The FAQcts About the Larger Economic and Social Issues Connected to the UC Budget Crisis

by David Hubbert

With all that is being said about the University of California's budget crisis these days, it's easy to develop a single-issue oriented view of the problem. For example: the issue for the students is not the furloughs, and the issue for the workers is not the tuition fee increase. The unions blame the UC Regents, the Regents blame the state, and the state legislature is a virtual crossfire of finger pointing. To gain some perspective of the contributing factors and prevailing attitudes surrounding this emotionally-charged financial fiasco, I have compiled a FAQ to help students better understand the larger picture. Many of the questions in this FAQ come from students here at UCI.

What are some of the core issues of the University of California's current budget crisis?

One of the fundamental problems with the overall California budget and that of the UC budget is that the state has a highly progressive income tax and has one of the highest marginal tax rates (tax increases by bracket) in the country. This means when the economy is booming, people experience an increase in income levels and the state revenues go up disproportionately to the growth in the economy. When this is reversed during a period of economic decline or recession, state revenues also decrease faster than the economy slows.

But, doesn't the progressive tax structure ensure adequate revenue redistribution to protect those who are hardest hit by the recession?

Many people think that our progressive income taxation is a wonderful thing because the wealthy supplement the poor and everyone gets by, even in a lean economy, but it makes for instability in state revenues. In a recession, not only does the state's income go down in terms of marginal tax rates, but in tough times people try to guard against high marginal tax rates by moving out of state. High tax rates paired with decreased personal income is a good incentive for California's millionaire tax cash-cows to head to more forgiving states, such as Nevada, which has no state income tax. This further exacerbates the problem of decreased state revenue during a recession.

What other factors, besides tax rates, have contributed to the state's current economic crisis?

In booming economic times, we tend to increase public services and programs as if the good times will never end. The problem with this pattern of behavior is two-fold. Firstly, market economies move in cycles, the two major cycles being boom and recession. Therefore, it is inevitable that the economy (and consequently state revenue) will decline. Secondly, an increase in public services and programs creates jobs and scaling back during a recession means layoffs and furloughs, which only hurt the economy more.

So then, why does it seem to take everyone by surprise when we enter a recession and revenues decrease?

Because we are one of four states that doesn't have a budget reserve. A budget reserve is important for the reason you think it is: it's something you can go to when in fact your revenues have decreased. This fact is even more disconcerting in light of the tax structure that provides so much potential for instability.

How does all of this correlate to the UC budget crisis?

The fact is that the state has turned its back on the UC system in an attempt to salvage itself and satisfy the tax payers of the state of California. They have been steadily decreasing funds for the UC system since 1990, at a rate that averages out to approximately one-percent per year. The thirty-percent fee increase is an attempt to compensate for this. Again, it goes back to the failure of the state at managing itself.

What about a special tax initiative to maintain the university system in California at an affordable price?

This solution amounts to more or less, an ethical dilemma. The average student that graduates from a UC is going to earn an above average income. Many people would like to believe that somehow the wealthy people in the state are going supplement the education of the poorer UC students through tax revenue. The truth is that the wealthy are going to be paying, but in fact there will also be maids and truck drivers who will be working to pay for the education of people who will end up making far more than they have the potential to earn for themselves. Noted economist and author Richard B. McKenzie, who is a professor at the Paul Merage School of Business here at UCI contends, “There is already a tremendous redistribution of income in the state going on through the UC system. That is we're taking tax money from people whose income is on average lower than a UC graduate and giving it to students whose eventual income will be above, and whose family's income is already above the average. The reason for that is we tend to be selective here, so it means that we tend to get better students. And it's just a fact of life that students who are from high income families tend to do better academically than those who don't.”

What about reducing the exorbitant salaries of UC executives to offset tuition costs?

While their salaries are indeed exorbitant, should all administrators making over $200k per year (397 of them) agree to work for free for one year, this would still only offset the UC's $450M budget deficit by $109M.

Perhaps we should eliminate the paid T.A. programs or furlough faculty, rather than increase tuition.

Perhaps, but that is a short-term solution which could hurt the education of future students. Even if we were to stave off the thirty-percent increase in tuition by these means, we would likely experience a decrease in the quality of our education. Class availability has has already gone down and class sizes have gone up. Without the fee increase (since our state is destitute), we will have have more of the same. It's a choice between an increase in tuition or a decrease in the quality of our education.

What about pulling research faculty to augment the teaching faculty, thus allowing us to maintain smaller class sizes and class availability?

While most students would rather see faculty divert themselves from research to teaching in a time of crisis to maintain class availability and reduce class sizes, the fact is that it is not in the best long-term interest of the university system. You can't maintain the long term quality of an academic institution if the university and the faculty aren't involved in research – especially if you pride yourself on being a research university, as many UCs do (including UCI). It is very tough for a public university to remain elite, simply because most of the people supporting them are not elite; they are tax-payers. This is why the lasting elite universities tend to be private. The other thing most students don't seem to consider is that if this budget crisis is prolonged, other states will recover from the national recession, likely at a faster rate than California. This will allow other university systems to siphon off our faculty. Students may gain a short term advantage in the lower tuition, but they can suffer a long term disadvantage in the lowering of the quality of education the university provides, concurrently lowering the reputation of the university itself.

Besides financial compensation, why might faculty be agreeable to leaving the UC system?

To be honest, some faculty see the protests as the students telling them that they feel they aren't getting value for their educational dollar as it is, making the tuition increase an even more bitter pill to swallow. Many of the faculty see themselves as being on par with their colleagues at private universities, such as Stanford, where undergraduates are paying nearly $40k per year.

So, what you're saying is that we just have to pay the increase?

In a nutshell: yes. There are no simple solutions to issues such as this, which are extremely complex. Unfortunately, at this time there are not any other solutions that the powers that be would likely agree to. It's not the best or most fair solution to the UC budget crisis, but it's the one we've been given. We can protest all we want, but it's the way of the world. I don't know of a single person that doesn't complain when our congress gives itself a raise and then levies taxes on its citizens all in the same session, only to vote for the same people the next term. Those in power make the rules, and those who vote them in, follow them. Consider it a civics lesson, courtesy of our own Mark Yudof.