Regents discuss UC’s financial outlook and implications on future tuition increases

Related Posts

SAN FRANCISCO — UC Board of Regents sifted through recent developments in California’s 2014-15 budget process Wednesday in its meeting at the UCSF Mission Bay campus, raising concerns among students, regents and others about the university’s immediate and long-term financial outlook, which could have major impacts on student tuition and fees.

Recent months have seen the release of Gov. Jerry Brown’s preliminary budget proposal in January and a February report from the nonpartisan Legislative Analyst’s Office that largely rejected his higher education funding strategy — both of which differ significantly from the 2014-15 UC budget passed in November. Now, UC President Janet Napolitano, the regents and others are grappling with the looming funding questions facing the UC system as they plan not only for the university’s yearly budgetary responsibilities but also for its long-term financial future.

While the governor’s preliminary budget increases funding for the university by about $142 million and freezes tuition for the 2014-15 academic year, it fails to meet the regents’ November request for an additional $120.9 million in state support for pension and enrollment-growth funding. The LAO recommendation — which would return the university to a “workload”-based budget — increases total UC funding to $186 million but relies on $78 million in tuition increases that would hike student fees up 3.8 percent.

Patrick Lenz, the university’s vice president of budget and capital resources, emphasized at the meeting that the state has failed to fund growth in student enrollment and other variable costs at the university since the financial crisis rocked California off its financial footing in about the last six years. About 7,500 UC students are unaccounted for in state enrollment funding, according to Nathan Brostrom, the university’s executive vice president for business operations.

Still, negotiations with state legislators and the governor are ongoing, and a potential shortfall in the UC system’s discretionary budget — even if it goes unresolved — would amount to only a fraction of the university’s largest liability: its pension system. The UC Retirement Plan, which is currently unfunded by the state, and other pension benefits represent billions in unfunded liabilities and remain a serious burden on the university as it seeks a sustainable model for predictable tuition increases over time and reliable funding for faculty, staff and capital projects.

Finding a state that is financially steady in the long-term will be difficult if pension shortcomings go unaddressed in coming years, and increased student tuition could become a necessary source of new revenue if plans aren’t made to accommodate mandatory costs, Brostrom said at the meeting. The potential for future tuition increases drew the attention of Student Regent Cinthia Flores.
“We need to be honest, at the very minimum, with the students,” Flores said at the meeting. “If we don’t get more funding, we’re going to have cost increases.”

Regent Hadi Makarechian latched onto that reality of the UC system’s financial outlook at the meeting, urging regents to examine the budget beyond year-to-year cash flows and to acknowledge that tuition increases will be necessary in the future if the university’s debt obligations go unaddressed.

“We have to really focus on this thing. We cannot just borrow, borrow, borrow money,” Makarechian said at the meeting. “I’m not for tuition increases either — nobody is. But the operational dollars have to come from some place.”

Napolitano, who has pushed for a long-term tuition model and a solution to fill what has been called the “pension hole,” acknowledged the importance of addressing financial fundamentals emphasized by Makarechian and others when she spoke to The Daily Californian last week.

“We will balance our budget; I’m not worried about balancing our budget. I think the question is, what do we need to maintain the tradition of excellence that UC has always had?” Napolitano said. “I think that it’s time to discuss that with the legislature — and we are.”

Connor Grubaugh covers higher education. Contact him at [email protected] and follow him on Twitter @ConnorGrubaugh.