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	©2004 The Regents of the University of California

VOL. 24. NO.1 AUGUST 12, 2003

New day dawning for financing of UC

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

Historically, University of California costs to students have been among the lowest charged at U.S. research universities. Indeed, UC has tried to avoid the word “tuition” in describing its charges. The simple reason is that the UC regents have been reluctant to exercise their constitutional autonomy and raise tuition/fees as other universities have done. Now the fiscal problems of the State of California — coupled with the state’s political turmoil — are bringing about a profound change. As the state is forced to reduce expenditures drastically, it is going to be reducing its financial support for UC. UC is already being told to make up the resulting budget shortfall by raising tuition/fees.

When tuition/fees are rising, assuring access to qualified students who do not have sufficient financial means is critical. For that reason, UC as a public university must reaffirm its commitment to continue its access policy.

Such a pledge can be credible, since UC has a long-standing enviable record in assuring access, a record which, unfortunately, in the past has not been sufficiently brought to the attention of Californians.

It will be important for the university to reach a reasonably binding agreement with the state about its policy for funding UC, even if such funding must be at a lower level. Funding needs to be predictable and stabilized; cuts should not be excessive even during recessions. Reaching a binding agreement is obviously complicated by the fact that the governor and legislators rotate out after no more than six to eight years. A promising approach is to elicit from the state’s power centers a compassionate commitment to implement the agreement. The University of Michigan successfully pursued such an approach by enlisting the help of that state’s major industries and labor unions.

California needs to build up a significant rainy-day fund for its General Fund budget to avoid future fiscal crises. Between 1998 and 2001, average reserve funds of the 50 states were about 10% of expenditures, and even that level proved inadequate in the downturn. UC might also build a reserve fund. Such an undertaking becomes especially important during hard times. Even under the best of circumstances, there is likely to be a delay between the time state funding reductions are enacted and when higher tuition/fees become available to the university. A long-term budget agreement with the state could also protect UC’s autonomy. For example, it could assure that as long as UC meets reasonable budget and enrollment objectives — along the lines of the Master Plan for Higher Education — the state would not interfere with the university’s operation.

The year 2003 will be a watershed in the funding of the University of California as it is asked by the state to make up its reduced funding by raising tuition/fees. In determining increases in tuition/fees, the regents’ compass must be directed toward competitiveness and excellence, fairness and access, as well as toward assuring a sufficient budget.

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.