Pushing a New Measure of UC Budgets in Sacramento

Pushing a New Measure of UC Budgets in Sacramento via Remaking the University by Chris Newfield on 11/25/09

UCOP's budget request for 2010-11 was good (see the summary).  It goes looking for a big bounce - from down over $800 million this year, to in principle up over $900 million next year. It's a restoration budget, and is an improvement in tactics after years of being limited to 3% increases by UCOP's timid interpretation of the Compact such that it failed to use the mid-decade boom to get out of the hole dug by the previous bust of 2002-05.

We've analyzed the budget on this blog quite a bit: a July 11 headnote provides some background and links, and references a post that estimates the funding crash under a scenario called Extreme Arnold.  That post summarizes six scenarios for the UC budget and offers an overview of what's happened to our state funding.

The chart there was an update of those of the Futures Report (2007) (or see the slides) and the Cuts Report (2008).  Now my Futures Report co-author Henning Bohn, an economics professor at UCSB, has also updated the budget data. It's a draft, he reminds me, but it is nicely convergent with the updates noted above. Henning also updates the calculation of state personal income, so that "benchmark" line is better.

First, there's the brown line that shows that actual state funding is below the worst case scenario imagined in 2007 - a "public funding freeze" otherwise known as privatization - (the scenarios are summarized here).

The governor and legislature's appropriate for 2009-10 is literally falling off the chart.  The brown dot is UCOP's 2010-11 target.  Note that it is still below the level funding guaranteed by the Compact with the governor - the one he unilaterally abrogated.

Now comes the interesting part.  When people ask why UC got whacked beyond anything seen in higher education in three generations, the answer is always the same: Sacramento has no money.  If you think about money in terms of Sacto's insane budget brokering - which produces fake closures and infinite mystery holes not seen in nature - then there is money for nothing, and the state can do nothing, and we are all being sucked slowly into the budgetary version of Poe's maestrom until we are a state of certified morons - because there is just no money.

Here's where another of Henning's charts comes in handy:

State personal income: that's how much money we actually have. This inspired, illuminating chart compares UC's general fund to the state's actual personal income.  When state funding goes down because state income goes down - because the economy tanks, people lose their houses and jobs - then the ratio between the two stays the same, and the line is flat.  When people get poor, but greedy government services continue to suck their blood, then we have an upsloping line - the university would be taking more of a share of people's money than before.  We see a Benchmark that would indicate where UC's budget would be were its General Fund to have remained the same share of state personal income as it had in 2001.  Then we see three phases:

1.  a 5 -year decline in UC's allocation as a share of state personal income - the money people actually do have to spend on various things - prisons, cars, big screens, hootche-kootche, education.   2001's 0.28%  personal income for the greatest public university in the world was already pretty darn low, and lower than it had been in the past. But it went down and down until 2005-6.
2. 2005-2008 -the Compact allowed 3% annual increases, less than half that of other state agencies (see Cuts).  This kept UC funding exactly flat in relation to state personal income - each went up between 3 and 4% a year, hand in hand.  But there was no recovery to the 2001 norm.
   
3. 2008-10: the 25% GF cut.  UC's budget dropped  not just in absolute terms, but as a share of state personal income.

This means that UC didn't get poor because the state's people got poor.  UC got poor because Sacto  skimmed a piece of UC's traditional share of the state's wealth. Sacto took a slice, and UC got poor.  It got poor because Sacto took out UC's earned money even though UC was as a worthy, stable provider of state services for a deservedly stable share of state income.

Here at UC, we not trying to do anything fancy this year.  We're not talking about improving UC. We're not talking about innovation. So here are two unfancy strategies with Sacto, performed I hope by some not very fancy people.

1. establish a historical baseline share of state personal income.  Henning has already provided this. UCOP should adopt it.  It will go up and down with the state, but not off a cliff as it is now doing with the state standing there giving a push.

2. detail the multi-year financial objectives that this baseline translates into - e.g. what GF we need in 2013, given an expected number of students and rate of inflation. It will be a compact with the students and state alike, will allow future planning. The measure would be flexible in a downturn, giving the taxpayers a break . It would also encourage UC to detail what they are going to do with the money.

It's simple. It's easy.  Do it!!!