In discussing the fiscal problems of the University of California with the Chronicle of Higher Education, President Mark Yudof argued that driving the budgetary problems for the university is the high cost of instructional salaries. According to this common argument, many costs of universities can be reduced, but the high salaries of tenured faculty cannot be lowered, and so the only solution is to find a less expensive way of delivering courses.
In the case of the UC system, the proposed solution is to turn to distance education. Unfortunately, the entire UC strategy is founded on two lies; the first untruth is that instructional costs are high, and the second misrepresentation is that the fiscal crisis is being caused by rising costs and decreased state funding.
To prove that the university is making most of its decisions based on false and misleading information, I analyzed the university's own salary data from 2009, and I found that less than 9% of its total compensation is spent on undergraduate instructional positions.
In other words, if we take the total UC payroll of over $9.8 billion dollars, and we subtract the pay of the administrators, staff, coaches, researchers, and professional school faculty (Law, Medicine, and Graduate), we find that the university spent $960 million on undergraduate instruction. If we now divide the total instructional salary costs by the number of undergraduate students, 170,000, we find that each student's instructional costs was $5,647 in 2009.
It is important to stress that the UC receives, on average, $10,000 from each undergrad student in fees and tuition, and the university claims that a third of this amount goes to financial aid, so the university brings in a net of $6,700 from each student.
However, the state also funded each undergrad in 2009 to the tune of $14,500. This means that the university made an instructional profit on each student of $15,553 for a total of $2.6 billion. In other words, teaching undergrads is a highly profitable business, and these students actually subsidize everything else universities do.
Undergraduates Provide Corporate Welfare
Of course administrators, will argue that we cannot exclude the cost of administration, staffing, buildings, research, libraries, and facilities; however, my point is that we cannot blame the instructional salaries for the budget problems of universities. More importantly, it is economic suicide to try to save money by reducing undergraduate enrollments or by accepting more graduate students.
Universities refuse to admit that their use of inexpensive non-tenured faculty and large lecture classes has driven down the cost of undergraduate education because administrators want states and students to continue unknowingly to fund external research, administration, and other non-instructional activities. While I believe we must continue to fund the research mission, we need to be honest with our stakeholders concerning where the money actually goes.
Since most people do not know that undergraduate students are actually subsidizing research and graduate education, they do not protest the constant increase in undergraduate tuition. Moreover, since the administrators running universities cannot or will not admit that undergrads are their true source of income, they end up committing institutional suicide. We can begin to see why budgetary transparency is so important; without clarity concerning what part of the university makes and loses money, no rational decisions can be made.
Huge Investment Losses
The other big lie concerning university funding is the role of financial investments in destabilizing budgets. For example, while UC administration has argued that since the state reduced university funding by a combined $600 million in 2008 and 2009 (after we account for $718 million in federal recovery money), the system had to raise fees 41%, furlough employees, and layoff teachers. However, during this same time period, the UC lost over $23 billion in its investments.
This means that the investment losses were more than forty times greater than the state reductions, but the university administrators never talk about these huge investment losses. In fact, at the last UC Regents meeting, after I brought up the lack of discussion concerning the UC's investment losses, the head regent, Russell Gould, exclaimed that, "Our investments have outperformed our peers in the last twenty years." Not only was this statement incorrect, but it shows how the people overseeing the university do not want to deal with the real issues. Rather than looking at their own internal problems, the UC administration's central strategy is to blame all problems on the state.
Promoting Virtual Slums
Instead of admitting that undergraduates bring in profits and financial investments have caused a fiscal crisis, the university is claiming that online education is the only solution to increased deficits and the need to enroll more students. In this version of virtual slums, the idea is to expand the number of underrepresented minority students in the UC system by offering them an online version of higher education.
When I asked the main promoter of this program, Berkeley Law School Dean, Chris Edley, if he was aware that the low-income students he wants to reach do not have fancy computers, broadband access, or sophisticated software, he replied that the university would have to provide these technologies, but it would be just a drop in the fiscal bucket. Since Edley, like so many other administrators, has no idea how the university makes and loses its money, he feels free to make outrageous claims that have little connection to reality.
If universities want to improve their fiscal health and improve the quality of their educational offerings, the answer is to increase enrollments, rein in high-risk investments, and reduce the cost of non-instructional expenses. Of course, this type of policy would require an honest look at how schools actually make and lose money.
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