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Our Broke Public Universities.

Hamilton, Laura Nielsen, Kelly

Chronicle of Higher Education. 6/25/2021, Vol. 67 Issue 21, p1-8. 8p.

Article

*PUBLIC universities & colleges — Finance *UNIVERSITIES & colleges *GOVERNMENT aid to higher education *FINANCE

UNITED States

UNIVERSITY of Michigan UNIVERSITY of California (System)

611310 Colleges, Universities, and Professional Schools

The article discusses the financial issues being faced by public universities in the U.S. Topics explored include the One University Campaign launched by a coalition of students and faculty members from the three campuses of the University of Michigan, the proportion of racially marginalized and low-income students at public universities, and the state funding disparities in the University of California public research university system.

Professor of sociology, University of California, Merced

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Our Broke Public Universities 

Look beyond flagships, and you'll see that privatization has had devastating consequences for racial and social equity https://www.chronicle.com/article/our-broke-public-universities

In 2018 a coalition of faculty members and students from across the University of Michigan's three campuses launched the One University Campaign. Their goal? To redistribute system resources more evenly. Michigan's Dearborn and Flint campuses serve a disproportionately large share of marginalized students from within the state (Black and low-income students, in particular) but receive only a tiny portion of the financial resources available to the flagship Ann Arbor campus.

As a 2019 open letter from Dearborn and Flint educators and community members states, "There is a moral imperative for a public university to commit resources to its most economically and racially diverse student bodies." The letter goes on to lament that the Flint campus's College of Arts and Sciences (the branch's largest

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instructional unit) has no financial recourse but to run an ongoing deficit. "All of this has negative effects on our students, staff, and faculty," they argue.

In-state Dearborn and Flint students pay 80 percent of what they would at Ann Arbor, but the per-student state funding on these campuses is only about a quarter of Ann Arbor's per-student funding. In addition, nearly half of the Ann Arbor campus is from out of state, which brings the flagship extraordinary amounts of revenue not available to the largely in-state Dearborn and Flint campuses.

The dynamics at play in the University of Michigan are hardly unique. As a 2018 report by the Center for American Progress notes, postsecondary educational spending at public two-year and four-year universities is, on average, more than $1,000 less per year for Black and Latinx students than for their white counterparts. State systems around the country are heavily segregated, and the university branches that do the most to support historically underrepresented or racially marginalized students, particularly from low-income backgrounds, often face severe financial penalties.

The University of California system offers an ideal case to study intra-system resource distribution. In most states, regional universities make the largest contributions to equity and diversity for state residents, while flagship research universities are mostly exempt from this responsibility. The rationale for the imbalance is often that flagships are "a different type of university," with different research goals and different ways of benefiting the state. In the University of California system, however, all nine undergraduate campuses are classified as research universities, and system leadership asserts that they are equal in importance.

Furthermore, each UC campus currently receives the same amount of state funding per undergraduate student, with the important exception of Merced. Opened in 2005, the campus received more support than its sister institutions – but also took on enormous debt to build its physical campus in a huge public-private partnership. (All other UC campuses were built decades earlier, primarily with state funds.)

The issue is that, increasingly, funding disparities are not driven by the inequitable distribution of state funds for undergraduates. State contributions in California, and elsewhere, are now so low that they often make up only a small fraction of overall system revenue. Private funding has arrived in its stead, with devastating consequences for racial and social equity.

The University of California system is a widely acknowledged mobility machine. Even the most prestigious schools in the UC system enroll roughly double the percentage of students eligible for federal Pell Grant assistance as the University of Michigan at Ann Arbor. And although there is variation among UC campuses, they are generally more racially diverse than other research universities.

With escalating competition, the schools that are advantaged economically have less incentive to continue supporting those that are disadvantaged.

Still, there is no true equity in the UC system, nor in other state systems. As a high-level administrator in the UC system put it, newer and less prestigious branches are "running political cover" for the system at large. Merced and Riverside help produce favorable optics at the system level, allowing its leaders to demonstrate commitment to serving in-state, low-income, and racially marginalized students. In short, this is institutional diversity work – without sufficient financial backing. The fact that unsupported institutional diversity work is a

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problem even in the premier four-year public system in the relatively equity-minded state of California bodes ill for other public systems.

To see how this plays out in California, we first need to look at the representation of disadvantaged students across UC campuses. UC-Riverside and UC-Merced have become bulwarks of the "diversity work" its entire system purports to value. The percentage of California residents, systemwide, has declined from around 94 percent in 2010 to 83 percent today. By 2020, nearly 25 percent of enrolled students on three campuses – Berkeley, Los Angeles, and San Diego – were nonresidents. The nonresident population (not including undocumented students) is less than 1 percent at Merced, and less than 5 percent at Riverside, which helps the system meet its responsibility to the state.

The state's master plan for public postsecondary education highlights access for low-income California families via free tuition for state residents. And yet fiscal pressures have eroded this principle over time. Today, the UC system still guarantees that California residents with an annual family income of up to $80,000 will have their systemwide tuition and fees fully covered. And indeed, 35 percent of the systemwide undergraduate population in fall 2020 was composed of Pell Grant recipients.

And yet, the distribution of those students is not equitable. As of 2020, around a quarter of students at Berkeley and Los Angeles and a third at Santa Cruz, Santa Barbara, San Diego, Davis, and Irvine were Pell Grant recipients. At Riverside and Merced, in contrast, that number was 49 and 63 percent, respectively. When the system reports its overall statistics, it boasts of its systemwide average, and yet two campuses punch well above their weight in doing that work.

The system also champions demographic trends that conceal similar disparities. For instance, the 2016-17 budget for current operations reads: "Fall 1990, underrepresented minorities comprised 17.2 percent of all undergraduates, while in 2014, 29.7 percent of UC's undergraduate students were underrepresented minorities, and 38.3 percent were Asian American." This appears to be tremendous progress – but take a closer look, with more recent data:

UC-Riverside and UC-Merced are driving racial-representation goals, especially for Latinx students. In 2020, Latinx students were heavily represented at Merced and Riverside; still, they remain underrepresented in the UC, relative to the population of the state.

What do Merced and Riverside get in return? It is hard to overestimate the significance of belonging to a world- class university that maintains, at least in theory, equal commitment to and scholarly expectations for all campuses. When, in 2010, the Carnegie Commission on Higher Education sought to classify Merced as a regional liberal-arts school, Keith Alley, provost at the time, reportedly went ballistic: He wanted the research designation. Finally, in 2016, Merced received its first designation by Carnegie – as an R2. The University of California name clearly played a role here.

Merced and Riverside also benefit from the system's good credit ratings and broad cash streams, and have, at points, received substantial financial backing. This trade-off is not ideal, however, because it means that the larger system does not have to attend as intently to diversity within its individual schools. It can rely on certain campuses as a crutch. As one Riverside leader put it:

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In some ways our role on the national scene is easier than [in] the system for me . . . I think the ethos and the culture that we've created here is special and has to be nurtured. But you can also make a case for a UC that's segregated, and I don't think that's good for the state . . . That's not good for our students or for Berkeley students . . . We can do better as a system.

Why does racial and class segregation in the UC matter so much? Access to private funding streams is increasingly linked to student-body composition. And in the face of state disinvestment, these funding streams are more important than ever.

The UC, like most other state systems, has experienced dramatic reductions in state appropriations over the last several decades. Such divestment is a familiar national story. In the early 1990s, California contributed 78 percent of the total cost per student, a number that had shrunk to 37 percent by the 2015-16 academic year. Reductions did not occur gradually but instead tracked fiscal crises, and during these crises, tuition and fees would spike to partially offset state-budget cuts. Despite periods of recovery, funding never returned to prior levels. These decreases have occurred as student enrollment has sharply increased – it's up by more than 60 percent since 1990-91. Covid-19 has also exacerbated the financial situation of the UC – the system saw $300 million in budget reductions in the 2020 state budget.

Recently, the University of California got some good news: Gov. Gavin Newsom's revised 2021-22 budget proposes the largest state investment in UC's history, funded in large part by an unexpected surplus from high- income taxpayers who fared well during the pandemic.

This budget could mark a turnaround – but we're not celebrating yet. For several decades, California leadership, like state leadership everywhere, has asked its system to do more with less. This has pushed the system toward a financing model heavily reliant on private sources of funding, which often leads to increases in nonresident students. At the same time, as is the case all around the country, personnel from the private- investment sector have moved into public-system leadership positions, bringing with them corporate assumptions that clash with public-equity goals.

This trend became especially apparent in 2003, when the UC system retained Lehman Brothers. The firm recommended that the UC borrow more and place money in what one study referred to as "increasingly exotic bond financing practices" in order to boost revenue. Around this time, a top municipal finance banker for Lehman Brothers, Peter Taylor, was serving as an alumni representative on the University of California Board of Regents and a board member of the UCLA Foundation. With the financial crash, investment personnel began to move more deeply into the UC. In 2009, a new chief financial officer position was created to oversee the increased borrowing, and the regents hired Taylor, paying him $400,000 a year. (Taylor has since moved on to become president of the ECMC Foundation.) Other Wall Street executives followed, and the result was predictable: Between 2003 and 2015, the system's debt more than tripled, from around $5 billion to around $15 billion.

A common perspective, summarized by the credit-rating agency Moody's in 2012, was that the UC could leverage its "powerful student-market position" to "compensate for state-funding cuts by raising tuition dramatically" and by "growing nonresident tuition, differentiating tuition by campus or degree, and increasing online course offerings." And indeed, what followed were private-market solutions. But that came at the expense of equity goals.

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As displayed above, in 2019-20, state contributions were only around 10 percent of UC core operating funds, which provide permanent support for the mission of the university and the administrative and support services needed to carry it out. Other revenue came primarily from private sources, especially tuition and fees.

Supplemental tuition collected from out-of-state and international students is an important revenue generator. These students pay the same tuition as other UC students plus a supplement of more than two times the cost of tuition. Altogether, then, non-state-residents bring as much tuition as three or more California residents. This money largely stays on the campuses with non-state-resident enrollment. (Recall that Merced and Riverside have miniscule non-state-resident populations.)

Other revenue sources help diversify the funding stream. For instance, sales and services revenue include funds from bookstores, clinics, campus catering, on-campus food markets, and research extension activities. Research grants, which fall under both government and private support in the pie chart, often include IDR, or indirect cost recovery. On a $3-million grant with 50 percent IDR, a university takes $1 million in IDR, minus costs to support the research. In fields requiring large laboratories and expensive equipment, IDR often fails to cover costs. But in other fields IDR itself can be a boon for the university. In all these streams, there is much greater potential for revenue at higher-status campuses.

Crucially, other UC campuses, located in wealthier communities and with more affluent student bodies, have also ramped up their donations (listed above as part of private support). A system official explained: "Our larger campuses generally have more flexible dollars because they've been established longer [and] they have philanthropy. UCLA is a great example of that." In contrast, despite some donors who are drawn to the unique racial and class composition of the student bodies at Merced and Riverside, the official explained that both schools have "a limited pipeline for multimillion-dollar gifts."

In 2013, UCLA and UC-San Diego both started campaigns. By June 30, 2018, UCLA had raised well over $4 billion and UC-San Diego over $1.5 billion. In contrast, Riverside's Living the Promise Campaign, which began in 2011, had only raised around $200 million by the same date.

The endowment assets of UCM and UCR are among the lowest in the system. Because these schools serve more students from economically disadvantaged families, legions of millionaire alumni are not lining up to make tax-subsidized gifts. At the end of the 2019-20 fiscal year, the per-undergraduate-student endowment at Merced (at $6,806) was roughly one twenty-fifth of the amount at UCLA and one twenty-second the amount at UC-Berkeley.

The uneven distribution of racially and economically marginalized students would be less problematic if private resources were dispersed more equally across the system. Given the higher cost of educating disadvantaged students, though, this would still result in disparities between campuses. Even more ideal is a scenario in which campuses also receive greater state funding for students that have greater need and less funding for students that have less need. Under such conditions, majority-Latinx and majority-Pell campuses would receive the most funding. This seems a distant hope, given how things work now.

Coordination combined with contestation is a basic feature of the state-system model. And yet too much contestation, or too little coordination, upsets the balance. And so it is in California, as campuses within the system are forced to compete for a limited local supply of private funding. With escalating competition, the

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schools that are advantaged in economic markets have less incentive to continue supporting those that are disadvantaged.

In the UC system, this came to a head in 2009 when Andrew Scull, then chair of the department of sociology at UC-San Diego, sent an angry letter to University of California leadership (it was signed by 22 other department heads at UCSD). Coming on the heels of an announced budget cut, the letter pleaded with leadership:

We suggest . . . that in discussions systemwide, you drop the pretence that all campuses are equal, and argue for a selective reallocation of funds to preserve excellence, not the current disastrous blunderbuss policy of even, across the board cuts. Or, if that is too hard, we suggest what ought to be done is to shut one or more of these campuses down, in whole or in part. . . Corporations faced with similar problems eliminate or sell off their least profitable, least promising divisions . . . It is simply not the case that all campus entities are of equal value to our goals.

This letter sought to establish reputation, major grants, and entrepreneurial success as primary factors of value, and proposed that the UC distribute resources in ways that cut out the schools doing the most institutional diversity work for the system.

The UC Academic Council, which advises the UC president on behalf of the systemwide academic senate, responded in a memo vociferously opposing the letter, arguing that "each of our individual campuses is enriched and strengthened by its membership in the whole." Still, the fact that the opposite sentiment coalesced so strongly on at least one UC campus, resulting in an explosive missive that required an official system response, is remarkable.

The ultimate form of resource concentration is the disbanding of a state system. In 2015, the Oregon University System ceased to exist. In recent years, Illinois, Michigan, Virginia, and Wisconsin have, to varying degrees, entertained conversations about fully privatizing state flagships. These proposals are often backed by the idea that universities outside of a public system will have greater success at drawing alumni and philanthropic contributions and may lobby more effectively around their own interests.

Tiny cracks in the UC system are emerging as well. Virtually all programs in UCLA's Anderson School of Management became privately funded in 2014, when the MBA program converted from state-supported to self- supported. And because of the inequality in access to private funding, it is not an overstatement to say that any "unbundling" of the UC system would decimate Merced and Riverside. The existence of research universities that serve disadvantaged students depends, in part, on system support, protection, and resource redistribution.

The gradual state disinvestment in higher education concentrates resources at the most advantaged universities and thus among the most privileged students. Yet, public institutions should serve all of their public. More, not less, state and federal support is needed to give students from economically and racially marginalized families – and the universities that serve them – a fighting chance.

This article is adapted from Broke: The Racial Consequences of Underfunding Public Universities (The University of Chicago Press).

Correction (June 8, 2021, 5:50 p.m.): This article originally said that on a $3-million grant with 50 percent IDR, a university takes $1.5 million in IDR, minus costs to support the research. A university would actually take $1 million in IDR. This article has been updated.

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~~~~~~~~ By Laura Hamilton, is a professor of sociology at the University of California at Merced. She is co-author of Paying for the Party: How College Maintains Inequality (Harvard University Press). and Kelly Nielsen, is a senior research analyst in the Center for Research and Evaluation at UC San Diego Extension.

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