California Stands to Lose Billions in Future Economic Returns by Continuing to Underfund CSU and UC

Last month, the University of California (UC) and the California Community Colleges (CCC) announced a new partnership that guarantees admission to the UC for qualified community college students. This agreement follows in the footsteps of a similar admission guarantee between the CCC and the California State University (CSU) and marks a step in the right direction in terms of system-wide alignment that sets up successful pathways for all degree-seeking California students.

However, anyone who has looked at state spending on higher education may not be so optimistic. As we highlighted in a recent analysis, per student spending at the CSU and UC are well below pre-recession levels and are significantly below the funding request from each institution. Governor Brown’s 2018-19 budget proposal continues this trend, allocating a mere 3% General Fund base increase for both institutions. While state leaders deliberate over these marginal increases and whether the universities have been spending wisely the pennies they have been given, the future of California’s students and of our state’s economy hangs in uncertainty.

One of the greatest consequences of underfunding our public institutions of higher education is that thousands of students who are qualified for admittance to the CSU and UC do not attend because of capacity limitations. And while most of these students enroll elsewhere, thousands skip college completely. This state disinvestment in higher education landslides into an underdeveloped workforce that undercuts California’s economic competitiveness, weakens tax revenues, and diminishes the educational, career, and life outcomes for students.

More Students Are Graduating High School College-Ready, and More Are Applying to College

The good news is that California’s high school graduation rate is on the rise. Overall it has gone from 75% in 2009–10 to 83% in 2015–16, with annual increases in six straight years. Minority students have shared in these gains, with African American, Latino, and American Indian students experiencing the largest high school graduation rate improvements. Graduate rates among English language learners and low-income students have also increased. More good news: The percentage of high school students meeting the course requirements needed for admission to the CSU and the UC has increased from 35% in 2006 to 45% in 2016. Freshman and transfer applications to the CSU and the UC are also up. Applications for the CSU have increased 22% since 2011. The UC has seen application increases for thirteen consecutive years, with a 6% increase in the past year alone.

Thousands of Qualified Students Do Not Attend the CSU and UC Because Our Public Universities Cannot Accommodate Them

The bad news is that between the CSU and UC, around 40,000 qualified students are turned away from our public universities each year due to capacity limitations. This past fall the CSU denied admission to over 32,000 qualified students — approximately 21,000 freshman and 11,000 transfer students — due to a lack of capacity. In 2012, this “qualified-but-denied” CSU population was 22,000, which means there was an increase of over 10,000 denied students in just five years. While the UC does not technically “deny” any eligible student, qualified students who do not receive admission to their campus of choice are referred to the only campus with available space, UC Merced. In the fall of 2016, 8,153 UC-eligible freshman students were referred to UC Merced under this referral policy. Of those referred, only 106 submitted an intention to register at Merced. This means that over 8,000 eligible students applied to the UC, were accepted, and did not attend after being referred to Merced.

While most of the students who run into capacity limitations do attend a public or private university elsewhere, a significant number do not attend any college. For instance, CSU research indicates that, of the qualified-but-denied CSU students, between 7,000 and 8,000 — nearly 1 in 4 — were not found in national college databases. There are several reasons California should be concerned about this population of students.

The Potential Economic Returns of These Would-Be-College-Graduates Are Substantial

The positive life outcomes for college graduates are well documented and include higher incomes, better health, and improved social and economic mobility. The Public Policy Institute of California found that Californians with a bachelor’s degree earn $87,000 a year on average, more than double the $41,000 for those with only a high school diploma. One study from UC Berkeley suggests that for every $1 California invests in higher education, it will receive a net return on investment of $4.80 in terms of increased revenues (on taxed earnings of these graduates) and savings in social services spending and incarceration costs for students who graduate. The working-lifetime return to the state per student who completes a BA is estimated to be over $200,000. Based on these estimates, if 7,000 of the degree-seeking CSU qualified-but-denied applicants who didn’t attend college were to attend and graduate from the CSU, California would gain over $1.4 billion during their working-lifetime.*

Failing to Adequately Fund the CSU and UC Shortchanges California’s Students — and the California Economy

For years, the Legislature has debated how much to fund the CSU and UC, whether the institutions are spending funds efficiently, and what share of college costs the state should cover. Governor Brown’s 2018-19 budget proposal would provide a $92 million funding increase for each sector — with no designated funding for enrollment growth. Meanwhile, the CSU is requesting $191 million in additional funding, $40 million of which would support a 1% enrollment increase (about 3,600 full-time students), and the UC is requesting $140 million above the Governor’s proposal, with $5 million to support 500 new undergraduates. The relatively small disparities between what’s in Governor Brown’s proposed budget and the institution’s budget requests, which continues recent years’ trends, underscores that our state’s leaders have yet to come close to closing the gap between demand and capacity at the CSU and UC and for addressing the negative economic implications of those decisions.

California Needs a Better Vision

Recent improvements in high school graduation rates and college-readiness demonstrate progress strengthening school-to-career pathways and closing the opportunity gap. However, many students are still not benefiting from this progress. Every year thousands of qualified students are turned away from our public universities as a result of state leaders failing to invest in the CSU and UC — major engines of economic growth and opportunity for California students, communities, and the state. Current budget and policy conversations around higher education funding are often short-sighted and tend to overlook the reality that chronically underfunding our public universities leaves deserving students behind and also impedes our state’s economic growth. Instead, state leaders should turn their attention to crafting multi-year plans for investing in increased access and affordability in order to meet growing demand, and identifying the funding sources to make those investments possible. If California wants to be prepared to meet the workforce demands of the 21st century, create pathways for upward social mobility, and retain the economic gains that stem from a highly educated workforce, it must significantly boost investments in the CSU and the UC.

— Amy Rose

* These estimates are based upon average historical state General Fund support per full-time-equivalent student using a 0% discount rate. Using a 2% discount rate, the return on investment is $2.80 for students who complete college. For details, see UC Berkeley, Institute for the Study of Societal Issues, California’s Economic Payoff (April 2012).