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Our Broke Public Universities.

Hamilton, LauraNielsen, 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 MichiganUNIVERSITY of California (System)

611310 Colleges, Universities, and Professional Schools

The article discusses the financial issues being faced by publicuniversities in the U.S. Topics explored include the One UniversityCampaign launched by a coalition of students and faculty members fromthe three campuses of the University of Michigan, the proportion ofracially marginalized and low-income students at public universities, andthe state funding disparities in the University of California publicresearch 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 racialand social equityhttps://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 campuseslaunched the One University Campaign. Their goal? To redistribute system resources more evenly. Michigan'sDearborn and Flint campuses serve a disproportionately large share of marginalized students from within thestate (Black and low-income students, in particular) but receive only a tiny portion of the financial resourcesavailable to the flagship Ann Arbor campus.

As a 2019 open letter from Dearborn and Flint educators and community members states, "There is a moralimperative for a public university to commit resources to its most economically and racially diverse studentbodies." 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 ourstudents, 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 statefunding on these campuses is only about a quarter of Ann Arbor's per-student funding. In addition, nearly half ofthe Ann Arbor campus is from out of state, which brings the flagship extraordinary amounts of revenue notavailable 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 forAmerican 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 tosupport historically underrepresented or racially marginalized students, particularly from low-incomebackgrounds, often face severe financial penalties.

The University of California system offers an ideal case to study intra-system resource distribution. In moststates, regional universities make the largest contributions to equity and diversity for state residents, whileflagship research universities are mostly exempt from this responsibility. The rationale for the imbalance isoften that flagships are "a different type of university," with different research goals and different ways ofbenefiting the state. In the University of California system, however, all nine undergraduate campuses areclassified 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 undergraduatestudent, with the important exception of Merced. Opened in 2005, the campus received more support than itssister institutions – but also took on enormous debt to build its physical campus in a huge public-privatepartnership. (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 forundergraduates. State contributions in California, and elsewhere, are now so low that they often make up onlya small fraction of overall system revenue. Private funding has arrived in its stead, with devastatingconsequences for racial and social equity.

The University of California system is a widely acknowledged mobility machine. Even the most prestigiousschools in the UC system enroll roughly double the percentage of students eligible for federal Pell Grantassistance 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 continuesupporting 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 UCsystem put it, newer and less prestigious branches are "running political cover" for the system at large. Mercedand Riverside help produce favorable optics at the system level, allowing its leaders to demonstratecommitment to serving in-state, low-income, and racially marginalized students. In short, this is institutionaldiversity 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 illfor other public systems.

To see how this plays out in California, we first need to look at the representation of disadvantaged studentsacross UC campuses. UC-Riverside and UC-Merced have become bulwarks of the "diversity work" its entiresystem purports to value. The percentage of California residents, systemwide, has declined from around 94percent 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 includingundocumented students) is less than 1 percent at Merced, and less than 5 percent at Riverside, which helpsthe system meet its responsibility to the state.

The state's master plan for public postsecondary education highlights access for low-income California familiesvia free tuition for state residents. And yet fiscal pressures have eroded this principle over time. Today, the UCsystem still guarantees that California residents with an annual family income of up to $80,000 will have theirsystemwide tuition and fees fully covered. And indeed, 35 percent of the systemwide undergraduate populationin 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 Berkeleyand Los Angeles and a third at Santa Cruz, Santa Barbara, San Diego, Davis, and Irvine were Pell Grantrecipients. At Riverside and Merced, in contrast, that number was 49 and 63 percent, respectively. When thesystem reports its overall statistics, it boasts of its systemwide average, and yet two campuses punch wellabove their weight in doing that work.

The system also champions demographic trends that conceal similar disparities. For instance, the 2016-17budget for current operations reads: "Fall 1990, underrepresented minorities comprised 17.2 percent of allundergraduates, while in 2014, 29.7 percent of UC's undergraduate students were underrepresentedminorities, and 38.3 percent were Asian American." This appears to be tremendous progress – but take a closerlook, 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 theUC, 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 allcampuses. When, in 2010, the Carnegie Commission on Higher Education sought to classify Merced as aregional liberal-arts school, Keith Alley, provost at the time, reportedly went ballistic: He wanted the researchdesignation. Finally, in 2016, Merced received its first designation by Carnegie – as an R2. The University ofCalifornia name clearly played a role here.

Merced and Riverside also benefit from the system's good credit ratings and broad cash streams, and have, atpoints, received substantial financial backing. This trade-off is not ideal, however, because it means that thelarger system does not have to attend as intently to diversity within its individual schools. It can rely on certaincampuses 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 theculture that we've created here is special and has to be nurtured. But you can also make a case for a UC that'ssegregated, and I don't think that's good for the state . . . That's not good for our students or for Berkeleystudents . . . We can do better as a system.

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

The UC, like most other state systems, has experienced dramatic reductions in state appropriations over thelast several decades. Such divestment is a familiar national story. In the early 1990s, California contributed 78percent 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 feeswould spike to partially offset state-budget cuts. Despite periods of recovery, funding never returned to priorlevels. These decreases have occurred as student enrollment has sharply increased – it's up by more than 60percent since 1990-91. Covid-19 has also exacerbated the financial situation of the UC – the system saw $300million in budget reductions in the 2020 state budget.

Recently, the University of California got some good news: Gov. Gavin Newsom's revised 2021-22 budgetproposes 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, Californialeadership, like state leadership everywhere, has asked its system to do more with less. This has pushed thesystem toward a financing model heavily reliant on private sources of funding, which often leads to increases innonresident 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 corporateassumptions that clash with public-equity goals.

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

A common perspective, summarized by the credit-rating agency Moody's in 2012, was that the UC couldleverage its "powerful student-market position" to "compensate for state-funding cuts by raising tuitiondramatically" and by "growing nonresident tuition, differentiating tuition by campus or degree, and increasingonline course offerings." And indeed, what followed were private-market solutions. But that came at theexpense 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 servicesneeded 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 costof tuition. Altogether, then, non-state-residents bring as much tuition as three or more California residents. Thismoney largely stays on the campuses with non-state-resident enrollment. (Recall that Merced and Riversidehave miniscule non-state-resident populations.)

Other revenue sources help diversify the funding stream. For instance, sales and services revenue includefunds 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, orindirect cost recovery. On a $3-million grant with 50 percent IDR, a university takes $1 million in IDR, minuscosts to support the research. In fields requiring large laboratories and expensive equipment, IDR often fails tocover costs. But in other fields IDR itself can be a boon for the university. In all these streams, there is muchgreater potential for revenue at higher-status campuses.

Crucially, other UC campuses, located in wealthier communities and with more affluent student bodies, havealso ramped up their donations (listed above as part of private support). A system official explained: "Our largercampuses generally have more flexible dollars because they've been established longer [and] they havephilanthropy. UCLA is a great example of that." In contrast, despite some donors who are drawn to the uniqueracial and class composition of the student bodies at Merced and Riverside, the official explained that bothschools 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 $4billion and UC-San Diego over $1.5 billion. In contrast, Riverside's Living the Promise Campaign, which beganin 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 servemore students from economically disadvantaged families, legions of millionaire alumni are not lining up to maketax-subsidized gifts. At the end of the 2019-20 fiscal year, the per-undergraduate-student endowment atMerced (at $6,806) was roughly one twenty-fifth of the amount at UCLA and one twenty-second the amount atUC-Berkeley.

The uneven distribution of racially and economically marginalized students would be less problematic if privateresources were dispersed more equally across the system. Given the higher cost of educating disadvantagedstudents, though, this would still result in disparities between campuses. Even more ideal is a scenario in whichcampuses also receive greater state funding for students that have greater need and less funding for studentsthat have less need. Under such conditions, majority-Latinx and majority-Pell campuses would receive the mostfunding. 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 muchcontestation, or too little coordination, upsets the balance. And so it is in California, as campuses within thesystem 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 aredisadvantaged.

In the UC system, this came to a head in 2009 when Andrew Scull, then chair of the department of sociology atUC-San Diego, sent an angry letter to University of California leadership (it was signed by 22 other departmentheads 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 arguefor a selective reallocation of funds to preserve excellence, not the current disastrous blunderbuss policy ofeven, across the board cuts. Or, if that is too hard, we suggest what ought to be done is to shut one or more ofthese campuses down, in whole or in part. . . Corporations faced with similar problems eliminate or sell off theirleast profitable, least promising divisions . . . It is simply not the case that all campus entities are of equal valueto 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 institutionaldiversity 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 isenriched and strengthened by its membership in the whole." Still, the fact that the opposite sentimentcoalesced so strongly on at least one UC campus, resulting in an explosive missive that required an officialsystem response, is remarkable.

The ultimate form of resource concentration is the disbanding of a state system. In 2015, the Oregon UniversitySystem 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 ideathat universities outside of a public system will have greater success at drawing alumni and philanthropiccontributions 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 ofManagement 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 universitiesthat 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 advantageduniversities 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 raciallymarginalized families – and the universities that serve them – a fighting chance.

This article is adapted from Broke: The Racial Consequences of Underfunding Public Universities (TheUniversity 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, auniversity takes $1.5 million in IDR, minus costs to support the research. A university would actually take $1million 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 ofPaying for the Party: How College Maintains Inequality (Harvard University Press). and Kelly Nielsen, is asenior research analyst in the Center for Research and Evaluation at UC San Diego Extension.

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