Misinformation is the enemy of progress toward solutions that will preserve excellence and access within all 10 campuses of the University of California.
One troubling example is the claim by a UC Santa Cruz faculty union leader that educational fee increases are being implemented to allow the university system and campuses to borrow more money for capital projects.
It’s the kind of factually challenged distortion we’ve come to expect in partisan politics. What makes it troubling is that this and other misleading claims spread like viruses through the UC community. We hope students, faculty and staff recognize it for what it is: nonsense.
The educational fee — equivalent to tuition — supports university operations, including instruction and support activities. It’s counted as general revenue. But, while general revenue is pledged as security for bonds, educational fees are not used to pay debt service on our bonds.
So it’s misleading and inaccurate to allege, as [UCSC Politics]Professor Robert Meister has done in two open letters to students, that educational fees are the No. 1 source of revenue to pay back bonds issued for construction projects and that the purpose of tuition increases is to borrow more. And frankly, if he had taken the courtesy of asking my office about how our borrowing program is facilitated before he launched his misinformation campaign, we would have been happy to explain it to him.
Now he suggests that the University launch an expensive audit costing millions of dollars to pursue a wild-goose chase about whether or not student fees are actually used for construction, contrary to regents policy. And he’d have us waste this money without a shred of evidence that student fees are being misused in this way. Frankly, I’d rather see the monies go to things that help students pursue their education.
The truth is that pledging the University’s general revenue in no way necessitates student fee increases, but rather is a way of ensuring that the University can keep financing costs down. It has no relationship to student fee increases.
The fact is that we’re funding capital projects that are essential to the health and safety of the entire UC community — the buildings where students learn, the dorms where they sleep, and the many other places where they go for study, food and entertainment.
As a parent of a UC student, I know it’s painful to pay higher tuition. As both a parent and the chief financial officer for the university system, I want my child and other students to live and learn in a safe, sound environment. And I know that educational fee increases are a direct result of the state’s steady disinvestment in higher education. Every fee increase since 1990-91, with one exception — in 2007-08 — has been levied to make up for inadequate state funding. The two primary sources of funding of core educational costs at the University of California are student fees and the state.
Besides state funding reductions of more than $800 million over two years, the state is not funding increased costs for health benefits, utility costs, faculty merit pay, enrollment and other programs.
As a result, the UC is left in this fiscal year with a $1 billion budget gap that is being offset primarily by spending cuts, salary reductions, and debt restructuring, as well as revenue from student fee increases. This budget gap is projected to grow to at least $1.2 billion for the 2010-11 fiscal year.
While student fees have more than doubled over the last two decades (adjusting for inflation), that increase covers less than a third of the reduction in state funding during those years. As a result, it’s proposed that educational fees be raised by 32 percent over the next two years.
Meanwhile, there are ongoing capital needs financed by bonds and other borrowing, with general revenue funds pledged as security. The university’s general revenue pledge enables the UC to maximize financing flexibility, and that’s increasingly important amid deep cuts in state support of higher education.
Before we sell bonds, we require that an internal source of repayment be identified for each campus project. The primary sources of debt repayment for general revenue bonds are housing, parking and other auxiliaries, approximately 43 percent; indirect cost recovery (grants and contracts), approximately 35 percent; registration fees and student-approved fees that are not educational fees, approximately 10 percent. The remainder comes from a diverse mix of funds, including leasing income and extension fees.
Ultimately, our broad revenue pledge saves the University money: this year alone, our approach to bond sales will save about $29 million through our general revenue bonds, compared to project revenue bonds (based on approximately $5.8 billion in general revenue bonds currently outstanding).
The University of California gets high marks from ratings services, enabling us to issue bonds and short-term commercial paper notes, because of confidence that, in the words of a recent Moody’s report, “management and the board [of regents] will remain prudent and focus on utilizing debt strategically in a challenging economic environment.”
That’s something to applaud, not attack with unfounded claims.