Fiscal Follies at U. Cal.

Between 2002 to 2012 annual undergraduate tuition at the University of California tripled, rising from roughly $4000 to $12000 after adjusting for inflation. That increase drastically changed UC’s affordability relative to other state universities. In 2002 UC was about 50% below the national average for tuition costs, but ten years later it was 50% above average.

One might have expected that this meteoric rise would be followed by a period of stability, giving students and parents a period of time to adjust. And so President Janet Napolitano’s recent proposal to raise tuition by 5% annually for five years was met almost with disbelief. The cumulative effect would categorically change UC’s national standing yet again, boosting tuition at UC from 50% above to around double the national average. With inflation running below 2% in both 2012 and 2013, Napolitano wants extra cash from students at almost three times the rate of inflation for five years in a row, an amazing demand after fees had already tripled over the last ten years.

What did she think she was doing? Napolitano let the cat out of the bag when she said that the raises did not have to happen: Governor Jerry Brown could stop them by providing more state support. She was squeezing the Governor, using the students as hostages. But Brown turned her tactic back on her: if Napolitano went ahead with the raises, he’d reduce state support accordingly so that UC would get no additional money.

Janet Napolitano’s appointment to the Presidency of UC was criticized because she had no experience in higher education, but her supporters argued that her political experience would make it easier for her to talk to the Governor and get a good deal for UC. How wrong they were. Her clumsy power play has alienated Brown, the legislature (where some now want to strip UC of its constitutional autonomy), the students, the public (77% against), and it has split the Board of Regents. If you are going to engage in a political game of chicken, you need to make sure that public opinion is with you. But Napolitano recently gave three campus chancellors 20% raises, and nothing annoys the public more than seeing the university’s top brass receive huge raises (yet again) just as students are being asked to pay substantially more. Only a political klutz does that before playing hardball with the Governor.

But the worst thing about Napolitano’s reducing UC’s budget problems to a political tug of war is that it has deflected attention from the causes of the budget shortfall and the measures that need to be taken to solve it. There are two major reasons why UC is struggling financially. First, its own gross mismanagement. And second, the state’s gross mismanagement.

On UC’s side, the worst problem is the severe underfunding of the pension fund, the result of a whole series of foolish decisions. In the 1980’s miscalculation resulted in its being grossly overfunded, and so UC suspended employee contributions. But nobody at UC seemed to notice when the suspension went on so long (19 years) that the fund became just as grossly underfunded—by 24%. Not one of the hundreds of economics professors and researchers in the UC system seems to have noticed the growing disaster, which now requires billions to be spent each year to make up the shortfall.

Then there is the problem of the huge growth in administrative costs. Data from the President’s own budget office show that while the number of UC employees has risen by roughly 50% in the last two decades, senior management numbers have risen by five times that amount and now exceed the number of ladder faculty. When senior managers outnumber professors in a university, something is badly wrong. A major part of the problem is the President’s own office, the system-wide administration. In the period 1959-65, when the university more than doubled the number of its general campuses, the President’s office had an important role to play in planning and managing this major growth. Now that those campuses are mature and run themselves, system-wide’s role is a coordinating rather than a managerial one. Yet with 2000 employees it is still staffed at a level appropriate to the latter rather the former. I served as a campus dean for 9 years at UCSC, and can attest to the fact that campus administrators like me mostly found system-wide officials a time-wasting irritation. Huge savings could be realized by cutting the President’s office down to a size that matches its current role.

On the state’s side, mismanagement has been so chronic and severe that even a state with California’s great natural advantages has been in a permanent budget crisis since 2003, long before the 2008 crisis hit the rest of the nation. In CEO magazine’s ranking, for the last ten years the state has been the very worst among the 50 states in its climate for doing business. In 2012 alone it lost 5% of its businesses, it is losing net taxpayers, recent net outmigration to other states has reversed the decades long flood of people moving into the state, and for some time the state has had the highest tax burden in the nation. But the legislature is too busy with politically correct trivia like legislating rules for dating to be able to focus on fixing the state’s abysmal business climate. The Governor wants to spend billions that the state doesn’t have on his vanity project—the bullet train–and has made the business climate worse still by engineering another steep rise in taxes.

If the students knew what was good for them, they’d vote against the regime that cripples California’s economy and thereby guarantees low state support for UC and high tuition for them. Alas, they won’t, because the paradox of California higher education is that a large, world class system of public higher education needs a state economy humming along in high gear to pay for it, but the university itself breeds anti-capitalist attitudes that make that all but impossible.