This week’s budget endgame presents leaders in the Senate and Assembly with a rare opportunity to stand up for the California Master Plan for Higher Education by challenging the financial incentive that UC campuses now have to enroll non-resident students in place of Californians.

UC describes this policy as though it were self-evident: each campus gets to “keep” the money it generates from non-resident students. But until 2007, out-of-state tuition revenues went to the UC system as a whole, and before the 1990s they went right back to the state. So, we have here a relatively recent policy change in which UC’s central administration is giving individual campuses the incentive to compete against each other for the non-resident students by giving them the entire revenue difference, which is currently in excess of $20,000 per student -the amount by which out-of-state tuition exceeds the sum of in-state tuition, plus state support. This policy change explains why some mature UC campuses such as UC Berkeley and UCLA for example, now expect to have undergrad enrollments that are over 35% out-of-state at the same time that some younger campuses will struggle to exceed their present 2%. The expected result of this competition for non-resident students will be a growing budgetary disadvantage for those campuses that bear the brunt of UC’s enrollment responsibilities under the Master Plan.

There is no reason for Democrats or Republicans in the California legislature to acquiesce in UC’s decision to provide a lower budgeted quality of education to students on campuses that enroll a higher proportion of California residents. Legislators could easily demand that UC pool the $20,000 in surplus funds it collects from out-of-staters for the purpose of reducing the funding gaps among campuses. This demand could be tied to UC’s annual Memorandum of Understanding with the state about the funding of in-state students.

Why not, for example, get UC to agree that any difference in net enrollment revenue brought in by non-resident students be redistributed to the campuses on an equal per student basis without regard to the proportion of non-resident students on that campus?

Such an approach would treat UC’s surplus revenue from non-residents as the functional equivalent of public revenue collected by the University to replace lost revenue from California taxpayers. If the University says it needs this revenue for this very reason, why shouldn’t California taxpayers take in interest in how such revenue is used to support UC’s public purpose? It is entirely reasonable for legislators to demand, for example, that the tuition surplus generated by out-of state students be used to subsidize the quality of education on all UC campuses, especially in bad budget years, so that California residents do not suffer disproportionately from cuts in state funding on the campuses that still admit them. There would be no unfairness to non-resident students if campuses on which they enrolled were allowed to keep (or get back) the same amount of revenue they would get for enrolling a resident-no more, but no less.

Putting UC’s non-resident tuition on the table alongside state funds is entirely consistent with past practice.

UC’s own recent study of its funding streams points out that:

[h]istorically the State paid greater attention to UC’s non-State sources of revenues. The view of the State was that, to some degree, revenues UC generated from student fee and tuition charges…should reimburse the State for its past investment in UC. …For many years, State funding for UC was offset by any increases in funding from these other non-State sources. (University of California Funding Streams Proposal, 12/21/2010, p. 5)

Only in the 1990s, as a result of annual budget negotiations with the state (including so-called “partnerships” and “compacts”) were these offsets eliminated. There would thus be no legal barrier to reimposing them if UC does not agree to use any surplus revenue from non-resident tuition to offset the systemwide loss of taxpayer funding from the state.

Recapturing this surplus revenue to support instructional quality across the UC system would not cost the state anything, but it would be a large step toward reducing the budgetary disparities among UC campuses reported by the State Auditor in July 2011 (http://www.auditor.ca.gov/pdfs/reports/2010-105.pdf ).This report confirmed and extended my own 2009 finding of glaring inequities in UC’s return to the campuses of funds generated by in-state enrollments (http://keepcaliforniaspromise.org/wp-content/uploads/2009/11/Where-Does-UC-Tuition-Go.pdf ). At that time (when tuition was still around $7,000), UCLA was getting back $7,000 more than each of its in-state students generated in tuition plus state funds and UC Merced was getting about $7,000 less. Since 2009, UC has largely corrected this problem with respect to the tuition component of in-state funding, but it has not yet said how much or how soon it will “rebench” (which might or might not mean “equalize”) its distribution of the $2Billion in state funding that it receives to educate Californians. Just last week, two faculty members of the “Rebenching Implementation Task Force” criticized UC’s administration for delaying action on the Academic Senate’s recommendation of a more equal distribution to campuses of state funding generated by resident students (http://www.universityofcalifornia.edu/senate/ITFFinal_080211.pdf ).

They believe it was a fundamental error to delay rebenching while UC is speeding up the process by which richer campuses are allowed to capture the entire surplus revenue generated for the system by its growing proportion of out-of-state students. The result of untethering these two processes, they say, will be to widen the per-student funding gaps among campuses that rebenching was supposed to narrow.

Based on the State Auditor’s report alone, California’s legislators should require that UC’s out-of-state tuition surplus be pooled among campuses until UC can satisfactorily account for its use of funds appropriated to educate Californians.

This year’s budget process gives legislative leaders a chance to say that UC’s increasing reliance on revenues from non-Californians should not be used to accelerate the path toward fragmentation of the UC system by allowing some campuses to privatize their enrollments more than others. Legislators have this opportunity because, for the first time in living memory the Governor’s budget is no longer hostage to the 2/3 requirement. He must now either sign a budget passed by the majority party or negotiate proposed changes with it.

UC is already lobbying for changes that would make it no more publicly accountable for its use of state funds than it currently claims to be for its use of non-resident tuition.  UC is calling this their “Debt Restructuring” proposal when in reality, it should be called “Debt Privatization”.  A fitting legislative response would be to hold UC accountable for all the funds it raises from enrollments. Requiring UC to treat its surplus revenues from out-of-state enrollments as public funds that help support California students could change the dynamics of future discussions between UC and the taxpayers of California.