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Giving Up State Funds

September 7, 2010

How bad are things in California? The budget cuts and fiscal uncertainty are so severe that the University of California at Los Angeles's business school is proposing that it give up all state funding -- in return for greater budget flexibility and the right to raise out-of-state tuition to the levels of private institutions. The plan has been approved by UCLA, but is awaiting a review by Mark G. Yudof, president of the university system.

Leading public universities regularly complain about the decline in the shares of their budgets that come from the state, even as regulation has not lessened. But being willing to give up those funds altogether is rare. The University of Virginia's business school did so, but has very much been considered an outlier.

"The driver here is the decline in state support," said Judy D. Olian, dean of the Anderson School of Management at UCLA. She stressed that she did not view the shift as changing the business school's mission or its connection to the rest of UCLA or the UC system. At this point, she said, state support makes up only about 18 percent of the business school's $96 million annual budget, and she said that percentage overstates the contribution because much of the state support is tuition revenue that must go to the state first now before it is returned to the school. In a new model, that revenue would never leave the business school. In the end, the business school would truly lose less than $6 million a year, Olian said.

In the 1970s, she said, about 70 percent of the business school's budget came from the state. "The decline makes it easier to say that the gap is not going to be large and we could overcome it," Olian said.

And there's more to it than the dollars. Olian noted that California does not have a state budget for 2010-11 so she doesn't know what her budget will be for the year. It would be much better, she said, to have that information and plan accordingly -- and to raise more money from private sources to offset whatever is lost.

There is also the potential to raise more through tuition. Right now, annual tuition at the business school is $41,000 for California residents and $49,000 for out-of state residents. (Room and board and other charges aren't included.) Olian said that if the plan goes through, she would expect the non-resident charges to rise to the range of $53,000 to $58,000 -- similar to the rates of top-rated private programs. (The Wharton School at the University of Pennsylvania, for example, currently charges $54,000 in tuition.)

But Olian stressed that the differential for California residents would remain -- and noted that California's residency laws are loose enough that many who enter the program as non-residents are Californians by the time their second-year charges are due. Further, she noted that "tuition has been going up under the state-supported model," and she said that such increases might well be more predictable under the new approach.

She said she didn't anticipate a change in the mix of residency of those admitted from current levels: roughly 40 percent from California, 30 percent from the rest of the United States and 30 percent from outside the United States.

It is extremely unusual for academic units of state universities to give up state funds, and Olian said that "this is not the solution for the University of California" in that most academic units could not come up with the sources of revenue that a business school can. She noted that many of the university's programs -- such as an executive M.B.A. program and a program in Singapore -- are already self-supporting and may in some ways be subsidizing the M.B.A. program. "This is really a very marginal change," she said, and will not affect the way the UCLA faculty governance system will oversee academic programs, the tenure process and other procedures.

She said she thought the money saved by the state could go to other units at UCLA that are not able to support themselves.

Asked if it would matter to students that UCLA's business school would no longer be connected to the state in the same way, she repeated the figures about how the state has dropped its support year after year. And she added: "To our students and faculty, in evaluating excellence, I don't think it matters one iota to them if we are public or private. They want to go to the best place you can."

But she noted that California residents would still receive a tuition discount and that she expected UCLA to continue to place the vast majority of its graduates (including those from elsewhere) in jobs in California. "Our mission will still be public -- our mission will still be one that looks to make sure our students are helping East L.A. nonprofits or microfinance projects in Africa," she said.

In discussing the plan, Olian repeatedly talked about "self-sufficiency" and never used the work "privatization" (except in answering this reporter's questions about why she does not view the word as an appropriate description for the shift.)

Olian's choice of words may be politically wise. An article in the journal The Public Interest details the quest by the Darden School at U.Va. to trade away state dollars for more flexibility, and notes that the plan was "almost derailed" when the then-chair of the school's foundation board used the word "privatization" in a 1996 talk to discuss the idea. Only after everyone involved agreed that "self-sufficiency" was a better way to describe the plan did it move ahead.

The article -- by David L. Kirp of the University of California at Berkeley and Patrick S. Roberts of Virginia Tech -- is an early look at the impact of the changes at Darden. In many respects, the article says that Darden and its supporters were correct that the freedom from the state allowed the business school to raise far more money than it was receiving from the state -- helping to boost the business school's prestige and the quality of students it attracted.

The article, however, questions whether it is the role of a public university to make such tradeoffs, and the piece notes that many other parts of U.Va. lack the facilities or funds of the business school. By embracing the idea that those parts of the university that can bring in more money should do so, and be rewarded for doing so, Kirp and Roberts write that the university was placing ideals at risk.

"Does the academic commons that Thomas Jefferson tried to embody in his design of the Lawn -- professors and students with diverse academic interests coming together in a single open space -- stand a chance in this dollar-driven era? Can a university maintain this kind of intellectual community if learning becomes just another consumer good?" they write.

That point may well be contested at Darden (and now at UCLA, where the chancellor, Gene Block, came from the provost's job at Virginia). But another line in the article may be harder to challenge: "Darden is the canary in the mine, a sign of things to come, for across the country the privatization of public higher education proceeds apace."

 

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