The UC Campus Funding Imbalance

Two years ago, the UC system changed the way it distributes state funds and tuition revenue to the campuses.  In the past, all tuition dollars and state dollars were sent to the Office of the President and redistributed according to unknown formulas.  After a state audit showed that some campuses were being hurt by this process, the UC decided to let the campuses keep their own tuition dollars, and state dollars were redistributed through a method called ?rebenching? to help out the campuses that were historically underfunded.  However, the statistics below will show that the problems have only gotten worse for the underfunded campuses.

Looking at the most recent enrollment statistics, we can multiply the number of non-resident students by $26,000 to see how much extra tuition each campus will generate next year (each non-resident student pays an additional $23,000, and they do not receive tuition discounts, which average 30% for in-state students).  For each campus, I have listed the number of non-resident students, the additional tuition dollars non-resident students generate, the amount of funds each campus will get this year through rebenching, the combination of additional non-resident tuition dollars and rebenching funds, and the amount the state auditor said each campus was overfunded or underfunded in 2009-10 before the change to the new system (Merced and UCSF are excluded for historical reasons):

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In most cases, the new system is making things much worse for the campuses that have been historically underfunded.   In fact, the auditor only looked at one year of imbalances, and if she had taken into account all of the state funds, the imbalance would have been much worse. 

One way of interpreting this data is combine all of the numbers to get a general sense of the funding distribution before and after the non-resident tuition gold rush.  For example, in 2009-10, if each campus received the same state and tuition dollars per student, UCSB would have received an additional $94 million dollars and UCLA would have gotten $99 million less.  To help rectify this situation, the rebenching gives UCSB close to $9 million in 2014-15 , and UCLA does not get any additional funding, but UCLA remains $184 million ahead, and this figure takes into account enrollment differences.  If we then add non-resident tuition to the mix, UCSB remains $210 million behind UCLA, and this is after years of imbalances.

It should be clear that the UC system needs to rethink its enrollment and funding model.  As the state auditor argued, the campuses that have been historically underfunded are the same campuses with the highest level of under-represented minority students.  The result is that as these students pay more for their education, they are being systematically underfunded.  UC should move to a transparent revenue sharing model for non-resident tuition. 

The Future of College Degrees and Jobs in California

The recent move to allow certain community colleges to produce bachelor degrees was in part driven by the argument that by the year 2025, the California economy will need an additional one million workers with BAs.  The research behind this claim appears to come primarily from the Public Policy Institute of California?s (PPIC) report, ?Meeting California?s Need for College Graduates.? In this study, we are told that ?Two strong forces are already at work in constraining California?s gradually increasing share of college graduates in the working population: the retirement of the large and relatively well-educated baby-boom cohort?adults born between 1946 and 1964?which will occur over the next 20 years, and demographic shifts toward groups that have historically low rates of college attendance and graduation.? The first half of the argument is a purely demographic projection of the future production of workers with bachelor degrees, and it makes the important point that we are now seeing a generation of people with a relatively high level of degree attainment replaced by a new generation, which suffers from a decrease in degree attainment. 

One of the driving forces behind this generational shift is the constant state defunding of higher education in California.  There is also a growing divide between the older, whiter workers who have college degrees and the younger, non-white workers who have been victims of several economic downturns and discriminatory educational practices.  The PPIC reports that ?In 2006, California ranked 23rd among states in its share of 25- to 34-year- olds holding at least a bachelor?s degree, down from eighth position in 1960. California colleges and universities,?both public and private, award relatively few baccalaureates, given the size of the state?s youth population: California ranked 43rd among states in the ratio of bachelor?s degrees awarded in 2006 to high school diplomas awarded five years earlier.? In what we can call the ?Fall of the Master Plan,? California has moved from being one of the most educated states to being one of the least. 

According to the PPIC, one of the results of this fall is the following: ?we project the size of the education skills gap in 2025 and identify scenarios that could help close the gap. If current trends persist, California will have one million fewer college graduates than it needs in 2025?only 35 percent of working-age adults will have a college degree in an economy that would otherwise require 41 percent of workers to have a college degree.? One big question is how do these researchers know what jobs will require workers with bachelor degrees, and here is where things get very murky.  The PPIC makes the following claim: ?Over the past 26 years, the share of college graduates in the state?s workforce has increased from 25 percent to 34 percent (Reed, 2008), but projections suggest that the state?s workforce demands will continue to increase and that 41 percent of jobs in 2025 will require a college degree.? The first thing to point out is that a college degree is here interpreted as a bachelor degree and not an associate degree, and so the entire realm of the community colleges is excluded.  The other major issue is the meaning of the phrase ?jobs that require a college degree.?

It turns out that there are two main ways of interpreting the meaning of jobs that require a college degree.  Some labor economists use this phrase to describe jobs that are currently being held with people with certain degrees and other economists use the same phrase to indicate jobs that traditionally require a particular degree.  The difference between these two interpretations is huge and plays a major role in determining our educational and employment practices and policies.

The PPIC tries to finesse these opposing definitions of jobs requiring degrees in the following way: ?For example, from 1990 to 2006, the share of workers with a college degree increased from 25 to 34 percent; our projections indicate that this trend will continue at about the same pace, so that by 2025, 41 percent of workers will need to hold a college degree if the workforce is to meet the demands of the California economy. This projected increase will occur partly as the state?s economy shifts to occupations and industries that require more highly educated workers but also as employers demand more highly educated workers within industries and occupations (Reed, 2008).? So we do not know if the need for more people with bachelor degrees is being driven by the supply of more high-skilled jobs or by the employer demand for more degrees in occupations that do not traditionally require degrees.

To answer this question, we must go to the cited source, Deborah Reed?s ?Will There Be Enough College Graduates.? The first big move that Reed makes is to distinguish between her method for defining jobs that require degrees from the Bureau of Labor Statistics: ?Our projections of demand for college-educated workers lead to very different conclusions than do estimates of employer needs derived from employer ?education and training requirements? from the Bureau of Labor Statistics (BLS). According to BLS estimates of employer education requirements by occupation, the share of college-educated workers needed in the California economy in 2025 would be only 27 percent. The two measures are conceptually different. The BLS-based approach considers whether employers need college-educated workers to staff positions. Our measure considers whether employers are choosing workers with bachelor?s degrees.?  What Reed stresses is that what matters is not which degrees are required to do the job but which degrees employers can demand.  In other words, in a buyer?s market, employers can pick and choose whom they want to hire, and they often hire people with the higher degrees.

One of the effects of this labor system is that occupations with the highest level of growth and demand for people with bachelor degrees turns out to be janitors, cleaners, carpenters, waiters, office clerks, bookkeepers, retail sales people, manufacturers, and secretaries. Reed argues that this is not a case of over-trained or over-educated workers because employers are paying more for workers with bachelor degrees, and rational employers would only do this if they knew they were getting their money?s worth.  In fact, in these occupations, which once did not require a college degree, we find that employers are willing to pay workers much more money if they have a college degree. 

What Reed does not reveal is how much of the difference in pay between workers doing the same jobs but with different degrees is due to the depression of wages for people without college degrees.  According to a Federal Reserve study, in 1980, a worker with a BA degree or higher averaged $52,000 a year (in 2008 dollars), while the same group?s average in 2008 was $56,000.  In contrast, the average worker with only a high school degree made $45,000 in 1980, and in 2008 made $32,000.  So if the college premium in 2008 was $20,000, the part due to the reduction of wages for the person without a college degree was $13,000 or 65%.  What we are seeing then on both a state and national level is that employers are able to demand degrees from workers for jobs that do not traditionally require college degrees and the effect is to increase the wages for some workers with degrees but also decrease the wages for workers without degrees.

The point here is not that we do not need to increase state funding to produce more people with college degrees; rather we have to find a way to both increase the number of good middle-class jobs as we decrease the financial cost of individuals pursuing degrees.  We also have to question the notion that degrees produce jobs, and the only reason to fund public higher education is to increase an individual?s earning power. Educational policy does not replace employment policy, and both should work together.