UCLA Today: Tough times require serious strategy

BY WERNER Z. HIRSCH and DANIEL J.B. MITCHELL

News about the state’s budget deficit raises fear in the minds of many for the University of California. The state is UC’s most important funding source. Excluding the National Labs and the hospitals, the state provided 36.4% of the UC budget in 2001-02. Much of this funding was unrestricted. The federal government, student fees, and private grants and contracts accounted for 16.2%, 10.4% and 7.5%, respectively.

The state budget problem is structural. Its causes are many, including the steady pressure to increase expenditures on education, health and welfare services driven by demographic trends. Taxes paid on capital gains covered 22% of the General Fund in 2000-01, but will be down substantially for years to come. Unfortunately, California overspent in the late 1990s, rather than building up a sufficient rainy-day fund. The Legislative Analyst sees deficits continuing for as long as five years.

Funding by the federal government, whose surplus has been replaced by annual deficits, is also at risk as are private contracts, grants and gifts. The stock market’s decline is reducing the va1ue of foundations’ and donors’ assets. Finally, a student fee of about $4,000 a year has not been raised because of legis1ators’ objections.

If UC is to remain the greatest public university and not fall behind private ones, its administrators must develop both short- and long-term contingency plans. The Legislature has adopted a budget for the current fiscal year that may well have to be re-opened in midstream if continuing revenue shortfalls occur. As in the early 1990s, when a recession caused state budgetary problems, early retirement plans and similar measures may be needed. However, such remedies — although cost-reducing — do not constitute a long-term strategic plan.

We cannot here provide a strategic plan for UC. However, on the expenditure side, efficiency might be raised by having the general campuses and the new 10th campus become more specialized, as UC Davis and UC Riverside once were. Graduate programs with relatively few students might be consolidated into perhaps one department in the north and another in the south. Campuses might be encouraged to develop an undergraduate transfer policy that would increase student/faculty ratios in low-ratio departments.

UC might undertake a concerted effort to provide legislators and taxpayers with evidence of the important contributions it makes to California. At one time, UC counted on friends in the Legislature for support. But thanks to term limits, UC can no longer count on long-term relationships with legislators. Governors cannot be expected to divert scarce revenues to UC when other needs are pressing.

If the state cannot provide necessary support, UC might consider a change in its status: going from a public university to a quasi-public, autonomous university along the lines of the University of Michigan. Both UC and the University of Michigan have constitutional independence. Under the Michigan model, UC would obtain permission to set fees more freely in exchange for accepting a long-term lowering of state funding. It would retain responsibility for funding all qualified California applicants seeking admission.

Hirsch is professor emeritus of economics and Mitchell is Ho-su Wu Professor in The Anderson School and the School of Public Policy and Social Research.