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Why Does UC Berkeley Need $6 Billion?

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Why Does UC Berkeley Need $6 Billion?

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Berkeley’s annual Big Give launches today with the purpose of encouraging giving to Cal’s many academic schools. departments, and programs. With the increasing seriousness of the coronavirus, the presidential election, and a plunge in the stock market taking most of the bandwidth of Californians, we might hope that donors, large and small in net worth, will still notice the need to support a major public university in a time of need.

The Big Give is only one part of a much, much larger effort to raise money. Berkeley recently announced its new Capital Campaign, with a goal of raising an astounding $6 billion by the end of 2023.

Why does a major public university need such a boost in philanthropic giving? The answer: largely to help deal with a massive decline in per student funding from the State of California, but not exclusively.

Over the past two decades, state funding on a per student basis at Cal is down by over 40 percent, even with the recent bump in funding from the governor and legislature. There is a similar story at most other major public research universities, although there is also much variation among the states and among different institutional types. A report published by the American Academy of Arts and Sciences on the fiscal health of the nation’s public universities stated that “the decline in state support represents a fundamental challenge that strikes at the core mission of these institutions.”

But there are particular parts of the story here at Cal that help illustrate the need for a $6 billion campaign.

For one, Berkeley, like the other UC campuses, has grown significantly in enrollment to help meet the higher education and socio-economic mobility needs of a growing California population and economy — part of its social mandate. As part of UC’s overall effort to grow in enrollment, Berkeley jumped from about 32,000 students in 2000 to just over 43,000 today and without adequate funding support from the state for either its operating or capital budgets – the two components of any university budget.

All three segments of California’s public higher education system have suffered cuts in state funding. But UC has borne a larger share of the cuts on a per student basis as California lawmakers gave priority to the community colleges and CSU –- an arguably so, as they enroll many more students and have much fewer options for generating income from other sources, like federal research grants.

And like the other UC campuses, Berkeley also had to enforce a state imposed five-year freeze on tuition that was not based on any analysis of the impact, yet stifled income that would have helped deal with state budget cuts. It was good politics, but not necessarily good economics.Tuition income is now a major source for providing financial aid to needy students. Berkeley spends about 33 percent of all tuition income on a generous financial aid program for undergraduates to help mitigate the cost of attendance — a commitment to access for low-income and middle-class students. Today, about fifty percent of all undergraduates pay no tuition and about 30 percent are Pell Grant recipients. Cal has a higher percentage of low-income students today than ten years ago, despite earlier increases in tuition.

There is another really important part of our story. Beginning in 2013, Cal and the other UC campuses were forced by state lawmakers to spend part of their state operating funds to pay for capital costs, including maintenance, new buildings to help meet enrollment growth, and a backlog of buildings that need seismic retrofitting. Being the oldest campus in the UC system, Berkeley has significant needs for additional capital funds.

That means that Cal has been forced to rob from its core state operating funds that normally pay for faculty salaries and other “Instruction and Research” (I&R) costs to cover mounting capital costs.

In the not so distant past, the state government paid either directly or through general obligation bonds for most of Cal’s new capital construction and maintenance needs, including classrooms, labs, offices and even at one time dormitories. In the early 1970s, California’s state government paid for about 70 percent of all capital costs; today the figure is closer to 10 percent, and largely by forcing the UC campuses to steal from their core operating funds.

So, Cal has experienced not only a decline in state funding on a per student basis over a long period, and this accelerated after the onset of the Great Recession, but state legislation and policies have also restricted tuition income and forced Berkeley to use operating funds to help pay for capital costs.

Why have state lawmakers not adequately funded Cal? Like other states, California has faced growing entitlement costs, from pensions to outrageous costs in the US for health care that have eaten up a larger and larger share of the total state budget. There is no law stating that California’s state government needs to fund higher education, so lawmakers are forced to draw from shrinking “discretionary” funds to pay for UC.

Further, California, like other states, faces rising costs related to climate change and now the significant economic impact of a pandemic. The competition for what is left of discretionary monies is only getting more intense. The reality is that a return to pre-1980s robust state funding is likely a thing of the past.

So what alternatives are there for Cal to seek and find a revised funding model? As we outline in the Approaching a Tipping Point Report that I co-authored with Zach Bleemer, UC campuses need to seek an even more diversified funding portfolio to remain competitive for talented faculty and students, and to maintain and build buildings.

Philanthropy is an important part of this search for a revised funding model. Direct donations and those that go toward an endowment now generate some 10 percent of Cal’s total operating budget and also form a crucial source funding for capital construction.

As we note in the report, all UC campuses need to further increase their ability to attract research grants that provide support for graduate students and that generate overhead funds. Campuses must also develop even more income generating activities like professional degree programs, and consider expanding on-line programs to increase access and income. They must also revisit tuition policies to generate more income, while also providing for an even more robust financial aid program for needy students.

With the recovery of California’s economy, Governor Gavin Newsom has increased funding to UC in his most recent budget. That was welcome news – although the dark clouds of a global economic slow-down, the coronavirus, and the challenges of climate change may make this currently proposed increase a short-lived blip.

At the same time, resurrection of state funding for Cal’s capital needs is remote. California voters just said no to the first general obligation bond since 2006 that included funding for higher education: Proposition 13. A future appeal to the voters with something similar may occur, but even under the dubiously entitled modern day Prop 13, the amount of funding that would have flowed to UC, and eventually Cal, was rather meager when compared to the total need.

And if you hope for some magical funding from Washington, think again. Even Bernie’s dream of “free tuition” seems a recipe for even more funding challenges for public universities. If it were to somehow become a political reality, it would require a massive federal funding scheme that might translate into yet another decline in per-student funding and new federal regulatory controls.

A likely tuition-free scenario is that federal funding would not fully replace tuition income. States would be scrambling to find funding to match the federal grant (a requirement under current proposals). One might hope that the federal grant would recognize the significantly different costs in California versus, say, Iowa. But it might not.

The probable net result: less funding for public universities like Cal, meaning fewer faculty and larger classes, and fewer support services for students. Like other free tuition schemes, the emphasis is on the student side of the equation and not on envisioning an adequate funding models for public universities. Better for the feds to increase support for Pell Grants and other need based financial aid programs.

These are all the reasons that Cal needs a robust capital campaign to help expand its diversified funding portfolio. But why should donors give to a public university like Cal?

Much philanthropic funding for higher education has gone largely to an elite group of private universities, at times to an excessive extent. It is important that donors, from tech moguls to alumni doing well in a thus far growing economy, understand that their gift dollars go much further and have a much bigger societal impact by giving to public universities like Berkeley.

The elite privates are important institutions, but for too long the big foundations and high rollers have focused too much on sending money their way, while ignoring the greater impact of publics who serve the vast majority of Americans. It is at public universities like Berkeley, with their much larger enrollments, more diversified student bodies, a stronger social mandate, and a greater array of programs intended to meet public needs, that donors can really impact the socio-economic advancement of California, and society in general.

The last significant period of philanthropy to Berkeley was around the turn of the last century — approximately 1899 thru 1920. Then rich, often robber baron donors, gave to Berkeley to help build the core of today’s campus and establish the first scholarship programs for women in the US. State funding at that time was grossly inadequate, even as Berkeley grew in enrollment as the state absorbed succeeding waves of migrants from the Midwest and elsewhere.

After 1911, California’s state legislature and governors understood the value of public higher education and developed a consistent budget formula for both operating and capital funding — including the first workload-based funding allocation that encouraged UC to grow with California’s population. It is a funding formula that stood the test of time, provided an incentive for growth and fueled the development of UC into the first multi-campus system in the US.

But that workload based funding commitment by the state began to wane in the 1990s. Governors proposed budgets that consistently reduced per-student funding to meet other increasing costs, like prisons, and other programs that reflected their political priorities.

Philanthropy was only a minor part of budgeting for Cal really until the 1980s. One reason was a “gentlemen’s agreement” with privates in California not to go after private funding because Cal and the other UC campuses that came on-line had robust state funding. Cal did not even have an official fundraising campaign until the 1980’s under then Chancellor Michael Heyman.

But the world has changed, and Berkeley needs additional financial support to remain one of the best universities in the world. Hence, the $6 billion campaign focuses on core academic needs, like hiring additional faculty, supporting graduate students, enhancing research opportunities for undergraduates, building housing and the like.

Let’s all hope for a return to some semblance of normality, in the political as well as the pandemic virus realm. But don’t let that distract from the long view, including supporting our most treasured public institutions like Cal.

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John Aubrey Douglass is Senior Research Fellow and Research Professor – Public Policy and Higher Education at the Center for Studies in Higher Education (CSHE) at the University of California – Berkeley.  He is the editor of Neo-Nationalism and Universities (forthcoming), The New Flagship University: Changing the Paradigm from Global Ranking to National Relevancy (Palgrave Macmillan 2016) and the follow-up book Envisioning the Asian New Flagship University (Berkeley Public Policy Press, 2017).

 

 

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