UC Newsroom http://www.universityofcalifornia.edu/news/article/22164 Faculty union leader's claim about student fee increases called misleading Date: 2009-10-20 Contact: University of California Office of the President Phone: (510) 987-9200
Responding to an open letter from a faculty union leader to students, University of California officials said today (Oct. 15) that claims by UC Santa Cruz professor Robert Meister about student fee increases are misleading. Professor Meister, president of the Council of UC Faculty Associations, said in the letter that student 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. In a joint statement, UC Chief Financial Officer Peter Taylor and Vice President Patrick Lenz, who heads the UC system's budget office, said: "It's misleading to say that educational fee increases are being implemented to allow us to borrow more money for capital projects. 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." They noted that the educational fee — equivalent to tuition — provides general funding for university operations, including instruction and support activities, and is counted as general revenue. While general revenue is pledged as security for bonds, educational fees are not used to pay debt service, Taylor said. 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; and miscellaneous, such as leasing income and university extension fees, approximately 12 percent. "Educational fee increases are a direct result of the state's steady disinvestment," Taylor and Lenz said in the statement. "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, 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, the UC administration has proposed raising fees 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. "Capital projects are essential to the health and safety of the entire UC community and to every aspect of the educational experience — the buildings where students learn and the dorms where they sleep, for example," Taylor and Lenz said in their statement. "The university's general revenue pledge enables UC to maximize financing flexibility," they said, "and that's increasingly important as the state continues to downsize available capital resources for the university." The university requires that an internal source of repayment be identified for each campus project. The sources of repayment in most instances tend to be indirect cost recovery from grants, auxiliary revenues and medical center revenues. Other revenues that can and have been used are student referendum fees (such as those for student union projects), registration fees for projects related to student life and nonresident tuition for deferred maintenance projects. Taylor estimated that the university today saves about $29 million through general revenue bonds, compared with project revenue bonds (based on approximately $5.8 billion in general revenue bonds outstanding). As part of the general revenue bond structure, he said, the university does not have to finance inefficient reserve funds or provide mortgages on our facilities. He said the University of California gets high marks from ratings services, enabling it 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."