Sunday, July 31, 2011

Annoying Results of the State Audit of UC, Pt 1: No Cuts, You're Fine!

UC students, who will pay about 18% more in tuition next year, will be interested to know that the California State Auditor, which has now released its much-anticipated report, defines student fees as public funding (p 9). Their reason is that student fees are "obtained as part of [the University's regular course of business."  This explanation makes no sense at all, since federal research funds are also obtained through the regular course of business, but these taxpayer monies are classed with philanthropy and other things as private and thus excluded from this study.  This founding blunder misstates UC's actual financial condition, for some reason UCOP doesn't object to it, and the Auditor's other very important points, discussed in parts 2 and 3 of this post, are compromised by Sacramento's near-delusional inability to recognize the damage it is doing to public higher education.

This is an important report based on a lot of serious, thoughtful work.  But there are some problems, like defining student fees as public funds.

Last May I saw an email from UC's VP for budget Patrick Lenz, a lead UC negotiator in Sacramento, that included this bizarre sentence: "the only voice to agree with the UC that a $500 million budget cut does have an impact on the state’s funding of marginal cost per student was the LAO [Legislative Analyst's Office.}"  I read that sentence many times, since it seemed to be saying that all but one of our state agencies believe that a state budget cut doesn't mean that state revenues are being cut. I wrote several people for an explanation and didn't get one that made sense to me.  But apparently Lenz was exactly right, because when the state cuts its funds, UC raises tuition, so public funding stays the same - right??  Wrong! This year's tuition increases net 26% of this year's cut (pp 12-13), but even if they netted 100% student fees are not public funds.

Instead of looking into this, the state press has established the lede as the Office of President's differential allocations of state funds and tuition that have created a pattern of rich and poor UC campuses (Table 5, p 33) (see also Samuels and Cloudminder). I'll discuss this in Part 2, and some important technical points the report makes in Part 3. But first, let's look at how good UC has it thanks to our students' generous public funding of their university out of their personal public pockets.


As you can see, there are no budget cuts!  The picture says that there was a temporary dip but then the money came back. The state general fund share of the budget is still huge.  Given the widespread suffering in California, UC is clearly doing quite well. Add together the self-described $500 million in administrative savings after which UCOP is in perennial hot pursuit, plus all the new out-of-state students, plus two tuition hikes this year, and thus we can certainly take next year's $650 million cut!  The last huge one clearly had no meaningful effect on UC revenues. What are we crying about?

Let's take a closer look at this figure. It is misleading because
  • it starts at the bottom of the decade's cycle, thus setting "normal" funding as low as possible. Our budget comparisons have always used 2001-02, the start of the last big cutting cycle, when GF stood at $3.16 billion.
  • it defines as general funds various non-tuition fees paid by students, including non-resident tuition.
  • It is corrected neither for inflation, nor for the Higher Education Price Index which is always higher than inflation, nor for 13% enrollment growth (which it does discuss elsewhere). 
  • It is based on the report's bizarre definition of public funding, so measures neither the total UC budget nor "UC Core Funds" as defined either by Academic Senate reports or by UCOP in its budgets for current operations.
  • It bumps up the top line with one-time federal stimulus money, counted as state funds since they were paid to the states, although these are going away.
Off the left edge of the chart is a higher level of past funding, but the crop means you can't see that the period under review occurs in a funding valley. Off the right edge of the chart is next year's $650 million collapse and the absence of stimulus money, but the crop hides the hillside to come.  The report calculates that state general funds are down only 9% (Table 1)  from the 2005 trough to the 2008-10 trough that was backfilled with federal dollars.  Here's what the big picture looks like, which we've had occasion to point out before.

Remember that red is where we've ended up, yellow is where we could have been if we'd started to return to our 2001 status in 2005, which the Glantz-Hays paper has shown would cost the median taxpayer exactly $32 per year, green tracks 1990's "Master Plan" funding levels, and the flat line was our projected "funding freeze" which would have left us better off than we are under Govs. Jerry Schwarzenegger and Arnold Brown.  This chart does not correct for growth in enrollments.

The state audit was an opportunity to show the state's funding trend in real state per-student, inflation adjusted dollars. This the Auditor failed to do.  Here's what that story actually looks like, carried up though 2010-11, all units in 2000 dollars.

UC's definition of very high public university quality derives from an entirely different public funding environment, one in which each student received almost twice the real dollar state investment as is the case today.  The state audit renders this story invisible. This means that the massive reduction in investment is something no public official will feel the need to address, or taxpayers to work to recitfy.

To the contrary, the report's Table 4 (p 24) has Instruction funding -- derived from the "public" accounts they analyzed -- increasing 15% over the five year period, and research up by almost the same amount. This beats inflation on an annual basis in one of the worst downturns in the state's history, Again, the story is that not only is UC doing just fine overall, but that so are its students, measured by a slowly but steadily increasing investment in instruction and research.

And to repeat, UC"s office of the president has no comment on this chapter of the report.  This can only further solidify the No Cuts story.

To see how cuts happen and how they are felt, we would need to turn to some additional issues:
  • How Instructional and related public funds are allocated across disciplines on a particular campus (or "cross subsidies"). Cuts may be severe in some areas while others are untouched or augmented.  This is a topic the Auditor did not investigate.
  • How Instructional and related public funds are allocated among campuses. Here the state audit makes some explosive comments about racial disparities in campus allocations, and I will take these up in "Annoying" Part 2.
  • Whether we can tell the extent to which revenue categories, like Instruction or Research, are actually spent on instruction or research (which themselves need to be explicitly defined).  Here the state audit is disturbing, and I'll take this up in Part 3.
For the moment, we need to realize that the State Auditor has told the state's political apparatus that UC really has no shortage of public funding.  It suggests that the state takes for granted ever-rising student tuition as an accessible form of public funds.

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