Tuesday, September 1, 2009

CONT: Can Doubling Out-of-State Students Save Berkeley's Budget?

We are told that at a recent meeting with some Berkeley faculty, Berkeley's Chancellor Robert Bigeneau offered ideas about how to make up this year's $147 million cut over 3 to 4 years. One of these is getting much more revenue from Non-Resident Tuition, otherwise known as NRT.

The figures from this meeting are that UCB's 2009-10 class will be 13% out-of-state. This figure includes international students (their numbers are up 205% from a small base of under 100 in 2004.) This is an increase from 11% out-of-state in Fall 2008.

How many students is that? Berkeley recorded 24,636 undergraduates that year, of which 2427 were out-of-state US or out-of-country and thus required to pay NRT. NRT was $19,068 for 2007-08, so multiplication gets us a gross NRT revenue for the Berkeley of $46,278,036 - or $46 million for short.

There are going to be more boring paragraphs like that in this entry, I have to warn you. But it will all be worth it in the end.

Fast forward to the current year. Enrollment tables aren't ready for this fall, but last fall Berkeley had 25,151 undergrads, and probably no more this year given enrollment restrictions. NRT is now $22,020 per year, and if 13% of Berkeley's 2009-10 undergrads must pay NRT, which is somewhat more than 3200 students, then the campus is collecting about $70.5 million in gross tuition from out-of staters.

Chancellor Birgeneau is reported to have envisioned a doubling of the percentage of out of staters to about 25% of the Berkeley undergraduate population. By comparison, this year's University of Michigan 1st year class is 34% out-of-state. Birgeneau then went on to say that a doubling of the percentage would yield about $70 million a year, apparently 3-4 years from now.

The fact that the campus seems to double out-of-state students and still winds up with the same revenues does have a good explanation: the $70.5 million is a gross revenue figure, meaning that it doesn't subtract scholarship funds (or "return-to-aid" - RTA), additional admissions and recruitment costs, and other factors. Some studies suggest that "net tuition" is sometimes as low as half of the tuition sticker price, and Berkeley officials seem to have done some such calculation. Once a campus starts to compete seriously for "blue chip" students that have excellent academic records and can also pay most of their tab, a campus makes a larger number of discounted offers that are expensive for the campus to make. (It also starts to spend more on student centers, football stadiums and other lifestyle features.) In this case, it would also take years to get the full student population to the 25% out-of-state level, since the campus is increasing the ratio of out-of-state students one 1st-year class at a time. All things considered, Birgeneau is being pretty conservative about the net revenues such a move would produce, which is very much to his credit.

All this of course raises the policy question all over again: if each out-of-state student nets $11,000 of new money to the campus, is the sum worth the impact a doubling of their numbers would on the campus and the state, not to mention the further reduction of public support for public funding? But we need to do more adding and multiplying before we can consider it.

There are three issues with the argument for NRT's financial benefits.

The first is that there's a ramp-up to the 25% figure, so perhaps as little as $20 million of new money would be available in 2010-11. The second is that the "present value" of $70 million in four years is quite a bit less than that. It could probably be generated by investing some unexpended funds from various parts of UCB's current operating budget, without any risky policy changes.

The third issue is the most basic: net NRT revenues are just much smaller than the size of the cuts, and can fix only a small piece of the problem.

The new money needs to be compared to overall revenues and expenditures, not just to the $147-150 million that was cut this year. Berkeley spent about $545 million on instruction in 2007-08, and $423 M on research, meaning that about 62 cents of a dollar that is split between instruction and research goes to instruction. To oversimplify, if you add in Student Services ($117 M), 62% of Academic Support ($73 M), of Institutional Support ($79 M), of Operation and Maintenance of Plant ($47 M), and let the other categories go, you get to an expanded total of $861 million for Instruction. (Yes, I do believe Instruction is intimately tied to Research - I'm just trying to make the best hypothetical case for NRT.) The whole nut of UCB expenditures is $1.8 billion.

In this budgetary context, $20 million is 2.3% of my expanded Instruction figure, and about 1% of Berkeley's total expenditures. In Year 4 of this scenario, after the out-of-state percentage of the undergraduate population has doubled, the Chancellor's $70 million would amount to 8% of this year's Instructional funds, or under 4% of this current year's total budget. Massive tuition increases and cost increases may change this percentage, or factors may cancel each other out and leave us at that percentage, so I'll omit compounding growth and other fun details.

Now back to the policy. It seems obvious to most of us who follow politics that there is a replacement effect between private and public revenue streams: if voters and politicians see that you can make up for cuts in taxpayer funds with an increase in a user fee like tuition, they will happily cut taxpayer funds so that somebody beside them - the user - has to pay. There's a certain short-term logic to this, fueled by ordinary human dumbness and selfishness. Unfortunately, UCOP has refused for years to acknowledge the theoretical possibility of this problem - at least with their faculty - and have never bothered to quantify this replacement effect, at least publicly.

But the Regents have been raising fees 7-10% a year for all but one of the years of this decade. Why would a single voter assume that UC still needs the allocation of state money that it had in 2001, or 2007? For every thousand dollars of per-student fee increases, how much General Fund money have we lost? If fees explode in the next couple of years, how much more GF will we lose? Throw in "out-of-stater" politics, how much more is that loss likely to rise?

Still omitting ethics, educational, and social implications, here's what I see. I am looking at a low revenue yield for NRT (under 5% of total campus budget, and under 10% of expanded Instruction), and am looking at negative budget politics (20% GF cuts this year, 60% cut since 1990, and no official claims that the worst is over).

So my conclusion is this: doubling out-of-state students isn't worth it. Berkeley shouldn't do it.


Jerome said...

Chris is doubtless correct that increased out-of-state fee income will doubtless be matched (and perhaps over-matched) by further cuts in the state budget. One implication that he does not spell out, however, is that the state cuts will not be targeted at Berkeley, but at UC as a whole. And so campuses that are unlikely to be able to attract as many out-of-state students will suffer greater losses. Yet another step towards a two-tier system.

Jerome Neu (Professor of Humanities, UCSC)

Anonymous said...

I'd add that demographics are against us: lots of other universities want CA students to come to their state, we are hardly going to enter into a swap deal with michigan. US-NRT isn't going to swell like that, and anyway, US students become residents within a year, typically. the only hope to find people paying full ride is to recruit foreign students willing to pay full tuition at the UC. and those who can afford to do so can also afford our toughest competition.

forget europe, where universities are far, far cheaper than the UC can ever hope to be, at this point. that leaves affluent asians, some affluent africans. the UC has not engaged in PR campaigns in those areas. the brand may still be strong, but those students may well prefer, at that price tag, a smaller university or college that already knows how to accommodate foreign students.

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