By Daniel J.B. Mitchell
In the current fiscal year, the University of California system
is budgeted to receive $2.9 billion from the state’s General
Fund, down from $3.2 billion last year. Gov. Arnold Schwarzenegger
proposes a further cut starting July 1 to $2.7 billion, combined
with significant tuition increases. To deal with the state’s
larger fiscal problems, he proposes a $15 billion bond issue to
cover past and current deficits in the General Fund, and to stretch
out the repayment of the debt the state has accumulated since 2000.
The bond will be on the March ballot and polls suggest it faces
considerable voter skepticism.
From the UC’s perspective, the bond issue is critical
because it buys time ““ not a lot, but some ““ for the
university to restructure its relationship to the state. Absent
approval of the bond, the state could simply run out of cash to pay
its bills, and there would be drastic action to deal with the
emergency. The university would be particularly at risk in such a
situation since cash would be allocated first to service the
state’s debt and avoid default, and second to programs that
cannot cease to function, such as prisons and those mandated by
various federal and state laws. The UC is not among those
programs.
Let us assume the bond passes. What must then occur at the UC?
The overall UC budget for next year is in fact more than $18
billion. How can less than $3 billion turn into over $18 billion, a
multiplier of six? Student tuition ““ resident and nonresident
““ accounts for about $1.5 billion. The rest comes from
research contracts and grants, hospital income and other receipts,
and many other programs the university operates. In the past, the
state viewed having a premier research university system with its
multiplier of six and its many advantageous economic effects as a
good deal. But with the current budget crisis, priorities in
Sacramento are changing.
The state is progressively shifting toward a view of UC as an
expensive frill. State General Fund expenditures at the UC are over
$13,000 per student. In the California State University system, the
ratio is about $7,000 per student. Put another way, the state is
proposing to pay a “premium” to UC relative to CSU of
about $1.3 billion next year to have UC maintain its status as a
major research institution. But despite the fact that it is
withdrawing support, the state is increasingly micro-managing the
university. The governor’s budget includes explicit
instructions to continue the construction of UC Merced, sets out
how tuition should be raised, sets formulas for student aid and
abolishes specific programs, despite the constitutional autonomy of
the UC Board of Regents.
Were the state to decide that the premium it pays to the UC is
no longer a priority, in rough terms tuition receipts would have to
double to make up the loss. If that were not done, within a few
years we would have the equivalent of Cal State Westwood, Cal State
Berkeley, Cal State La Jolla and so on.
In the short term, the bond issue on the March ballot will buy
time for the UC to make the critical decisions it needs to survive.
But the state has an ongoing structural budget problem that not
even an improving economy will fix. Thus, even assuming the bond
passes, the UC’s leadership needs to articulate the problem
very soon and formulate a cogent plan.
Mitchell is the Ho-Su Wu professor in the Anderson Graduate
School of Management and School of Public Policy and Social
Research.