Tuition and Tax Spikes Help Fund Lavish University Pensions

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By Steven Greenhut

The real reason behind a proposed tuition hike at the University of California 
December 2014

Claiming impossible budget pressures, University of California president Janet Napolitano late last month proposed a tuition increase of up to 5 percent a year for the next five years. A divided University1university board of regents approved Napolitano’s plan by a vote of 14-to-seven. But Napolitano says the new tuition hikes could be avoided if the state legislature allocates another $100 million in funding to the university in the coming fiscal year. In some states, the former Homeland Security secretary’s demands would be considered extortion. Not in California. UC students and Golden State taxpayers will end up paying the price.University2

If Napolitano’s plan stands, UC tuition will eventually reach $15,564 a year, not including room, board, and other fees. That’s double the cost from just a decade ago. In inflation-adjusted dollars, UC tuition has increased three-fold since 1992. The university has come a long way since its 1960 master plan, which affirmed California’s “long-time commitment to the principle of tuition-free education to residents of the state.”

University4Napolitano’s proposal met stiff resistance from Governor Jerry Brown, who said at the November 19 board meeting that the university needs to look at cutting existing expenses before demanding more taxpayer dollars. He wants a special commission to convene in early 2015 to look at such cost-saving alternatives as online classes, three-year graduation programs, and course credit for work and military experience. Brown serves as a voting ex-officio member of the regents, along with Lieutenant Governor Gavin Newsom, Superintendent of Public Instruction Tom Torlakson, and assembly speaker Toni Atkins. All are liberal Democrats and all voted against Napolitano’s plan. What does it say when even California’s typically profligate Democratic leaders want the university to boost savings rather than tuition?University5

The politics here are straightforward. In 2012, Brown campaigned for Proposition 30, an ostensibly temporary income-and sales-tax increase that voters approved in large part because of the governor’s veiled threats to slash education programs. The University of California pulled out all the stops to help the governor pass the measure, warning students that tuition could go up as much as 20 percent in a single year without the tax hike. At the same time, Brown agreed to boost the state’s contribution to the university’s budget by 20 percent in exchange for a four-year tuition freeze. But the university would like a larger slice of Prop. 30 revenues—hence the current tuition fight.

Janet NapolitanoNapolitano says her $27 billion budget will allow her to expand course offerings and enroll 5,000 additional students across UC’s ten campuses. But the real driving force behind the tuition hike is the university’s woefully underfunded pension system, which currently serves 56,000 retired employees. It’s a generous system, despite some reductions the university made for new hires in recent years. An Associated Press analysis found 2,129 retired UC employees collect pensions of more than $100,000 a year; 57 receive more than $200,000; and three receive more than $300,000.

The trouble is UC’s pension system is only 75 percent funded. Why? Because, a budget crisis 24 years ago led California’s legislature to end taxpayers’ contributions to the UC pension fund. It was an easy decision to make in the early 1990s, when the university’s finances were still in good shape. But as the Sacramento Bee notes, the regents also “decided to stop making payments on behalf of the university and subsequently relieved employees from having to make contributions as well.” This continued for 20 years. Only during the Great Recession, when university officials found themselves in a deep fiscal hole, did they decide to ramp up pension contributions.

The UC pension fund remains awash in red ink. According to a new report by Californians for Common Sense, over the past five years “the annual amounts required to fund [UC’s] retirement plans have more than doubled from $1.4 billion to $3.7 billion. The UC system has already borrowed $2.7 billion to help pay down its pension debt.” What’s more, the regents haven’t addressed UC’s unfunded health-care liabilities. As Californians for Common Sense points out: “The university’s retiree healthcare contributions are expected to more than double over the next decade, growing from $363 million in 2014 to $805 million in 2024.” University officials argue that such liabilities are not vested, meaning they can be cut at any time. That may be true, but the university has neither the interest nor the will to take such a dramatic course right now.

Failing to rein in retirees’ pension and health-care benefits only foists more long-term debt onto students. In a November 14 letter to undergraduates, university officials tried to sound a reassuring note: “[I]f tuition does increase, financial aid resources are expected to increase, too.” In reality, easy student financial aid is what drives university profligacy. Look no further than the construction of lavish new dormitories, the massive expansion of campus bureaucracies, and the millions of dollars expended on what City Journal’s Heather Mac Donald rightly describes as “mindless diversity programs.” And contrary to complaints from Napolitano and other university boosters about the state’s “disinvestment” in higher education, taxpayers between 2008 and 2012 contributed an additional $400 million to the CalGrant program, which helps students offset those rising tuition costs. So it’s easy for the university to spend money in the belief that students and taxpayers will keep footing the bill.

That belief won’t hold true forever. Universities are facing unexpected market pressures. As Ohio University economists Richard Vedder and Christopher Denhart argued in the Wall Street Journal, many universitiesnot just the University of California—face declining demand given students’ growing debt loads and diminished job prospects. That, combined with low-cost online offerings, could lead to some “creative destruction” in higher education. With all the new competition, Vedder and Denhart write, “Excessive spending on administrative staffs, professorial tenure, and other expensive accoutrements must be put on the chopping block.”

Napolitano appears unready and unwilling to hear such sobering advice. But given the pushback by UC students and top elected officials, the bloated University of California system might have to consider those options sooner rather than later.

*****

Steven Greenhut is the California columnist for U-T San Diego. Write to him at steven.greenhut@utsandiego.com.

Article from city-journal.org. http://www.city-journal.org/2014/cjc1202sg.html

 

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