Regents Budget Strategy: Stuck Between Stations

At the session of their Finance Committee on September 15, the UC Regents had their most intense and serious discussion of UC's budgetary crisis in recent memory.  The immediate cause was the Office of the President's first multi-year budget framework, and the reason it stirred so much debate is because it pulls a tuition trigger if state funding comes up short.  I'll describe some highlights of the debate, the deadlock that resulted, and several likely ways out of the deadock, which requires a minor but difficult paradigm shift on the Board.

UCOP calculates a $2.5 billion funding gap by 2015-16 (Display 4).  (This understates the actual gap, which is more like $2.5 billion right now (Figure 6), based on the 2001 Pathway and revenue needs of the Regents' own priorities (Figure 7), but I am so happy to see actual numbers presented to the public that I will skip the criticism.)  UCOP then reduces the gap to $1.5 billion with efficiencies (also too optimistic but what the heck!). The important bit is that they set a clear quantitative goal of recovering some major revenues -- $1.5 billion -- and show Sacramento the exact consequences of non-restoration of funds. This is genuine progress, and formed the basis of an important debate.

The headlines before the meeting captured the outcome of UCOP's worst-case scenario of zero increases (actually not the worst, given recent cuts), which would take UC tuition to over $22,000 for in-state students by 2015-16 (close but probably too low: see our projection in March).  UCOP's strategy is clearly not to try to raise tuition to that level, but to pressure the state into doing its duty to high-quality public education by reinvesting in the university.

This is where the debate began.


A faction led by Board Chair Sherry Lansing was horrified at even visualizing the prospect of doubling tuition over the next four years.  She intervened in the discussion at many points, saying variously, "This isn't the message we want to send," "this will scare people," and "this isn't a future that I am willing to accept."  Late in the discussion she compared the framework to those people who told her as a young girl that she should get married and raise a family rather than having a career.  Budget VP Patrick Lenz and President Mark Yudof tried but failed to head off this misreading of the framework's intent.  Lansing made it clear she did not want the framework to turn into a plan to be voted on at the Regent's meeting in November -- perhaps in part because she was not actually in the majority on the Board. 

I assume that Regent Lansing is not in fact missing the point of the framework, and, perhaps alarmed by the pre-meeting headlines and some unknown feedback, her position seems to be that creating a clear relationship between falling public funding and rising student tuition -- something UCPB called for ten years ago! --  is too scary or punitive to seduce people into increasing support.

The pro-framework group had two subfactions.  The first wanted to use it for its apparent official purpose, which is to goad, threaten, and cajole the legislature into providing proper levels of public funding. Regents who favored this in their comments included Regent Pattiz and the two public officials on the Board  (Lt. Governor Newsome and State Supeintendent of Public Instruction Torlakson).  As with Regent Lansing, they made various proposals for public advocacy campaigns, with varying ratios of emphsis on politicians, the public, and corporations.  UC has been weak here -- UCOP for example ignored a proposal by UCPB in 2004 that came complete with sample advertizements created by UCSF member Stan Glantz and an associate--so there is still room for improvement.

The second subfaction of the pro-framework group wanted to use it to show that correct public funding is a hopeless cause. This was led, as in the past, by the Regents of Doom:  Blum, Crane, and Gould, with a strong assist this time from Regent Bonnie Reiss.  This group was understandably skeptical that the legislature will be brought around by a better message campaign.  They also insisted that declining state funding is an obvious and unchangeable fact.

David Crane is the Board's Herman Melville, effortlessly channeling Capt Ahab on the quarterdeck, defining the state budget as a brick wall on which UC has already totaled itself, doing his version of Ahab saying "the white whale is that wall, shoved near to me. Sometimes I think there's naught beyond."  He stated that the two most effective lobbyists for the University, the students and the unions, haven't had the courage to step up to the fight.  He asked rhetorically whether anyone thinks the federal government will cut entitlements and the military before it cuts funding for the states.  Crane can do public budgetary checkmate like no one else, and he's certainly right about the rising tide of pension costs, health care mandates, and the idiotic revenue lock-ins of the California prison system in direct competition with higher ed, which prisons perpetually defeats.  His own literary conclusion: if you are waiting for the state budget to come back, you are waiting for Godot.

Next to him, Regent Gould played the moderating Starbuck, saying that the framework is designed simply to show to the legislature the "reality of the consequences of their decision. . . . Let us be truthtellers. .this is what [cuts] mean to our efforts to cover our costs . . .  I think we need to be honest with Sacramento.  It's so irritating  to have them be shocked and dismayed when we raise tuition after they cut us 650 million dollars.  That's just not honest.  We have an obligation as a Board of Regents to tell the truth."  His remarks may well have picked up some Regents on the fence in favor of giving the framework another look in November, although the positions of the silent Regents remain a mystery.

Regent Blum (0:40) said "I have no faith in Sacramento to ever do the right thing."  We should continue to make our case, he added, but we've been doing it for ten years, "and it's been essentially a waste of our time."  He went on, "Tell me why you don't go to a Chevron, tell me why you don't go to an Apple, . . a Cisco,  .. . Google,  . . . these companies who are sitting on money they don't know what to do with -- a lot of it's overseas -- and say let's just look at what the University of California has meant to you . . .and ask for $5 million a year each year for the next 10 years."  The basic idea is to replace public funding with corporate funding, and the model Blum cited was again the University of Michigan  that he said raised $3 billion for student aid (the actual $545 million which is still very good, but this is capital, not an annual fund, and is less than what UC has lost in state funding so far this year, etc.)

But another demonstration that private funds cannot replace public funds as a matter of simple math isn't necessary to repeat at this juncture because many Regents made the same kind of point.  Regents Newsome, Gould and Pattiz said that the scale of corporate giving would never solve a $1.5 billion problem, even if we assumed, which we should not, corporaet interest in turning parts of public infrastructure into objects of corporate philanthropy from the same companies that have worked for decades to reduce their public tax obligations.  Regent Fred Ruiz offered possibly unintended backup when he noted that his company is increasing by five-fold its contributions . . . to the Chamber of Commerce's PAC, devoted to electing business-friendly representatives who will oppose "job-killing bills," thus signaling that his company would give to business PACs rather than to universities, including the one he represents.

Overall, the Regents cancelled each other out.  As a symptom of a kind of collective depression, they seemed to agree on only one thing, which was that nothing that they had tried or would try in the future with the legislature would actually work. Their impossible situation was locked in by a second symptom: they could offer no generally acceptable explanation of why their various efforts with the legislature had failed.

The Regental deadlock reminded me of a book that the financier George Soros wrote in the wake of the 1987 market crash, called The Alchemy of Finance.  Soros had always been interested in epistemology, and described in that book his theory of "reflexivity," which boils down to the idea that peoples' perception of their social and economic systems change how those systems behave.  This may seem obvious to social and cultural scholars, but Soros used the idea to reject a naive but prevelant neo-classical trust in the efficiency and self-regulating nature of markets.  Crucially, reflexivity rejects fatalism or autonomism in the analysis of complex systems -- exactly the kind of fatalism which many Regents have expressed this year.

Were the Regents to put themselves in the budgetary picture, the "mystery" of their failure to influence public funding would immediately disappear.  The legislature freezes or cuts public funding because the Regents always raise tuition (in 18 of the last 20 years).  This is a national trend, e.g. Pennsylvania Gov. Tom Corbett's justification of massive state cuts to higher ed on the grounds that the universities raise tuition even with steady funding.  The UCOP proposal makes this logic explicit (see my discussion of the charts from March 2011).

Once the cycle gets started, it looks like an irresolvable chicken-or-egg problem, a problem of mutually-assured-destruction. But we do know  the interactive cause-and-effect cycle -- tuition increases excuse public funding cuts, which justify tuition increases. We also know that is that the current vicious cycle in California began with UCOP's Compact with Gov. Schwarzenegger in 2005, which locked in annually tuition increases of 7-8%, allegedly without consulting legislative leaders or most if not all of the Regents.  Whatever the historical details, were UC officials to see their place in the cycle, as one of two principal actors in the cycle, they could stop the action that perpetuates the cycle and see what difference that makes.

There is one Regent on the record who seems to understand how reflexivity is working on the UC budget. That is Eddie Island, the Board's unofficial moral conscience and perennial clean-up hitter.  He agreed with Regent Crane (1:27), noting

his future is bitter, and ugly, and unfortunately it's true. . .  But there's a reason for it.  When I joined this Board six years ago, I urged my colleagues to take off the table increasing student fees, and we refused to do that., and as long as increasing student fees are on the table, we're not going to--and in a meaningful way--address the problem. But we've come to a tipping point now. Where are we going to collect fees, exorbitant fees? I ask you to take a look at California demographics. . . only 27% of the students in high school in California are white students. The rest are minority students, poor students, first generation students, and they are clamoring to get into the middle class. . .[with fee hikes ]tthe one's who can afford it come from that 27%, but they're declining. . . . We're going to have a University of California that isn't for Californians. . . we haven't said as a board let's put together a $100 billion capital financing campaign to rescue the university-- because we haven't had to. We've had student fees to turn too.  But we have no place to collect these fees. . . we now have to do the right thing.  .  In our demonstration we've basically proved that rising fees is ok. . . we make the case for rising student fees. . . But our demographics aren't like Virginia's, or Michigan's . . we have a mandate to educate millions of underrepresented minority kids.  And we can't get there from here with high student fees. That model does not work with high student fees. We need a new model.

Regent Island put the Regents and their repeated fee hikes at the center of the action, and noted that these hikes have blocked alternatives. He goes on to offer a depressed narrative abouthow our politics have failed us, our politicians have failed us, there is no money in the bank, and that we have to turn to a new campaign with the corporate world -- in other words, his discourse didn't lead the Board out of the wilderness.  But it was clear from later statements, including one by President Yudof, that Island had make some people think about how the University had itself negatively affected the legislative system.  We may look back sometime and see the session as a turning point.

The discussion has important implications for public university strategy in this period of foolish austerity. I would state them like this:

1. Higher ed leaders like the UC Regents must stop talking as though private can replace public funds.  These funds do different things, they are of different orders of magnitude, and discussing private fundraising in the context of public funding cuts confuses everyone and lets legislatures off the hook.
2. University communities need to explain specifically how the public functions of public universities depends on public funds. I only had space to raise this issue in a recent piece, and existing research needs massive expansion.
3. In November, the UC Regents should be able to look at a proposal, based on the same UCOP budget analysis, that offers a two-year freeze on tuition in exchange for a set percentage of general fund increases.

This proposal would be the "Fourth Scenario" that a Regent asked about last week: 0% tuition hikes in exchange for 16% funding increases, trying to climb back towards 2008, perhaps to be staggered to start a year later.  (Other measures, like enrollment freezes, could be part of the mix.)  There should also be a Fifth Scenario in the calculation -- fee decreases in exchange for a multi-year public ramp-up of sufficient size.  People need to see what that looks like.

In this proposal, if the tuition freeze is tried and fails with Sacramento, then tuition would be back on the table, but after the only viable alternative -- restored state funding -- had been given a serious chance in exchange for concrete protection for students.

This list may sound unlikely and risky, especially number 3.  But none of them are as risky as sailing with the despairing Captain Ahab, who sank his ship.

Change the Culture of Helplessness

I'm grateful to Cloudminder for a steady stream of UC news updates: check out this past busy UC week. Berkeley's Daily Cal has been providing coverage of management and finance issues that is as good or better than the state's daily newspapers. See this piece on UC's decreasing net assets, for example.

But staying in the steady stream of dismal news does make it harder to remember that it doesn't have to be like this. I can still imagine an Arnold Schwarzenegger who forced a state funding growth ceiling on UC and CSU via the Compact but who did not then abandon it unilaterally in 2008. I can imagine a Board of Regents whose members get close to a couple of local campuses and use independent information to assess UCOP reports, and who evaluate solutions offered by faculty, students, and staff. I can imagine a UCOP that decides that transparency with more state trust is better for revenues than opacity with less state trust, and that makes a real long-term effort to explain the details of the budget, including answering questions like why basic arithmetic doesn't back up core claims such as the amount the state gives to UC per student each year (supposedly $7200, page 3). I can imagine a state legislature that would allow higher ed revenues to grow at the same rate as state income (if this had happened since 1990 UC would have $6 billion in state funding rather than be looking $2.5 billion). I can imagine a state population that would be willing to pay the same share of its income in higher education taxes that it did twenty years ago, and not closer to the half that share that it pays now (chart 2d).

The supposed impossibility of that version of California is not a fact of nature. It has been and is continually created by the decisions the major players make on a daily basis. This includes UC’s Regents and Office of the President. In these cases, their agency is regularly concealed behind a consistent strategy of blame-shifting onto the state legislature and, behind them, the voting public and their alleged universal rejection of the very concept of a public good. The university's decline has been accelerated by a culture of helplessness at the top, one which assigns blame elsewhere and helps to demobilize its own community.

Here are some examples from the March Regents' meeting.

The chair of the Board of Regents declared the restoration of state funding to be unrealistic, and in so doing took a major step towards creating that reality and locking it in. Sacramento Democrats and Republicans had their suspicion confirmed that UC would not hold them to a higher funding standard, and would not put up a fight against the current cuts. Similarly, Mark Yudof's recent testimony to the state Senate budget committee focused on avoiding a further $500 million cut as part of the so-called "all-cuts" budget, and tacitly accepted the first $500 million as a given.

In keeping with Chair Gould’s aforementioned diktat, Regent Richard Blum laid out a high-tuition plan as an absolute necessity - no further debate desired or required. I calculated that his plan would mean near-term tuition increases to over $20,000 (in-state) and medium-term increases to $40,000. The lower figure is the minimum required to maintain current levels of educational investment without the first $500 million cut. Rather than stating and tweeting the disastrous tuition news every day, UCOP spent all winter and spring saying that it planned no tuition increases - unless the additional $500 million cut took place. The effect was to muffle the only UC constituency with real influence with California's media, financially desperate undergraduate students. Having lost another five-month opportunity for opposition- and movement-building around public funding, UCOP then placed on next week's Regents agenda a proposal for a new 32% tuition increase, which would bring 2011-12 tuition to over $16,000, plus campus and registration fees (see next-to-last paragraph). UCOP waited until it could present the increase as forced upon them by a political reality over which they and their allies have no control.

Then there's the issue of UC's declining educational quality. UC Irvine Chancellor Michael Drake said that his campus is

Poised on the precipice of a negative change in quality, which, if allowed to occur, will require a generation to remedy. He praised the excellence of the UC Irvine faculty, but noted that faculty members now spend a great deal of time mitigating damage caused by cuts rather than building for the future. He described the situation of the University as one of slow decay rather than growth. Most effort is focused on protecting the educational path for students; innovation and growth are not being fostered.

These comments are extremely grave. Within American management culture, which requires continuous displays of problem-solving resolve to leaven its peculiar fatalism, they are a declaration of an educational emergency. They were accompanied by descriptions of the decline of the ability to develop individual creative capacities through face-to-face interactions, such as the wholesale elimination of the Irvine campus’s freshman seminar program.

But the state has heard all of this before. The decline has not yet occurred, is not currently occurring, but may occur in the future if the cuts are not brought to an end. Even Chancellor Drake muddled his message by saying that UC is in danger of moving from A+ to A. The vast majority of Californians, whose lifestyles are hovering around C+, would understandably accept UC “A”. Similarly, the financial statements in the Chancellor’s declarations suggest that the budget shortfalls can be handled with regrettable but nonetheless manageable layoffs that have already taken place. The non-UC reader would think, well they’re tightening their belts and fixing their IT problems and we’ll end up with a UC that gets an A for only $2.5 billion in state funds. There is no screaming on our end that says no it cannot be this way and also no it need not be this way. Refusing to take responsibility for having already damaged educational quality with its past political decisions, UCOP warns of decline this time. It is playing Chicken Little with the state.

In contrast to managerial fatalism, faculty members have been putting up a very good fight. I will have to do a separate post to discuss valuable pieces that came out this last week in The Nation and the London Review of Books, and same goes for work closer to home, such as the immediate past chair of the Senate’s systemwide Committee on Planning and Budget (UCPB) Peter Krapp’s excellent piece on why we need to keep the University of California unstratified and whole. But UC Uncut and UC Whole both entail the continuation of the Board of Regents and the Office of the President. At the moment, they are not the system’s strongest points. Whatever the specific errors of campus leaders, one can imagine campuses moving forward via chancellor-presidents with the local knowledge and on-site accountability of campus administrators. You can get a feeling for this by reading the testimony of Chancellors Birgeneau, Blumenthal, and Drake in March.

But local knowledge and direct accountability are largely lacking at the Regental-UCOP level. This problem will need to be solved if UC is going to go forward as a single system.

Fight or Flight?

It’s bad enough to live through budget crises that go on for years at a time while paralyzing planning and development of every kind. We also have to deal with leadership problems, centering now on the fact that neither the Regents nor UCOP nor the campus chancellors have credible plans for reversing or coping with the relentless grinding away of the university’s public funding base. The failure of Jerry Brown’s doomed, misguided effort to exchange massive new cuts for a public vote on tax extensions means that UC and the state's other higher education segments will need to fight like dogs to avert a major budgetary meltdown.  Brown is unfornately on track to undo in a couple of years what his father’s generation—among others--took decades to build.

But will UC fight? Its leaders won’t, if my conversation with a vocal senior UC offical reflects the wider thinking.

 This official contacted me because he objected to a core claim in my recent posts about the Regents (here and here). I very much appreciated the outreach and dialgoue, and am not doing justice to the full range of our friendly conversation, but am focusing on the overriding theme.

He asked at the start, "what makes you think that there's money in Sacramento, and even if there were, that they would give any if it to UC"? He then ran through a detailed analysis of California’s liabilities, all very authoritatively done and no doubt correct. He emphasized how much higher the liabilities are when you use accrual accounting rather than cash accounting. He than asked me how I could suggest that UC could ever go back to the state.

I offered him three reasons.

First, that a much poorer California first built a great UC, and we can do this again in the face of our liabilities. I mentioned my depression era grandparents paying for a system whose expansion allowed my mother and father to be first-generation college students, and also cited stats about declining tax effort in relation to personal income, a declining share of the state budget as a percentage of aggregate income, lower business taxes as a share of the total (slide 7), etc. A relatively poor California built this great thing, and we can certainly do at least as well as they do. I called funding cuts a 20-year policy choice that now needs to be undone. He thought this was too simple, and asked if I had experience in Sacramento. I told him about a faculty group visit too various legislators in 2008. We agreed on the actual attitudes in Sacramento, but not on whether the attitudes could be changed.

Second, I made the point that UCOP and the Regents have been deflating state support by saying yes it's terrible that we are being cut but we can replace public with private funds. The legislature doesn't just "hate UC," as he put it, but thinks that it can cut UC without causing much damage. They think the kids from Simi Valley will pay $14k instead of $10.5 k, no big deal, UC will still be the greatest public university in the world as UCOP always says and we need the money for other stuff like healthcare. My conversation partner scoffed at this explanation, saying "you sound like that guy who came up to me at the Regents meeting and said if you just stopped talking in public about how we have other sources the legislature would stop cutting us." I said that guy was right.

I made the general point that you can't insert the word "just" into a sentence and get an accurate paraphrase of the faculty's position on this. We all know it's complicated and that we're undoing years of mixed messages, a process that will itself take years. But the first thing to do is to stop sending the mixed messages (we will cut but won't hurt the instructional program as Nathan Bostrom recently told a newspaper). The next thing to do is to just tell the truth: the cuts are radically downgrading the University. People really don't know the damage that these cuts do to the university. He thought they did . . . I said this brings us to my third argument, which is that the Regents don't have any choice but to change direction. They don't want to cut quality, of course, so they have to restore public funding. The alternative, if they don't, is tuition going to $40,000 in a few years. So either we say great, let's go there, or we go back to the state and say not restoring money is not an option. (UC President Mark Yudof has started gesturing in this direction.)

I honestly don't know whether he took this in or not. He talked about his son paying less for his semester at a UC campus than for his time at his regular Ivy League campus, and was it right that he, who could pay more, would be subsidized by the taxpayers? I said yes it is right, because it is the basis of a UC that serves the state as a whole, and it produces a UC with more class and race diversity than all of the Ivy League colleges put together or any other private, or any other semi-private public like Michigan, measured in Pell Grants among other things. I mentioned the principal of mutualization, which most Americans seem to have forgotten although Hollywood used to make widely popular movies on the subject. If you want to get people to actually use a service, you lower the price by sharing the cost across the widest percentage of the population, and this understanding-- service to the whole state-- needs to be rebuilt.

The most interesting part was near the end. I said it's Sacramento or 40,000 dollars, that has to be the Regents consistent message. He said that was just a rhetorical point. I said it's a quantitative point, and if my arithmetic is wrong somebody needs to fix it. It would also help the public to understand their real choice: they think the choice is between higher taxes or a great UC at $14,000 instead of $10,500, but they're wrong. Since they don't understand the real choice, how can we expect them to make a real decision? Since we've never said "hike your taxes or get UC B+ at $40,000," why should they have ever vote a hike? I asked him, Will you use the $40k number? No I won't he replied, it won't work. Why not at least try it, I asked? This isn't just hypothetical - a unit like Berkeley Law that made top quality defined by rankings as its only priority fought tirelessly to get its tuition to $40,000. This official like Regent Blum is pro high-tuition, but when I said "high tuition" = $40,000 he didn't want to go there. Food for thought is this: I don't think he doesn’t want to go there because he thinks the number is wrong. My hunch is that he doesn’t want to risk creating public opposition to continuous but not-too-shocking annual tuition increases, ones that will create UC B+ that we will call UC A- (except at Berkeley and UCLA), for a modest in-state price of $20,000. He invited me to start visiting Sacramento, and I said with pleasure. I added, I think you and I should go there together and do a joint presentation where we talk about tuition at $40,000. He certainly didn't go for this, and he wound the conversation down at this point.

My own views on this are simple.

First, the voters deserve to have numbers attached to the fatal choices they are in the process of making.

Second, the Senate should push for an extension of the Regents’ budget presentation that formalizes the real numbers on projected tuition increases that the student Regent had to coax apologetically out of Nathan Bostrom.

Third, faculty should demand and receive access to divisional-level campus budgets and planning scenarios so they can offer informed comment and make intelligent decisions about their own careers.

Finally, the financial brains on the Board of Regents, with their experience in creating and investing in large liabilities, should help the state solve its liability issues in a way that doesn't wreck its higher education system.

Faculty, staff, and students are going to need to mobilize themselves on budget policy like they never have before. I really don’t see any other way of avoiding acceleratign decline.

Regent Blum Wants to Raise In-State UC Tuition to $40,000

No, Richard Blum didn't actually say that.   But that's where the plan he mentioned at a Wednesday Regents' session ends up.  Let me explain.

On Wednesday afternoon, the Regents were treated to a helpful budgetary presentation by senior UCOP budget officials Patrick Lenz and Nathan Bostrom - helpful because it looked at the next five years, was frank about the acute shortfalls that UC faces, and and quantified a range of options for dealing with these shortfalls. Everyone involved with UC should give each slide in the deck their undivided attention. The whole exercise will take you about half an hour. You can't understand  the meaning of Regent Blum's call for high tuition unless you understand the slides that came before.

Display 4 shows what has been happening to tuition: gross tuition has tripled over the past decade, and what you see here is that net tuition, the yield to the university's budget after financial aid has been deducted, has doubled. The lesson here is that tuition increases produce less money than most people assume. In November 2009, I estimated that the massive 32% tuition increase would add about 2% to two years of UC's core budget.  This should remind us of how gigantic the state funding cuts are, how dependent core campus operations are on state funds, and how hard it is to replace public with private funds. Even if you like privatization of funding sources, you have to start from the fact that the scales don't match.

Displays 8 and 9 identify the 1 year 2011-12 funding gap.  The Jerry Brown cut is $500 million for UC, but mandated cost increases bring the total gap to $862.5 million.  The campuses have been asked to plan for cuts of this scope, which is about 30% of UC's current general fund provision.  President Yudof's position prior to this week has been that there would be no tuition increase for 2011-12 beyond the 8% already voted.  The current default  policy is "pay more to get less," since tuition goes up at 2-4 times the rate of annual inflation even as educational services (things like a place in a course) continue to decline.

A strong point of the UCOP presentation is that it identifies the damage done. Display 11 quantifies the damage in terms of layoffs: 4400 UC employees have already lost their jobs (or about 2.5% of the 2009 workforce), and another 3700 positions have been left unfilled. Displays 32-33 note the financial sacrifices made by employees who remain, Display 34 invokes the suffering of buildings and grounds (they can't appreciate having had their maintenance abandoned by the state in the early part of the decade).  Displays 30-31 and 39 actually do dip their toes in the scalding water of declining educational quality at the University of California, which they call "cost avoidance."  This is a valuable encounter with campus reality, since normally UC officials insist that this decline is being avoided, or is anticipated but has not yet actually occurred.

The real action begins with Display 36. With the only new revenues coming from tuition from 1% annual enrollment growth, UC's core revenues stay around $5 billion per year but expenses grow to about $7.5 billion, creating a deficit in 2015-16 of $2.4 billion.  In other words, if the state refuses to increase general funds while UC refuses to raise tuition, UC rapidly becomes insolvent.

The next set of slides (Displays 38-44) chip away at the funding gap.  They offer conservative assumptions about cost increases (Display 38), meaning that costs could easily rise more quickly than assumed here. The next slides propose a series of  cost reductions.  They reduce the 2015-16 deficit by $500 million  (that legendary recurring $500 million in systemwide efficiencies).  Improving indirect cost recovery, raising more unrestricted private funds, adding out-of-state students (a quite small gain there), and professional school tuition increases double the savings, reducing the 2015-16 gap to $1.5 billion without adding state funds or increasing tuition.

It's best to think of Display 45 as a best case scenario.  If we use Jane Wellman of the Delta Project's rule of thumb of 2% annual efficiency savings (on $5 billion), and cut the other savings in half, $500 million is $100 million in the first year, $200 m in the second and could get to $500 m in year five with heroic effort. The other $500 million becomes $250 million. Instead of saving $900 million we've saved $750 million. Any slippage and we have a $2 billion problem rather than a $1.5 billion problem.  And that excludes greater-than-expected cost increases.  In other words, $1.5 billion is a minimum shortfall in 2015-16.

My favorite slides are 46 and 47.

46 gives a series of combinations of state general fund and tuition increases which 47 simplifies into 4 alternatives.  Note that the more one goes up, the less the other one does.  The logic here bears spelling out. UC officials have never admitted that annual tuition increases have helped reduce state funding because they teach the state that UC has other revenues options. But this is admitted in the logic of this slide. It also reflects Jerry Brown's January statement that state funding at level of 2010-11 minus $500 million would not be forthcoming in the case that UC decides to raise tuition again.

Here's the even worse news.

The alternative that closes the gap, Alternative A, proposes an 8% annual state funding increase, matched by an 8% annual tuition increase.  The first half of this doesn't seem likely.  The semi-plausible alternative D imagines the state cutting $500 million this year and then increasing general funds each year by 4%. Tuition rises by "only" 10% a year, increasing tuition by another 50%, bringing it to somewhere between $18,000 and $20,000 per year for in-state students by 2015-16. But there's still a gap of $350 million remaining of the (minimal) gap of $1.5 billion. In other words, UCOP sees no solution to the budget shortfall, even under its best case scenario.

One can hear in the discussion that the Regents are grasping what this all means. The tape I'm using begins at about Display 30, and almost exactly an hour later, Regent Alfredo Mireles, the student Regent-designate, says the following:

This may be a bit morbid but on Display 46, we have a scenario where I think Nathan said tuition is increased by 18% a year unti l15-16. Do we know what that number would be? How much would students pay if that were to be the case?

There is stricken silence, and Regent Mireles feels compelled to add, "just so we know understand how much."

Nathan Bostrom replies, "In rough terms, 18% compounded over 4 years, almost doubles tuition."

The committee chair says, "just a reminder, we're just laying out the extremes, so, ok?"

Actually it's not that extreme.  Say the state cuts UC $500 million for 2011-12, and then freezes general funds at that level, perhaps in response to UC freezing overenrollments plus a Hoovernomics-induced non-recovery.  In that case, an in-state UC undergraduate would be paying about $25,000 per year in 2015-16.

The icing on this poison cake is that the 2015-16 student, perhaps Regent Mireles' little sister, will be paying $25,000 per year for UC's impaired 2011-12 condition. That $25,000 doesn't get the university back even to 2007-08, to saying nothing of this blog's regulative baseline of 2001-02.  So the option that includes no major increases in state funding  means paying more -- double -- for less. Let's call it "UC Minus," our 2010-2011 version (see Display 48, which typically pushes this into the future).   One of the presenters mentioned the Regents' quality goals, normal annual improvements in a University that lives in a world where the competition is not standing still.  In the Cuts Report, UCPB priced these priorities at about $1 billion a year beyond existing funding levels (Figure 7). "UC Plus," that is, UC that keeps up with the rest of the world, cannot be bought at even $25,000 per year.

We are now finally ready to appreciate the intervention of Regent Richard Blum, appearing on this tape at 1:11 (excerpted):

I don't really think we've done a very good job of letting the people of California know what our problem is and of trying to raise money to get us through this, now and in the future. . . . There is a way out of this, and let me get through my entire statement before you come over and decide to lynch me. There is really only one way out of this problem, and a lot of other universities, particularly that ones that we compete with have adopted this. and that is higher tuition, and higher amount of scholarship money [sic]. . .. I actually believe,  if we took the top 500 companies in California, and we divided them up and said look we want money not for this project for that project, we want it for scholarship funds, so that we can say to our students, whatever we increase this by, if you come from a family that makes less than, pick some number, $150,000, you're not going to have to pay for it. if you look at who the campuses - Berkeley, UCLA, the others, compete with, the cost is triple what we charge. if you go to Stanford it'll cost 58,000.and if you can't afford it, they may pay for the whole thing.   . . you [could] go out and raise several billion dollars. Maybe you get to the point where you have a pool of money where you can add an additional $500 million dollars a year to pay for whatever those increases are. . . . a few years ago michigan went out and did this and raised in excess of $3 billion dollars. if michigan can raise $3 billion dollars for this kind of funding, we sure as hell can raise more.  . . I think you have to go out, divide this up.  Major corporations. I have discussed this with the governor. he is willing to help us . . .it is not the kind of marketing that is going on now. it's not that it's bad, it just isn't good enough. . ..

Regent Blum is quite right that private universities have these kinds of scholarship programs - he's thinking of Harvard rather than Michigan.  But the rest of the framework doesn't hold together.  I assume he is referring to the Michigan Difference Campaign, which raised $3.2 Billion over a period of 8 years. This was the gross total, and it included $545 million for student support.   This was arguably the most successful funding campaign in the history of public universities, and about 17% of its yield was for students - which is a great number.  But at a 5% payout this yields less than $30 million per year to support student tuition, which as the above discussion shows will pay for at most 1200 of UC's 175,000 undergraduates at 2015-16 rates.

Regent Blum focused on "high aid," but we are still left with the "high tuition" component of the program.  Given UC's needs in a "post-public" phase that some key Regents believe is inevitable, $25,000 a year is not high tuition: it is merely the tuition that fills in the minimum likely funding gap for "UC Minus" in 2015-16.  How do we get the billion dollars on top of that to produce "UC 2007-08," or $2 billion to create some approximate version of UC 2001?  A 6.4% increase in tuition (on the current base of $12,150) yields $100 million net of aid (Display 50).  We would need ten of those units to get UC 2007, or $7776.  This would come on top of 1015-16's $25,000, bringing us to $32,776 for an in-state student in that year.

But if it's Stanford that we're competing with, then we need funding for small seminars, interactive lab work, directed study, undergraduate research opportunities, and many more graduate students to reduce overall PhD candidate teaching loads.  Add another billion to recreate UC Plus (or UC 2001). That is, add another $7776, which gets tuition to $40,000 - $40,552 to be exact.

I think these hikes would be a terrible idea, and am opposed to them.  My point here is that when we start taking with real numbers, even the rough estimates of this post, we can see that giving up on public funding is simply not a financial possibility.  The Regents at some point will need to refocus their attention on rebuilding the revenues UC gets from the state.