduate Student Financial Support Advisory Committee report).

The quality of the students has always been one reason that faculty and staff have been attracted to and stayed at UC, despite its historically low salaries.

The fact that UC and CSU are complex enterprises does not, by itself, justify the high executive salaries. For comparison, the California Secretary of Health and Human Services administers complex programs ranging from MediCal to preventing swine flu pandemics to patient privacy to tobacco prevention that had a state budget of $4.6 billion in 2007-08.   She is paid $170,000.

Restoring public support for higher education will require restoring a management compensation scheme consistent with a public institution (for more on this topic see also this San Francisco Chronicle editorial).

Posted: August 13th, 2009, by: admin. Categories: Uncategorized. Awaiting Comments.

George Lakoff

Distinguished Professor of Linguistics, UC Berkeley

A pdf version of this report is available.

I have been asked by colleagues to comment on the impending privatization of the University of California. Among the suggestions are that UC campuses should take more out-of-state students in order to get their higher tuitions, or that tuition should be raised to match those of private universities and that no state funds be used at all to support the UC system. I have specifically been asked to comment on the moral issues involved.

The California Master Plan speaks of “state-supported higher education.” There is a good reason.

Government has two moral missions: protection and empowerment for all its citizens. Protection goes beyond police and law enforcement to protections for consumers, workers, the environment, investors, retirees, and victims of disease, injury, and natural disasters. Empowerment includes public roads and buildings; and adequate systems for communication, energy, water; functioning banking and insurance systems, and of course, education.  No one makes a living in this state without protection and empowerment by the government.  And those who get more out of protection and empowerment by the state have a moral obligation to pay more to sustain them.

It appears that the top 1% of individual taxpayers pay about 45% of the state’s income taxes, and that the same top 1% own about 50% of the assets in the state. They are so rich that after paying all that they remain the top 1%. Have these folks amassed their wealth by working that many more hours than the average worker? No. They have amassed their wealth because the companies they own or invest in are empowered by having state-subsidized water, state-built freeways and public buildings, a state-protected environment, and state-based systems of protection of many kinds and especially state-educated employees and state supported university research.

The protection and empowerment that have come from our universities is staggering. There are obvious cases: Medical research and university hospitals and clinics; the computer industry and its spin-offs in media, film and the arts; environmental science that has led to the maintenance and improvement of our environment; the wine industry coming out of UC Davis; tens of thousands of people trained in business, law, and economics; our public health system; and on and on. The university is lot more than an economic engine: it is a quality of life engine. And when it is truly public, it is a moral engine.

And it is especially a moral engine because it educates millions of Californians. Education is about more than making money. It is about coming to know the world, about learning to think critically, and about developing the capacity to create new knowledge, new social institutions, and new kinds of businesses. It is about each of millions of people becoming more of what they can be. That is the real promise of California. It is our system of higher education that delivers on that promise.

The reason that the Master Plan designates “state-supported higher education” is that higher education contributes a disproportionate amount to the protection and empowerment both of individuals and of corporations, and to the creation of a California civilization.

All discussion of moral issues must start there, with the systemic and moral effects of higher education.

From this perspective, the university-as-factory metaphor is not only inaccurate, but is immoral. It is both because it hides all that — all of what public universities are about.

The university-as-factory metaphor sees the university as a factory producing educations in the abstract and selling them to students and/or their parents. All discussion of raising tuition or taking more out-of-state students who pay more tuition is based on that metaphor. The central argument is that students (or their parents) should be paying what the product is worth, economically, over a lifetime, and that they shouldn’t be complaining about fee raises because they’re getting a relatively good deal.

The factory metaphor misses almost everything. It obviously misses the enormous contribution to the economy of the state as a whole. But it also misses all the other forms of protection and empowerment, as well as shaping California civilization.

The factory metaphor even misses on its own terms; it misses vital economic truths. Yes, if you have a university education, you have the opportunity to make more, perhaps more than a million dollars more over a lifetime, than if you don’t. But that also means you will pay a lot more taxes to the state, and the company you work for will make more money. Imagine taking all the extra money that the UC and CSU graduates make for themselves and their companies, and estimating how much more they pay in taxes than if they hadn’t gotten a higher education. Now imagine taking all that money that came from a state-supported higher education and using it to support higher education. I suspect there would be no budget shortfall in the universities and a lot left over in profit for everyone. That is what the Economic Engine metaphor claims, namely, that the knowledge and innovation coming from graduates of state-supported universities create far more wealth in the state than the educations cost.

How you look at public higher education is not just a matter of facts and figures, because the question is, which facts and figures do you count? Professor Stan Glantz of UCSF puts the question as one of ideology:

Should higher education be treated as a public good (as envisioned in the Master Plan for Higher Education) or should it be viewed as a private good to be paid for by its customers (students and their families) and voluntary private donors?

The moral issue at stake here is not just about higher education. The issues being played out at the University of California are ultimately the same moral issues being played out on the national stage, on health care, on the environment, on the economy, on foreign policy, and in just about every other issue area.  The questions are large. Is Democracy, as President Obama has said, based ultimately on empathy, on citizens caring about one another? Yes, he says, that is why we have principles like freedom and fairness for all, not just the rich and powerful — because we care about our fellow citizens. That is why government has the moral missions of protection and empowerment for all, equally.

But not everyone agrees, especially radical conservatives like Governor Schwarzenegger and many Republican legislators. They ignore the fact that no one makes it on his or her own — without protection and empowerment by the government. They think they did it all themselves and that everyone else should, that no one should pay for anyone else – for anyone else’s health care, for anyone else’s education. And they forget that we have all been paying for the roads they use, the energy grid they use, the educated workers they use, the California wines they drink, the public health services they depend on, the courts they depend on, the research that makes their profits rise, and much, much more.

The privatization issue goes well beyond public education. It is about whether we have a democracy that works for the common good, or a plutocracy that privileges the wealthy and powerful. Privatizing the world’s greatest public university is a giant step away from democracy.

What is especially scary is that many in the UC administration appear willing to go along with privatization, assuming it is inevitable. The attitude seems to be that if we make enough cuts, raise tuition enough, and reduce the number of students, we can still be a great university, though a smaller private one. It is an illusion. Democracy and greatness go hand-in-hand here. Many of our greatest talents were attracted to UC because it is a great public university. In the process of cutting and plutocracizing the university, that talent will be lost and not replenished for a long time. The administration should be taking every step possible to avoid privatization.

Let me now return to my colleague’s moral dilemma about letting in many more out-of-state students.  Here is his internal debate:

Pro: If we let many more out-of-state students in to get their higher tuition, it will not only provide a short-term fix to the lack of funds, but will also be “a brain-vacuuming scheme to get smart people to come here because (in our case) they tend to stay and create lots of value that spreads across the whole state society.”

Con: “One of the reasons I like to go to work in the morning here is the number of students I have who are the first in their families to ever go to college, and I know a hard-ass loan-only scheme will discourage a lot of them even if it shouldn’t.”

The Pro argument neglects the fact that the out-of-state students attracted to a high-tuition UC campus will be those who can afford it, the more wealthy students. And for each such additional wealthy student (who could get a good education elsewhere), a relatively poor or struggling middle-class student will be denied a chance at a great education (as well as a chance to get wealthier). I say the Con argument wins overwhelmingly on moral grounds. It is ultimately the argument for democracy over plutocracy.

The issues at UC cannot be considered in a vacuum. The Governor’s determination to privatize UC is part of a larger radical conservative agenda, statewide as well as nationwide.

We have been plunged into political waters. To save this university, we will have to swim in them.

Stan Glantz suggests that the faculty do everything possible to inject the privatization issue (democracy vs. plutocracy) into the gubernatorial campaign. Governors matter, since a Governor has a line-item veto and can cut the university at will.

Right now, the 2/3 majority needed to raise revenue or pass a budget, allows for a 1/3 plus 1 Republican minority to override a significant Democratic legislative majority chosen by the voters.  I am working to get a one-sentence ballot initiative on the November 2010 ballot: All legislative actions on revenue and budget shall be determined by majority rule.

Both are needed. If you feel powerless, you aren’t. There are many things, great and small, you can do to help.

Meanwhile, we should be clear: privatization the main issue. It will take work to stop it.

Posted: August 7th, 2009, by: admin. Categories: Uncategorized. 13 Comments.

Stanton Glantz
Professor of Medicine, UCSF
Former Chair, UC Committee on Planning and Budget
August 7, 2009

A PDF version of this report is available.

The primary focus of budget policymaking is the Governor, not the Legislature.

The University of California Office of the President’s (UCOP) strategy for setting the budget has been to cut the best deal that it could with the Governor (through the Department of Finance), then defend this deal in the Legislature. The primary motivation for this strategy is the fact that the Governor has a line item veto, which allows him to cut anything that the Legislature includes in the budget that he does not support. (There are always skirmishes in the Legislature over a few issues that are highly partisan, such as funding for labor research or outreach, but the bulk of the budget is negotiated with the Governor.)

At the same time, UCOP blames the Legislature for budget problems.

This behavior allows them to protect the Governor and the deals cut with the Governor. At the same time, defending the deal with the Governor in the Legislature makes it difficult to argue for increased support in the Legislature (which UCOP thinks that the Governor would line-item veto anyway). This strategy also makes it more difficult to use Legislature mechanisms such as hearings as a way to raise the profile of higher education funding as a public policy issue.

The current deal with the Governor, the 2004 “HIGHER EDUCATION COMPACT: Agreement Between Governor Schwarzenegger, the University of California, and the California State University 2005-06 through 2010-11,” represents a fundamental shift in the model for supporting higher education in California, away from viewing higher education as a public good towards a private good.

While UCOP has a history of reaching multi-year funding plans with the Governor (generally called “compacts”), the agreement with Governor Schwarzenegger contained a commitment to fundamentally shift financing away from the state general fund onto private sources: student fees and other private sources. It states, “In order to help maintain quality and enhance academic and research programs, UC will continue to seek additional private resources and maximize other fund sources available to the University to support basic programs. CSU will do the same in order to enhance the quality of its academic programs.” (Compact, [1] page 2; emphasis added) Until this point, the state was viewed as the primary source of support for “basic programs” with private sources being used for additional initiatives.

The Compact commits UC and CSU to increasing reliance on (private) student fees for base support.

The shift to using fees to finance UC (and CSU) is also explicit: the Compact states, “The student fee policy contained in this Compact assumes that UC and CSU will retain student fee revenue without a corresponding reduction in State funds which, together with State funds provided each year, will be used to help meet their budgetary needs as well as help the segments recover from the current fiscal crisis” (page 3). While, on its face, this statement sounds like an increase in funding for higher education, the Compact linked these fee increases to even larger reductions (about one-third [2]) in state support for basic operations.

In addition, the Compact committed UC and CSU to increase fees at least as fast as the rise in personal income, which is about twice the rate of inflation. Because incomes have increased most rapidly among the wealthy, this policy made higher education less affordable for most people.

The fee increases, while very large, have not been large enough to compensate for the loss in state support.

The fee increases in the Compact were limited to 10% a year, probably because that was the most that was politically possible. This amount was not related to the size of the cuts that UC and CSU accepted, resulting in a large drop in the money available to finance core functions, which would not be restored over the life of the Compact. The net result has been a substantial drop in quality of the educational experience, which has accelerated over time.

If the Compact was so bad, why did UC and CSU accept it?

The first reason was that Governor Schwarzenegger was threatening even bigger cuts if UC and CSU did not accept the Compact. More important, cognizant UC (and, presumably CSU) budget officials knew that there would be a major budget crisis starting around 2008, and believed that the Compact would protect UC and CSU from large cuts at that time.

Of course, when the budget crisis came in 2008, Governor Schwarzenegger simply walked away from the deal. Other than one comment at the July 2009 Regents’ meeting from Regent Blum, there has been no effort to exact a political price for failing to honor his commitment.

Thus, the debate over higher education should not be framed as a debate over how to allocate scarce state resources during difficult times, but as what it actually is: an ideological debate over the nature of higher education.

The central policy document guiding higher education policy in California has been the 1960 Master Plan for Higher Education [3], which specified the coordinated roles of UC, CSU and the community colleges and established the system that guaranteed every California student an affordable (initially free) seat at an appropriate institution of higher education. The Master Plan clearly established higher education as a public good provided by the state for its citizens.

While fees have increased over time since then, the Compact represents the first time that UC accepted the idea that the costs of higher education should be shifted from public onto private sources.

The real question is: Should higher education be treated as a public good (as envisioned in the Master Plan for Higher Education) or should it be viewed as a private good to be paid for by its customers (students and their families) and voluntary private donors?

The Master Plan model has served California well.

It led to a large, highly educated population and workforce that supported the development of the knowledge economy. In recent years, the rate of college attendance has dropped in California, making it 18th in the country, below Missouri.

The only way to maintain quality and access is to restore state funding.

As the Futures Report notes, the only alternative to public funding as a way to finance UC (and, presumably, CSU) is student fees. Private philanthropy and sponsored projects finance specific activities, not the core budget. To replace the (reduced) state support with fees in 2008 would have required raising fees to around $23,000 a year [4]. To restore the quality (level of funding per student) to 2001 levels would have required fees of over $27,000. Doing so will continue to price students out of the market.

Increases in fees have reduced the quality of academic graduate programs, contributing to the overall decline in quality of UC.

The top graduate academic programs compete nationally (and internationally) for the best graduate students. An important element of this competition is the support package (payment of fees plus a stipend) UC can offer potential students. As fees have increased, the ability of UC campuses, departments and programs, which have to pay these fees from departmental funds or individual faculty research grants, have not been able to offer competitive stipends, making it more difficult to recruit the highest quality graduate students to UC [5].

Grants and partnerships with business cannot replace core state funding and, in the current environment, actually aggravate the problems associated with declining core support.

Extramural funds for research and other projects allow the university to expand specific activities, but these funds are rarely available for general support of core educational activities. More important, because such contracts and grants almost never cover the full (and real) indirect costs associated with the projects that they support, the more extramural funding the university (or a specific campus) receives, the more it has to divert discretionary funds (mostly fees and state general fund support) away from other activities to pay the unreimbursed indirect costs.

While this use of discretionary funds to subsidize such specific projects makes sense when the University is in good financial health – because it allows expansion of research and other academic and service activities that create opportunities for students and faculty – extramural funds are not a way to replace declining general fund support when it is inadequate to support core University functions.

This situation is unlikely to change because almost all funding agencies expect some level of cost sharing from the University on the grounds that the extramural funding supports the University’s mission. The subsidy through unreimbursed indirect costs is generally much larger for private sources (both foundations and business) than the federal government because they provide no or very low indirect cost support.

In other words, seeking to replace lost core funding with extramural funding is like a business trying to make up for the fact that it loses money on every unit by increasing volume.

Transforming UC based on the University of Michigan model will result in fragmentation of the system and a substantial decline in quality.

The Futures report discusses this option in detail:

The 1980s “deindustrialization” of the Michigan economy forced major cuts in state funding on universities in that state. The University of Michigan at Ann Arbor responded by deciding it would have to increase non-state funding sources. UM deliberately turned itself into what one of its presidents called a “privately-supported public university.” In addition to major fundraising efforts, effective use of its very large and venerable alumni base and of its professional schools, UM was also able to take advantage of its perennial top-5 position in federal contracts and grants to develop that important revenue stream.

It pioneered the pursuit of non-resident tuition income: by 2005-06, UM charged non-residents about $14,500 $27,500 per year (exclusive of other fees, housing, etc.), or $6500 $18,000 more than residents [corrections made by Keep California’s Promise based on a comment from Kenneth Pomeranz]; 40% of its 2006 entering freshmen class are nonresidents.

Student fees constitute 59% of UM’s “core” operating budget. Although the University of Michigan remains one of the world’s great universities, this shift to private funds has had its costs. The university’s quality has declined, at least judging by U.S. News & World Report rankings, where it fell from 8th to 25th between 1987 and 2003. Its dependence on tuition revenue has not helped its selectivity: over 50% of all undergraduate applicants were admitted, which would put UM in the middle range of selectively among UC campuses. UM’s high proportion of out-of-state students is not the reason why Michigan remains well below the national average in the percentage of the state’s population that receives bachelors or advanced degrees, but it has not helped. While UM has done an effective job of protecting its one major campus at Ann Arbor, it has not done the same for the UM system, for Michigan higher education overall, or for the residents of the state.

Something similar can be said about the composition of UM’s student body. It lost African-American enrollments during the first wave of fiscal crises in the 1980s, and has only slowly gotten most of them back (African American enrollments in the freshman class of 2005 comprise 7.2% of the total). After strenuous efforts in the 1990s, the University of Michigan still has a Pell Grant rate half that of UC Santa Barbara’s; at the other end of the income spectrum, over half of Michigan’s 2003 freshman class came from families with six-figure incomes in a state where only 13% of families earn that much [6].

Those advocating this model have not addressed these realities.

No one in UC’s leadership is effectively advocating for restoring the Master Plan and state funding.

The unspoken policy at UCOP and the Regents has been that state funding will continue to fall. (This is not an unreasonable assumption if one passively accepts the current environment in which UCOP budget planning focuses on keeping the Governor happy, a governor who sees higher education as a private good and opposes new taxes and where these is additionally a requirement for a 2/3 vote to pass tax increases.) The problem is that no one has even raised the issue in a consistent and powerful way, which is the necessary first step in changing the political environment.

Indeed, indications are that the policy focus of the Regents and other leaders is to accommodate UC to a privatized model, which, as experienced in Michigan, will probably mean continuing declines in quality and fragmentation of the system.

What about UCOP’s public relations activities about the value of UC to the people of California?

UCOP is accelerating public relations activities directed at informing the public about UC’s contribution to California. While the details are not known, it is unlikely that this campaign will starkly highlight the policy choice made by the Governor to shift from the Master Plan to a privatized model for higher education.

It is also possible that this campaign could even be counterproductive, if the public comes away with a feeling that UC is continuing to make important contributions to California despite reductions in funding (which would mean that the reductions did not actually create serious problems).

Another problem has been the fragmented response of people concerned about the future of public higher education in California.

There has been little coordination between UC and CSU (much less the community colleges) in an integrated campaign to reinstate the Master Plan. UC faculty response has been largely through the Academic Senate, which has generally supported the Administration and not been an independent public voice. Students have been largely concerned with annual fee increases, without considering the long-term policy change embodied in the Compact. UC has not sought to make common cause with the unions representing its employees. CUCFA has not yet become an effective central advocate on these issues.

The requirement for a 2/3 vote to pass the state budget and tax increases makes it more difficult to fund public programs, including higher education, but public higher education could be restored even with the 2/3 rule.

There is no question that the requirement of a 2/3 vote for passing tax increases gives the anti-tax, anti-public sector Republicans in the Legislature tremendous power in budget decisions in California and has strengthened the Governor’s ability to pursue his vision of privatized higher education. Indeed, the 2/3 rule makes California a blue state with red state budgeting policies and priorities being enforced by the Republican minority. Supporting repeal of the 2/3 rule should be a priority for anyone concerned about restoring quality and access to higher education (and the quality of California’s state infrastructure generally).

As noted below, however, the amount of money it would take to restore higher education to 2001 levels of funding is small compared to the entire state budget and within what would be possible to accommodate if the political will was there. If the public demanded it, the governor could propose and push a budget that restored higher education if it was a priority for him or her even with the 2/3 rule.

What are the key strategic steps to change the public debate?

Because of the central role of the governor in setting higher education policy and the need for a high profile public debate on the future of the Master Plan and higher education in California, we need to find a way to inject the issue into the political campaign for governor.

UC and CSU leadership also need to be honest with the public and public policy makers about the true nature of the choice before California in terms of the future of higher education, rather than continuing to allow the system to slide into an inadequately funded privatized model without any explicit decision being made to do so.

Doing so would require presenting a direct contrast of three possible outcomes:

1. The status quo: There are continuing declines in quality with continuing rapid fee increases that are not adequate to replace state funds that have been cut because of the view that higher education should be a private not a public good. This situation will probably result in a fracturing of the UC system into a few high quality (and probably more expensive) campuses with a strong research base with the others coming to represent CSU. Except for a few centers that attract substantial private funding, high quality faculty and students will abandon the system. This is probably the worst outcome.

2. Privatization while maintaining quality: Priority is given to providing a quality educational experience for substantially fewer students that UC (and CSU) can afford to educate while maintaining the system as a whole. Implementing this model would require substantial reductions in enrollment (probably around 30%) tied with very large fee increases.

3. Reinstatement of California’s historic commitment to the Master Plan: Such an option should be framed as restoring UC, CSU and the community colleges to levels of funding per student that were available in 2001 at the same real fees students and their families paid in 2001, the last year that the systems were in reasonable health financially and in terms of quality (see Futures Report). Doing so would only cost $2.7 billion [7], which is only a few percent of the state budget and only about half the forgone revenues due to cutting the Vehicle License Fee [8]. It is not impossible to obtain these funds (despite such assumptions by the Regents and UC leadership), but it would require a change in fiscal (and probably tax) policy by the state, which would represent a major shift away from the current ideological positions.

FOOTNOTES

[1] The full text of the Compact is at  http://budget.ucop.edu/2005-11compactagreement.pdf. For how UC and CSU presented the Compact to the public, see http://www.universityofcalifornia.edu/news/compact/factsheet.html and http://www.calstate.edu/PA/news/2004/compact.shtml.

[2] The UC Academic Senate “Futures” report reads: “Budget cuts began mid-year in 2001-02, and continued through 2004-05. Overall the State appropriation to the University of California fell by 15% while enrollment grew by 19%. This means that state funding per UC student fell by approximately one-third in three years.” According the Senate’s later “Cuts” report, the state budgeted $2.8 billion in 2003-04 and $2.6 billion in 2004-05 (the budget being discussed at the time the Compact was signed), a 7% reduction.  The Futures report is available at http://www.universityofcalifornia.edu/senate/reports/AC.Futures.Report.0107.pdf and the Cuts report is available at http://www.universityofcalifornia.edu/senate/reports/cuts.report.04.08.pdf .

[3] The Master Plan is available at http://www.ucop.edu/acadinit/mastplan/MasterPlan1960.pdf .

[4] In 2008 UC received $3,250,348,000 in state general support (http://www.lao.ca.gov/laoapp/LAOMenus/lao_menu_economics.aspx) divided by 2008 UC FTE enrollment of 220,034 (UCOP 2009-10 Budget Detail) = $13,958 per student.  Student fees in 2008 were $8,014 (http://www.ucop.edu/budget/fees/200809/0809genfees.html)  So, total undergraduate fees would rise to about $22,000.  To restore the inflation adjusted per student funding level of 2001-02 would cost an additional $5,180, yielding a total of over $27,000.

[5] Competitive Graduate Student Financial Support Advisory Committee,  June 2006.  http://www.ucop.edu/sas/sfs/docs/gradcommittee2006.pdf.

[6] http://www.universityofcalifornia.edu/senate/reports/AC.Futures.Report.0107.pdf , Pages 31-32.  Citations are deleted from quote.

[7] To return real UC per student funding to 2001 levels would require an additional $1.2 billion in state support; doing so and also returning fees to 2001 levels would cost $1.8 billion.  The comparable numbers for CSU are $390 and $940 million.

[8] There were $5 billion in forgone revenues for the Vehicle License Fee in 2007; see  http://www.californiacityfinance.com/VLFfacts06.pdf .

Posted: August 7th, 2009, by: admin. Categories: Uncategorized. 7 Comments.