UC System Tuition Hikes: Avoidable through better Fiscal Management

Daily Signal

From: Daily Signal

As a student at UCLA, I have witnessed the recent protests over the possible implementation of tuition hikes. And while I agree wholeheartedly with the sentiment of the protesters, I think that the anger needs to be reinforced with tangible alternatives for the UC and the state government to consider. And so, I would like to present a brief overview of some policies the UC and state government could implement to avoid tuition hikes.

The Regents’ Policy Announcement

On November 19th, the Regents of the University of California voted to phase in tuition hikes up to 5% per year for the next 5 years. The tuition hikes could technically be reduced or even eliminated if more state funding is allocated. The Regents have framed the issue as placing them in a bind, where they have to choose between tuition hikes or compromising the universities core mission.

With the added money, the Regents propose to keep class sizes low and to use half of the money for financial aid. So while I sympathize with the accessibility argument pushed by many protesters, the rise in financial aid and the already existing aid for those making under a certain threshold means that those who will be hard pressed by such a tuition increase are middle income students.

Savings and Fiscal Analysis

The UC has estimated that the fee increase will raise about $459 million in additional funds over the five years. This averages out to about $92 million per year.

This averages out to about $92 million per year.

This is an immense amount of money, and it is worthwhile to examine what it is going to fund. Like any service based industry, education costs are largely driven by employment costs. The largest growth in employment at the UC has been within the administration, not faculty. And the growth is immense. Since 1991, the number of management jobs has exploded by 220%, compared to only 47% job growth on average. According to Charles Schwarz, a professor at UC Berkeley, this equates to 4,647 jobs in excess of growth of other employees. And the 4,647 are excess, because management jobs should not grow at a higher rate than the jobs which are managed. The cost of this excess when the $120,000 management salary average is used, is $560 million annually.

The cost of management excess is $560 million.

On top of this ballooning of management at all levels, the UC also has many overpaid top executives. President Napolitano proceeded with a plan to raise Chancellor salaries just a few months ago. These increases were ostensibly enacted to fix the awkward payscales, where some newer chancellors were making more than senior counterparts. This is in light of the fact that the highest paid Chancellor,UCSF’s Sam Hawgood makes nearly $750,000 a year. Protestors are right to question why a UC Chancellor earns almost double the salary of the President of the United States.

In addition, UCLA specifically has begun using the hiring of top executives as a way to address campus issues. Last year, Chancellor Block announced the creation of a “Vice Chancellor for Equity, Diversity, and Inclusion” in order to advance the schools “full commitments” to diversity. Not only is this a foolhardy way to handle situations, it is also an expensive, taxpayer funded way to fix problems. Such Vice Chancellors quite often make over $200,000 in salary. They also can have offices with operating expenses ranging up to a $1 million per year. Given that such offices will eventually exist across most campuses, Californians are left with up to $10 million annual bill.

Finally, there is the general cost explosion of the UC’s pension obligations. Cited explicitly by President Napolitano as a reason for the hikes, there is no doubt that they are the single largest statewide and university wide solvency issue. As it stands, the UC will pays out $1.2 billion to the pension fund this year alone.  This payout dwarfs all the numbers formerly mentioned, and for good reason. The necessary large payouts come from gross mismanagement of the fund and a complete lack of contributions for over two decades.

The UC currently pays out $1.2 billion to service its pension liabilities.

The sticking point here, is that the pension system could be fixed with a simple switch from a defined benefit to a defined contribution system, similar to the systems over 80% of private sector employees use. Such a system would require employees to accept some of the investment risks of their pension, and would move away from the university guaranteeing a pension payout that the economic situation cannot support.

If the Governor, in cooperation with the University and legislature undertook meaningful pension reform, it would decrease university costs and increase the state debt rating.

There is finally the stipulation that extra funding could be covered by reallocation of state funds. Protesters are again right to be angry that the state has declined in contributing to the operation of the University. But their anger should be directed towards what California has instead used its money for. Projects like the High Speed Rail Line, mismanaged prison systems, and other costs all suck up resources that could otherwise go towards the UC. Additionally, failing tax and regulatory policy pushes tax receipts out of the state, netting the state less tax revenue.

Before I end this article, I would like to put some perspective behind this fee increase. Here is a chart showing all the possible savings that could be used not only to stop a tuition increase, but create tuition roll back:

UNIVERSITY OF CALIFORNIA: SAVINGS FROM WASTE
Source of Savings Fix: Annual Savings Estimates Savings as a Percent of Tuition Increase Revenue Generation Possible tuition Rollback Amount**
Unfunded Pension Liability Payouts Defined Contribution, increased retirement age 600,000,000* 652.17% Not included, but potentially hundreds of millions
Unnecessary Management Growth Management Cuts, Hiring Freezes $560,000,000 608.70% $3,111.11
Diversity Vice Chancellor Positions Remove the Diversity Vice Chancellor Offices $10,000,000 10.87% $55.56
Luxurious Chancellor Pay $100,000 Paycut $1,000,000 1.09% $5.56
Total: $1,171,000,000 1272.83% $2,660.89
*This is a very rough estimate based on the assumption of completely switching plans, even for current employees. It is half current pension payouts.
**Rollback estimate based on current undergraduate population of 180,000. An annual revenue generation of $92 million from the tuition rise of 5% annually is subtracted from the total.

As I have shown, even if I do not include pension savings in the analysis, management changes alone could save enough money to prevent the tuition increase six times over. The takeaway from this data is that not only can the Regents mitigate the tuition hikes, they can also rollback tuition with necessary reform. Students should understand the full fiscal situation, so they can present meaningful solutions. Regents should understand that their are other options.

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