Financing the University – Part 20

by Charles Schwartz, Professor Emeritus, University of California, Berkeley
schwartz@physics.berkeley.edu                               September 9, 2009
Available at  http://socrates.berkeley.edu/~schwrtz  and  http://UniversityProbe.org


FOLLOW THE STUDENT FEE MONEY

     Here is the latest official tabulation of the various kinds of Student Fee revenues for the University of California.  This comes from the “2009-10 Budget for Current Operations, Budget Detail” (henceforward, the “Budget”), published November 2008 and available at http://budget.ucop.edu/pubs.html.  The table on page 174, titled “Income and  Funds Available,” gives this data as Proposed for 2009-10.

Table 1. UC Student Fee Revenues for 2009-10
Type of Student Fee Revenue
$ Millions
General Fund/Possible Student Fee Increase
   110
Nonresident Tuition
   256
Application and Other Fees
     28
Educational Fee
1,428
Registration Fee
    193
Special Fee for Law and Medicine
        2
Professional School Fees
    156
University Extension Fees
    208
Summer Session Fees
      11
Other Fees [ Campus-based Fees]
    318
     TOTAL of all Student Fees
2,719


     As it turned out, the General Fund (state appropriation) portion listed above did not materialize and so that amount was added to other student fee categories.  The total amount of student revenue for this year is $2.7 billion.  Perhaps the University Extension Fees should not be counted in this total, since that is a self-supporting business (similar to the Auxiliary Enterprises.) So, maybe a better result is this:
 Total Student Fee Revenues = $2.5 billion.

     Now let us ask how much the State of California, through its General Fund Appropriation, is contributing to UC’s Budget for Current Operations this year. That number may be found in the report by Patrick Lenz, UC’s Vice President for Budget, Item F1 Attachment at the Regents’ meeting on July 15, 2009.
Total State General Fund Appropriation = $2.6 billion.

     This is an unprecedented situation. We are on the brink of a transformation from a state-funded university to a student-funded university. (President Yudof has suggested that fees may be raised again in the middle of this academic year, so the crossover point may come very soon.)

     There are a number of provocative ideas that follow from this recognition. Since the Students’ financial input to UC’s core operating budget matches that of the State, then it seems logical and fair to claim that Student interests, Student priorities, Student leverage to negotiate with the UC administration – should all be as potent as the State’s.

I. Composition of the Governing Board

     The most far-reaching version of this principle concerns the composition of the governing Board of Regents. Of the present 26 voting members of that Board, four are elected state officials and 18 are individuals appointed by and approved by elected state officials.  Thus, 22 Regents’ seats have traditionally been allocated to people who are there to represent the public interest in the University of California, which Article IX Section 9 of the California Constitution defines as a “public trust.” However, if a large portion of the public (taxpayer) investment in UC’s operation has been cut away and replaced by Student Fees, then it seems proper to ask for a proportional replacement of those “public” regents by regents who are chosen to represent Student interests. By Student interests I imply equally the interests of those students’ families who usually carry most of the financial burden for paying those student fees.

     To achieve that result – fulfilling the old axiom, “no taxation without representation” – will probably require amending the state Constitution and that will take some time and effort. Yet this idea is not unique to UC; it applies as well to the CSU system in California and to other public universities across the country. [An article on this topic was published in the May 22, 2009, issue of the Chronicle of Higher Education.]

II. Immediate Budget Priorities

     Short of that large goal, there are a number of more limited and specific claims that Students can and should make upon the budget priorities of the UC administration, in light of the massive revenues which they bring to the institution.

     At the July meeting of the regents, there was a parade of the Chancellors of the ten campuses, who recited a dreary list of the painful measures that they had to institute because of the severe cutback in state funding.  One item I noticed being mentioned by several Chancellors was that they had to cut back on the number of Teaching Assistants (Graduate Student Instructors)  and also the cancellation of a number of courses that students would need in order to graduate in time.   That response to a budget crisis would be reasonable in the old circumstances where the state funding paid for all of that educational program expense. But how does it fit in this new environment, where the students themselves are paying for much of the overall program?

     Let’s go back to the numbers. Table 1 shows that the largest student fee revenue is from the Educational Fee, about $1.5 billion in income to the University. This is mostly fees paid by undergraduate students. And the stated purpose of this fee is to support the educational program, which the state has not been fully funding.  So, what are the priorities at work here? How do the chief administrators at the University decide which programs should be cut and which should be protected from cuts?

     More numbers are needed to answer this question. They are cutting Teaching Assistants, who are graduate students employed as the first line in serving the educational needs of undergraduate students. What is the total cost to UC for all TA’s?  Depending on what resource you choose to rely on, the answer is between $100 million and $200 million per year.  But those numbers are peanuts compared to the total $1.5 billion that undergraduate students are paying in Educational Fees.  Something is terribly wrong here.

     The President of the University and all the campus Chancellors need to be told that their priorities are out of whack.  That $1.5 billion in money that they get from undergraduate students paying their Educational Fees should be used – as a first priority – to provide the quality undergraduate education that UC has been famous for.  If there is a dire shortage in state funding, that may certainly have some painful consequences; but since students are paying so much for their own education, that money must be used to supply them that education.

     It can only be assumed that the President and the Chancellors have fallen into an old way of thinking about how to budget. They must be told to WAKE UP and provide students with the full educational service that they have paid for!!

III. Longer-Term Claims

     The recognition that student fees have now matched state funding for UC’s operating budget has implications for a number of more obscure financial issues.

A. Nonresident Tuition is a charge added onto the bills of any student who does not qualify as a California resident. From Table 1 we see that that extra revenue amounts to $265 million. The rationale for this charge is given as being “in lieu of State support for the cost of education” [the Budget, page 117];  and therefore this income is credited to the state and counted as “UC General Funds”. But since it is now student fees that replace most of state funding for the UC core budget, part of this income “belongs” to Students and not just to the state.

B. Indirect Cost Recovery (ICR) is a large windfall to the University. It comes along with federal research contracts and grants in recognition of the fact that the performance of research projects funded by federal grants also incurs substantial costs to the University for overhead expenses – libraries, administration and facilities management that the specific research activities rely on. The dollar amount of this money may also be seen in the Budget document cited earlier.  It is listed in three separate parts (which may seem obscure to the uninitiated) as follows for 2009-10:

Off The Top Overhead…….. ….$117 million
UC General Funds portion……..$259 million
University Opportunity Fund ..…$211 million
   TOTAL…………………$587 million

Since this money was previously collected in recognition of state funding used to provide the institutional support for research work, the fact that student fees now supplant much of that state funding means that Student interests should now govern how a portion of this money is to be spent.

C. The Short Term Investment Pool (STIP) is a $7 billion collection of money received by many different parts of the University that is not needed for immediate expenditure. The Treasurer is able to invest this large pool of money and earn a higher rate of interest than if the individual funds were just put in some bank accounts.  The recent rate of return has been a bit over 3% per year, while the last reported ten-year average rate was 4.63% per year. This interest is generally given back to the parties that provided the original cash: hospital revenues to the Medical Center Directors, research contract and grant funds to the faculty Principal Investigators, etc. So, now we should ask about the Student Fees – that $2.5 billion collected by UC this year. Who gets to use the interest on that part of the STIP?  It seems to me that the Student Representative has a legitimate claim on the allocation of that money.

D. University Debt Capacity. In recent years The Regents have reorganized the way in which they seek external funding (through bonds, loans and other means of borrowing). Instead of each project being financed on its own merits, a large General Revenue base has been defined as a way to achieve better credit ratings and thereby lower interest charges. A major component of this General Revenue base is the University’s steady stream of income from Student Fees.  This fact suggests that Student interests should thus have a say in the authorization of any such external financing plans (since it is Student Fee money that is being put up as collateral for the bonds or loans); and, additionally, Student interests should share in the allocation of any savings that the University realizes from such debt restructuring as has been recently reported.

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     In general one should ask, Where does Student Fee money actually get spent? My continuing studies lead to the opinion that much better accountability and transparency is needed on this topic.