California Governor Arnold Schwarzenegger has signed legislation (SB 190), authored by State Senator Leland Yee, which would require the governing boards of California’s two university systems – the University of California and the California State University – to determine future pay increases of university executives in meetings that would be open to the public. “This bill is simply intended to let a little sunshine into the process,” Yee has been quoted as saying.

Personally, I am convinced that the problem of rising administrative costs and the attendant escalation of higher education costs is going to require much more than a “little sunshine” to curtail it.

In good times and bad, there is one thing that is as certain as death and taxes: the cost of going to college will continue its upward spiral. There are many reasons for this circumstance, a few of which come to mind. But, anyone who is familiar with higher education can attest that the lack of “sunshine” laws is not one of those reasons; and the imposition of such laws, no matter how worthy that might sound, is not likely to have much effect on the problem.

The University of California (UC) has increased the cost of undergraduate fees by nearly 10 percent for the 2007-08 academic year. Unlike many private institutions, this fee does not include the cost of housing, meals and books. Nationally, fees increased by 6.6 percent. In the context of all this, it is appropriate to recognize that the national rate of inflation for the past year was 1.96 percent. Clearly, many heads of household of the students paying these fees experienced no increase in their incomes.

The underlying problem, especially for public institutions, may be summarized as follows: higher education is regarded as essential to one’s ability to experience “the American Dream;” every high school graduate is presumed to have a right to a publicly financed college education; every public university wants to keep pace with its “comparison institutions” when it comes to faculty and administrative salaries; and the funding base to pay for all of this is not what the consumer (students) can afford to pay, but how much can be squeezed out of the public coffers.

When Tanya Schevitz, a higher education reporter for the San Francisco Chronicle, asked UC about their fee increase for this year, Brad Hayward, the UC spokesman, said the fee increases are necessary “to maintain and improve the quality of education, expand student mental health services, increase financial aid and help raise faculty and staff salaries closer to market rate.” Hayward added significantly that the UC system is “underfunded” by the state by $77 million.

Let’s consider how this works. First, assume that the university develops an annual budget of $100 million. Assume further that $50 million of this $100 million is requested from state government. Finally, assume that the state only provides $25 million of the amount that was requested. In a private market circumstance, that would be the end of the story, as the institution would be required to adjust to a $75 million budget. Not so with most public universities. In their case, the $25 million that was not funded is considered an “unfunded” obligation of the state. The university doesn’t tighten its belt in view of the amount that it actually received; it dips into its reserves, if it has any, raises fees (a more probable scenario), and operates as if the “unfunded” amount is an account receivable. As a consequence, there is no internal discipline for the institution to live within its means.

Throughout the nation, there is a growing awareness that the cost of higher education is like a runaway freight train. Evidence of this fact may be found in the recent announcement by U.S. Senator Charles Grassley of Iowa of his intention to pursue a number of congressional initiatives to reign in the “eye-popping” rates of increase in college tuition rates. More than “sunshine” laws are needed to slow that train. I suggest the following.

First, there is inadequate fiscal oversight by those charged with the responsibility of governing our colleges and universities. The most frustrating aspect, by far, of my twelve-year term as a regent of the University of California (UC) was trying to understand the fiscal affairs of the institution and to assert some influence on them. It would be difficult to accomplish this objective with regard to any multi-billion dollar enterprise, but that difficulty becomes a virtual impossibility when it comes to a major university.

Without adequate oversight, university administrators have no incentive to discipline themselves to be more efficient or resistant to the endless pressures, from all segments of the university family, to engage in activities that result in increased costs of running the institution.

Public universities are very unique institutions, the administrators of which can easily craft a structure that insulates them from outside influences, including their own governing boards. When administrators craft the budget and lobby what they have crafted to the Legislature, the governor and the regents, it becomes more than tempting to “whipsaw” the separate parties, especially when the regents are in little position to distinguish fact from fiction. Strong governance can mitigate much of this.

The second major problem is the fundamental culture of “selective” universities, such as the University of California. Such institutions get caught up in a “keep up with the Joneses” method of operation by comparing themselves to other “comparable” universities. For example, when the University of Chicago gives its administrators a salary increase, the UC administration gives its administrators an increase. The next year, the University of Chicago gives an increase because last year UC gave one – and “the beat goes on.”

While there is something to be said about the need for universities to compete for top-notch scientists and other faculty “stars,” I have yet to see a compelling case made for UC having to compete with U-Chicago or Harvard or any other institution to recruit and retain some specific administrator. If the State of California can attract top people to be cabinet officers at salaries of less than $200,000 annually, why is it necessary for UC to pay double that amount? It is hard for me to understand why the requisite skills to be Senior Vice President of Finance in the Office of the President of UC, for example, are so significantly greater than that of being Director of Finance for the State of California. Counting beans is the same, no matter where you count them. Therefore, the salary comparison for administrative positions at UC should be based on the California job market, not a national group of “select” universities.

Keeping up with national “comparison institutions” also accounts for what many would consider obscene “perks” such as housing and relocation allowances, low interest mortgage loans, jobs for spouses, and other benefits that are not common among most public agencies. Relocation allowances on the order of $25,000 to $40,000 often bear no relationship to the actual cost of moving; they are little more than a “signing bonus.” I am certain that Bekins or Starving Students could get the job done for a fraction of that amount.

The third factor is the attitude that everyone must go to college, an attitude that unquestionably contributes to escalating costs of higher education, because it helps to create a market for a product that is considered as essential as food and housing. As long as college administrators can convince our society that “college is the gateway to upward mobility,” a built-in pressure for rising costs is created, because the product they are selling us is considered indispensable to our future.

Finally, governors and legislators, both Democrat and Republican, also bear a lot of unwitting responsibility for the rising costs of going to college in California. And, this problem is not unique to the “Golden State.” Here is how they do it. Every year, the university prepares its budget and adopts a fee schedule based on what it needs to provide a “quality education” (whatever that means). When the proposed fees (tuition) are announced, governors and legislators fall over themselves to “buy out” the fee increase in the form of a state subsidy to the university. Thus, they are able to say when running for reelection, “I kept college fees low.” In reality, they did no such thing. What they did was to allow the university to raise the fees, but not pass the increase along to students, and thereby escape the necessity of providing a product that the consumers (students) can afford.

Terms such as “accountability” and “transparency” are critically important with respect to public universities, but they are also quite elusive when applied to the fiscal operations of such institutions. That is why the cost of going to college continues its upward spiral and there is not much hope of that changing until fundamental changes are made with respect to university fiscal oversight.