Telling the Truth about the UC Finances

A key to faculty, students, and staff working together to defend access, quality, and affordability at the University of California is for all of us to understand the way the system is funded and managed. I would like to take this opportunity to clear up some myths and misrepresentations that have been circulating concerning the current crisis:

1. “The state’s per-student spending for education at UC, adjusted for inflation and enrollment growth, has fallen nearly 40% since 1990 from $15,860 in 1990 to $9,560 today in current, inflation-adjusted dollars.” This common stat is very misleading. First of all, the state does not simply fund the UC on a per student basis; the state adds to a base fund the additional cost of educating each new student. As Charles Schwartz and others have shown, this complicated formula is highly misleading and depends on several wrong assumptions: 1) that students are all taught by professors; 2) that there is no difference between the cost of educating undergraduate and graduate students; and 3) that each new student results in an increase in costs for administration, staff, utilities, and libraries. As I have shown, since over 50% of the undergraduate student credit hours are now being generated by lecturers and grad students, and not by professors, the actual cost to educate a student has gone way down since 1990. Also, the UC has continued to expand class size to reduce educational costs.

2. “The Governor reneged on his promise and cut the university’s budget by 20% over the last 2 years. This radical defunding has not only accelerated the rate of fee increase by 9.3% this year with a proposed mid-year increase of another 16% but also threatens the national ranking of our university.” UCOP and the Regents want us to blame the state for all of the UC’s problems, and yes, part of the UC’s problems are related to the decrease in state funding, but the state only funds less than 16% of the UC budget, and the total cut to the UC budget was less than 3%. The problem is that the UC insists that only state money and student fees can pay for education, and yet it is clear that undergraduate fees subsidize the expansion of research and administration in the UC system. Also, in the past, when the state cut the UC’s budget, money was borrowed from other sources like Medical center profits and investment funds. This type of short-term borrowing could be done again if the UC wanted to resist increasing student fees and decreasing educational quality.

3. “We cannot fundraise our way out of this problem. While an important source of funding, private philanthropy and sponsored projects finance specific activities, not the core budget.” This is the great lie of UCOP: The UC is constantly shifting money around and the vast majority of the UC budget is legally unrestricted. In fact, a lot of recent endowment money is earmarked by the donors to support undergraduate and graduate education. Also, money from external grants pays the salaries of graduate students so that they can teach the courses that have been bought out by research faculty. The simple truth is that the profitable units do not want to share their revenue so they will be able to maintain their high compensation packages.

4. “Unlike some private universities, we don't have massive endowments to make up for state money shortfalls.” While UC has lost a large sum recently in its pension fund and investment accounts, it still has over $50 billion worth of investments. Much of this money cannot be used to close the current budget deficit, but the endowment fund and the short-term investment portfolio hold over $12 billion, and some of this money could be utilized to support the general budget. Moreover, just as the UC recently used its large investment portfolio to borrow $200 million to lend to the state, it could do the same to support ongoing operations.

5. “UC is fighting to get more money from the state.” This is only half right because if they really wanted to get more money next year, they would not raise student fees now. Since the UC has already come up with a plan to make up for lost state funding, the state has no reason to restore or increase its funding for the UC system.

By blaming the state for all of UC’s problems and by buying the official line concerning the underfunding of undergraduate education, we are left with no alternative than to hope the state restores our funding. Instead, we should endorse the alternative budget solutions that have been presented by AFSCME, and we should push Yudof to both get more money from the state and to make sure that UC’s funds are spent in a fair and transparent way. This means stopping the continual movement of money to the top earners .