About two weeks ago I attended a presentation by UCI's Paul Merage Business School Dean, Andy Policano. The focus of the presentation was the dire financial straits of the California public university system. Policano has co-authored a book (called Public No More) on the subject of tuition policy in public universities and he recently presented his points of view to UCI's B-school students. His economic analysis - and even his suggestions for radically changing the system - are compelling and it is difficult to find fault with his ideas. However, the "devil is in the details" of implementation and, after listening to the 1-hour pitch, it appears to me that he's about to grab several political "third rails" in proposing demolition of the current funding system. I asked him a question about that during the presentation and it sounds as if he is realistic about the political obstacles; but he is passionate about his subject and seemingly willing to take this on to its logical conclusion (even if that's in the wastebin of "good ideas killed by the System").
First, though, are the facts and they are interesting:
- In the 1950's, the State of California provided 50-60% of the funding for its public universities. Fifty years later, with the State budget consumed by increasing costs in its prison system, elementary education and welfare program, that amount is less than 20%.
- While Policano claims that the cost (inflation-adjusted) of a college education in the US has dropped, the percentage of that cost has shifted from the State to the student: student's share of cost has risen from 25% in 1984 to 37% in 2009.
- Notwithstanding the much-reduced financial stake, state legislators still want to lay claim to the idea that the state provides inexpensive higher education to its in-state students believing that to be advocating for "access" to public education for all. A highly political organization itself, the California Board of Regents (the entity that sets tuition policy) has artificially set tuition at a level that is below what the market would bear.
- From my micro-econ class, I know that the State's reduced subsidy should cause an increase in tuition and a decrease in the number of students at this higher price. However, the political mandate that tuition be kept low keeps demand high at the artificially-set low price. While we do hear about increases in tuition, they have nowhere near reached a market-rate level.
- This results in universities looking to fill the extra demand with out-of-state students who pay much higher fees. This creates the ironic situation whereby applying the artificial cost cap has the opposite effect of increasing access as colleges seek more out-of-state students making classroom seats less accessible for the in-state students they were purportedly built to serve. Further irony: if the in-state student wanted to pay the out-of-state tuition to make him/herself more attractive to the school, they would be told that they could not voluntarily pay the increased tuition. So, if students with identical high school records applied to Berkeley, one from CA and one from NV, the one from NV would be more likely to get in based on ability to pay higher fees.
Policano's solution? Equalize tuition for in-state and out-of-state residents. This would entail an increase in the yearly in-state tuition from today's average of about $11K to $22K/yr. He proposes this to burn in over a 5-yr period. He claims that this wouldn't reduce access for those in lower income brackets as households with family income less than $70K would go to school for free (this would be where the state's subsidy would be applied).
The Dean states that the UC President is trying, in vain, to get the State to agree to return to its subsidy levels of yore. Policano says that's a fool's errand (my words not his). The State isn't going to be able to find money to re-instate its subsidy even if it wanted to. UCI's business school this year received only 3% of its funding from the State and next year he expects that number to be 0%.
Other next steps advocated by Policano are that universities need to evaluate their programs like a business and prune those that are not high-quality programs and/or "net revenue positive". They also need to streamline their processes so that they can be more market-reactive.
Here's the rub: In order for Policano's system to work the older UC schools (e.g., Berkeley), that are currently the beneficiaries of an unbalanced UC financing system wherein they get a disproportionate share of the funding proceeds, would have to agree to a new system where everything is more "fair" but they get less funding. One thing I learned from my OB class this quarter is that people will go along with an unfair system as long as the result for them is beneficial. What is going to compel these old-guard schools to allow the system to change isn't clear.
I like the way Policano thinks - more accountability; schools thinking more like businesses - but I don't envy his chosen task of trying to tear down and re-construct the UC funding system. Good luck, Dean Policano. I'm rooting for you!
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