Can Funding Be Fair?

The 10-campus University of California likes to style itself as one university. It has one governing board that sets the same tuition rates for all campuses, its campuses use the same admissions process and it has one line in the state budget.

But it values students at its campuses differently.  In 2009, the Santa Cruz campus received $6,723 in state funding per full-time student (both graduate and undergraduate), according to the Delta Cost Project. The Los Angeles campus received $14,736 per student.

There are logical reasons for different per-student appropriations at different campuses, such as varying levels of graduate education (which tends to be more expensive than undergraduate education), different research portfolios and different infrastructure costs. But the system says that even when all those confounding factors are stripped away, older campuses – Berkeley, Los Angeles and Davis – tend to receive more money than newer ones.

But the office of the president is trying to change that. Over the past few years, the University of California has been reworking how it distributes resources to its 10 campuses. Among the changes, the system will now let campuses keep revenues they generate – through tuition, for example – while allocating state appropriations on an equitable per-student basis.

Such funding gaps are points of contention in many states, where non-flagship campuses tend to complain about their allocations compared to the research universities. California's situation is more unusual in that, in theory, all campuses in the University of California system have the same commitment to research excellence and doctoral education.  And the discussions in California show how difficult it can be -- even when comparing institutions with similar missions -- to come up with funding formulas that everyone will consider fair.

The funding shift, called “rebenching” within the system, is an effort to ensure that students in comparable programs, such as all undergraduates or all health-science graduate students, are funded at the same level across the system.

While the change will play out over at least six years, and while state appropriations tend to make up a smaller share of the system’s revenues each year, the new formula will likely mean a revenue boost for the system’s “underfunded” campuses, which could allow them to grow their research enterprises and graduate-student enrollment and invest in new programs. It will also mean that despite what the system hopes will be several consecutive years of state appropriation increases, the campuses that currently receive the most per-student state funding, which include the Berkeley and Los Angeles campuses, will likely not see much increase.

The shift will also help reduce criticism that the system’s method for allocating state funding is opaque, a charge that was leveled against the system by lawmakers and in a 2011 audit that also noted that campuses that received less state money per student also had a higher concentration of underrepresented minority students.

As most states begin to emerge from several years of budget-cutting and begin to see funding increases, often tied with new performance components, California’s experience shows how the unquestioned assumptions implicit in budgeting can often conflict with state or institutional goals.

“In every state there are different funding levels of different institutions that if we started today could not be justified,” said Jane Wellman, executive director of the National Association of System Heads. “These policies have just attached like barnacles over time.”

Unequal Levels

The office of the president has said the inequality in per-student funding developed over decades of inconsistent funding formulas. At various times, funding was based on square footage, enrollment in different programs, salaries or maintenance.

“The distribution of State General Funds among campuses is a result of a long history of state and university funding allocation decisions,” wrote the system’s Rebenching Budget Committee in 2012.  “Because campuses grew at different periods under different allocation models, the base allocation of State General Funds could no longer be explained by any one set of factors or principles.”

A large chunk of the inequality could be explained by when campuses grew graduate enrollment. When campuses like Berkeley, Los Angeles and Davis added graduate students, they were being funded at a higher rate than when the others added graduate education.

In the 1990s, the system moved toward allocating funding in block grants to the campuses. Each campus had a base allocation that would increase based on the state's appropriation to the system, rather than enrollment or programmatic changes. If the system got a 5 percent increase in appropriations, each campus would get a 5 percent increase in system funding. That system tended to exacerbate the differences across institutions.

Wellman said the practice of funding institutions off previous years' appropriations has been common across higher education, and that states have begun to question that method. "States and systems have to be looking at a different way of building their higher education budgets," she said. "They need to rethink how a base gets built, where states put new money and how that is related to improving outcomes and student success, not just enrollments."

The inequality of state funding in the University of California system became a regular complaint from campuses such as Riverside, Santa Barbara and Santa Cruz, which received less on average. The economic downturn that led to a roughly 30 percent reduction in state appropriations to the system exacerbated complaints.

Funding Streams

The first big change to the system’s funding allocation, adopted in 2011-12, was to let campuses keep whatever revenues they generate. Prior to the shift, student application and fee revenues, indirect cost recovery funds, patent revenues and other campus-generated revenues were pooled at the system level and distributed there based on a variety of criteria.

Now, campuses will get to keep revenue from sources such as resident and nonresident tuition, contracts and grants, with the university’s central administration taking a cut to fund system programs and administration.

Part of the shift is to motivate campuses to generate new revenues on their own, the office of the president has said. In that respect, it's similar to models adopted by other universities in recent years that allow departments and centers to keep the revenue they generate.

Letting campuses retain tuition dollars is something of a philosophical shift for the system, which historically viewed tuition revenue as a substitute, not a complement, to state funding. Most higher-education institutions hold the latter view, that the two are distinct funding streams. But for many years the UC system only increased tuition prices when state appropriations did not meet expectations.

Rebenching

The second big shift, which began in the current budget cycle and will play out over the next six years, is to equalize per-student allocations across the campuses.

The system plans to assign weights to students in different programs. For example, a Ph.D. student will be weighted at 2.5 times the weight of an undergraduate. Health affairs graduate students will be weighted as five undergraduate students.

The system will make specific allocations for system initiatives located on particular campuses, such as agricultural programs. The campus at Merced, which opened in 2005 and is working to grow capacity, will be exempt from the current formula, as will the San Francisco campus, which is focused exclusively on health affairs and currently has a much higher per-student funding rate than the other campuses.

Instead of cutting funding from some campuses to build up others, the system will focus "new money" on the campuses that currently receive the least per student. The Los Angeles campus currently receives the most state funds per "weighted" student -- $6,413 according to the proposed formula -- and the system will try to raise all campuses to that level.

The proposal has already run into some opposition, particularly at the Los Angeles campus, where the Academic Senate came out against the proposal in December, in part on the grounds that it does not adequately account for high-cost enterprises. “The Rebenching Report does not adequately consider the complexities of the Health Sciences in the calculations for funding redistributions,” the report states, noting that, for the same reason the San Francisco campus was left out of the formula, all major health science components should be excluded.

The Academic Senate report also argued that “that monies allocated to the UC should not be subjected to rebenching until and unless the UC reaches its previous maximum funding levels,” since the system is currently operating with about 30 percent less state funding than it had in 2007-08. The Senate also argued that the formula is too simplistic, since educating some undergraduates, such as those in engineering or music, is much more expensive than others.

The Office of the President said it has no intention of breaking down the formula further into upper- and lower-classmen or programs that cost more to operate.

The model will also include some kind of floor on in-state student enrollments. Since the amount the state allocates for each in-state student, even when coupled with the amount that student pays in tuition, will likely be less than what the universities currently charge out-of-state students, there was some concern that the campuses would emphasize recruitment and enrollment of non-residents.

Campuses that drop below expected resident enrollments – likely over several years – will be penalized.

The rebenching proposal is contingent on six years of consecutive funding increases, a prospect that, given the past five years and the uncertainty that still hangs over the economic recovery, is somewhat optimistic. But in November, California voters passed a ballot measure that raised income taxes on higher earners and sales taxes for six years, and the governor proposed the system's first proposed funding increase since the recession this year.