Californians can be proud to have built the world’s finest public research university. Today, however, the University of California is at a crossroads and its preeminence and ability to compete with the best private institutions are at risk.
This has happened before. The end of the Cold War, for example, had a devastating effect on California’s defense industry, the state’s finances and, as a consequence, the UC. Then the UC was able to hold the damage to a minimum. But this time, because of the depth and expected long duration of the financial crisis, major systemic changes might be in order. Without such changes, the UC’s academic primacy could be damaged at a time it must accommodate the dramatic influx of students anticipated in what has been dubbed Tidal Wave II.
The UC, like other research universities, receives funding for its teaching and research from four major revenue sources — federal grants and contracts, private grants and gifts, state funding and fees and tuition. While the UC has little control over the first three sources, it can exercise control over fees as part of a strategy to enhance its resources to better maintain and elevate its world-class status. Ensuring the UC’s place as a top-echelon university, with UCLA among the best of the best, is critical because our public institutions are essential to the vitality of the state in so many ways — as educators of the next generations of scientists, engineers, policymakers and business leaders; as catalysts of new knowledge and innovation in such critical areas as biotechnology, health care and telecommunications; and as engines that have driven and sustained California’s economy.
The overall level of support from federal, philanthropic and state resources has undergone a dramatic decline in recent years. Excluding the national laboratories and medical centers, support from federal grants and contracts has dipped as a percentage of the UC’s budget from a high of 26 percent in 1969–’70 to 17 percent today, and will likely drop further as the U.S. budget heads toward an annual deficit expected to exceed $300 billion over the next several years. While UCLA has enjoyed record levels of philanthropic giving in recent years, private gifts and endowments to the UC overall have been hit hard by the stock market decline as many foundations, as well as private and corporate sources, have, as a consequence, reduced their grants to universities.
And the state is suffering from its most serious financial crisis in recent history. Among 33 states that, according to the National Conference of State Legislatures, are currently running a combined deficit of at least $26 billion, California is in the lead with a budget gap of $8.5 billion, and the state’s shortfall for the 18 months between January 1, 2003, to June 30, 2004, is expected to hit roughly $34 billion unless expenditures are cut and/or taxes are raised. For the UC, this means dramatic decreases in state funding — the level of state support in 2002–’03 was down 5.3 percent from the preceding year and the governor’s proposed 2003–’04 budget reduces it a further 4.4 percent, $299 million. While the state’s financial support stands at about $3 billion for 2003–’04, that is $1 billion less than what was anticipated under current partnership agreements that guarantee a minimum level of funding.
The UC can do nothing about the federal deficit, the stock market or the state’s economy. Fees, on the other hand, may be a different matter and it could be useful in this economic environment to look at what some other institutions have done when faced with similar circumstances.
Today, resident undergraduate fees for the UC are $4,408 (including health insurance and other services). Compare that with other systems such as the University of Michigan, $7,960, or the University of Illinois, $6,704. (The average for comparable institutions is $6,590. Private universities, such as Stanford, Yale and Harvard, charge $27,204, $27,130 and $24,630, respectively.) UC fees account for a relatively small proportion of the system’s budget, just slightly more than 11 percent, down from 20 percent in 1949–’50.
Both the University of Michigan (UM) and the University of Virginia (UVA) have adopted innovative policies to increase fees and tuition to enhance their available resources. UM is effectively exercising its constitutional autonomy to determine its fees, and is charging nonresidents at a level that is comparable to that of competing private schools. For resident undergraduates, it has implemented a high fee/high financial aid policy. At Virginia, professional schools capable of raising their own funding have been given the independence to do so.
Michigan’s situation is the most analogous to that of the UC; both California and Michigan have constitutions that award their public universities complete autonomy and independence.
Under Michigan’s constitution, the university has autonomy over anything affecting academic affairs, including tuition and fees. In practice, this means that while the state can decide how much to appropriate to the university, it can neither tell it how to spend those funds nor can it control other sources of revenue. It is a position that UM has vigorously defended in the courts.
In a recent letter, UM President Emeritus James J. Duderstadt summarized the university’s stance: “UM’s vigorous assertion and defense of its constitutional autonomy, occasionally through litigation, has established and protected its ability to control issues such as tuition levels, in-state/out-of-state enrollments, indirect cost recovery and such. Many governors and legislatures have challenged this autonomy … we are ‘jawboned’ at times to limit tuition increases or reduce out-of-state enrollments, but we have consistently maintained that this is a regental decision, not a state government issue. We have challenged any attempts to link either operating appropriations or capital outlay to such actions and have been successful in the courts. … We have never taken any action which might later be used as a precedent in challenging our constitutional autonomy.”
To meet its responsibility as Michigan’s public university, UM offers resident students generous financial aid, thereby assuring access. It seeks through a combination of grants and loans to meet the full demonstrated financial need of any Michigan resident enrolling in undergraduate programs. In fact, roughly half of Michigan resident students receive some form of financial aid and pay no tuition.
Nonresidents pay at a much higher level. UM admits a high proportion of nonresident students — about 50 percent — and charges them tuition comparable to that of private institutions, $12,197 for undergraduates and $24,517 for graduates. UM’s tuition policy contributes significantly to its income; tuition revenue exceeds $600 million, with about two-thirds paid by nonresidents and students enrolled in professional schools. The portion paid by nonresidents and professional-school students alone exceeds the total of $360 million that UM receives from the state.
The University of Virginia has taken a different approach. State funding for the university has declined 30 percent in the last decade; in 2001–’02 it accounted for just 20 percent of UVA’s budget. In response, UVA’s board decided to spin off professional schools, which appear to have the ability to be self-supporting. The business school and, to a lesser extent, the law school have moved toward self-sufficiency. By charging high tuition and by offering high-priced executive-training programs, the business school appears able to successfully fund its operating budget. And by independently raising $77 million in gifts, it has funded construction of its own nine-building campus. At the same time, the business school pays UVA a franchise tax of 10 percent of its income.
What options, then, might the UC consider to help in its mission to maintain excellence, accommodate increased enrollment, stay affordable and provide access to all qualified Californians? Meeting these goals will require more adequate and stable funding. Michigan can perhaps be an illustrative model of what could be done to establish a more stable funding platform for the university.
Like Michigan, California’s constitution guarantees its public universities a high level of autonomy: “The University of California shall constitute a public trust … with full organization and government … and be entirely independent of all political or sectarian influence in the administration of its affairs.’’ And the regents have for decades set fees as deemed warranted, raising them from $25 in the 1920s to $4,408 today. To raise them to levels commensurate with what Michigan has done, one must acknowledge, would require political will. And any such discussion likely would occur within a broad context that includes other critical issues such as the preservation of the university’s historical commitment to access and ensuring appropriate levels of financial aid for qualified resident undergraduates, and with the clear understanding that it would not be done as a way to offset reductions in state support but, rather, as an enhancement to that support.
Other issues also might have to be addressed to establish a more stable funding platform for the university. But with today’s disturbing financial outlook, it might be a propitious moment for the UC to explore some long-term solutions toward assuring its continuing academic preeminence and service to the people of California.
