Keshav Tadimeti: UC should create a contingency fund to limit tuition hikes

Well folks, the University of California and California state government are at it again and this time, the state’s the instigator.

A recent state audit criticized the UC on its budget again and maintained that it needs to better control its costs. In return, the UC accused the state of making unfair and erroneous conclusions. While this appears like just another case of “same old same old,” the sad truth is that these catfights only result in a zero-sum game for both sides: The real financial issues at hand are still being ignored.

For quite some time now, the UC has been indicating that tuition hikes are imminent, given the economic recession and decrease in state funding – a truth it echoes in its annual budget reports. It was only in 2010 that tuition increased midyear by 15 percent due to a decrease in state funding, yet the UC continues to hold students hostage in order to secure more funding when it knows full well that state funding is not a stable financial source.

The undeniable truth is that instead of facing this issue head-on, the UC continues to engage in a tug-of-war battle with the state.

Instead of playing this fruitless political game with the state over educational funding, the UC needs to develop a contingency fund – a rainy day fund, essentially – in order to avoid excessive tuition hikes when state funding falls significantly short. The finances for such a contingency fund, which the UC is currently not considering, should come from the excess year-to-year revenue the UC generates through non-educational funding sources, such as dining hall and housing services.

Creating such a fund would help avert contentious tuition hikes, much like what happened in 2014 when the UC and state government brawled over proposed tuition hikes due to a decrease in state funding. The controversy brought about a tumultuous wave of student protests, resulting in nothing more than a half-hearted agreement to freeze tuition for two years before re-authorizing the hikes.

In fact, in its 2015-2016 “Budget for Current Operations” report, the UC repeatedly stresses that an annual 5 percent tuition increase is insufficient to fully support the expected costs of educational operations, which have suffered amidst budget cuts.

For example, the report recognizes that the student-faculty ratio is increasing, and with the state’s mandate for the UC to enroll an additional 10,000 students over the next three years, the demand for more faculty, and thus more educational funds, is not going to disappear anytime soon.

And this is only one of the educational challenges the UC faces – equipment costs, financial aid funds and employee benefit costs are some of the others.

Yet, the UC’s only attempts at possible solutions are subtle jabs at the state government that if it doesn’t increase its funding, the students will have to carry the weight. If state funding drops on any particular year, the UC’s default response is to repeatedly jam its finger on the red button labeled “Student tuition fee hike” and hide behind the defense that it has no other option but to do so.

But the UC has the resources to protect its students.

Instead of pointing fingers at the state government, the UC can step up to the plate and create a contingency fund to plan ahead and avoid costing students. By tapping into and saving its excess funds, the UC will be able to cope with notable decreases in state funding, thus mitigating seemingly excessive tuition increases and retaining affordability for students.

For example, the contingency fund could come from the UC’s housing and dining services, parking facilities, University Extension and other complementary activities, such as its theaters – a category the UC calls its “Other Sales and Services”, which generated an additional $204.3 million for the 2014-2015 year than for the 2013-2014 year.

A nominal amount of the excess year-to-year revenue for “Other Sales and Services” could be funneled into the contingency fund every year. Hypothetically, if 12 percent were funneled into a fund – approximately $25 million annually – it would contain upward of $125 million after five years – about 2 percent of the UC’s educational expenditures for the 2014-2015 academic year.

Such an amount would buffer any notable decrease in state funding, allaying a major tuition increase. The greater the amount the UC diverts to the contingency fund every year, the better the financial cushion would be.

While it may seem as though the departments whose excess funding is being decreased would suffer, the fact that education is prime among the UC’s missions is justification in itself that funds be redirected from other sectors to preserve the quality of education. In addition, it’s naive to think that departments such as housing and dining services are operating at 88 percent financial efficiency. Just taking a look at the inefficiency in the dining hall locker system at UCLA is evidence that if these sectors were financially more efficient, there would be no problem diverting 12 percent of its excess revenue.

Ultimately, it is up to the UC to determine the sourcing for the contingency fund. In two years and nearly 500 pages of budget reports, the UC never mentions existing financial infrastructure for or plans to create a contingency fund, which reflects poorly on the institution.

When called and emailed for comment, the UC was unable to respond.

At the end of the day, it’s blatantly clear that if the UC is truly as financially deft as it claims to be, it needs to stop bickering with the state and start formulating solutions.