California’s Master Plan for Higher Education, developed in 1960, laid out California’s higher education policy by assigning missions to the different higher education segments, which include the University of California (UC), the California State University (CSU) and California Community Colleges (CCC), specified eligibility goals, and expressed state goals of an affordable, high-quality and accountable higher education system. This commitment to higher education translates into over $9.8 billion dollars or 11.6 percent of the state’s proposed budget, with K-12 education comprising the largest share of state expenditures at 42.8 percent followed by health and human services at 25.0 percent as seen below.
In recent years, proposals to reduce state funding of higher education have been raised as a way to reduce state spending. Proponents argue that the primary beneficiaries of public institutions should be incurring the majority, if not all, of the cost. College graduates have clear private benefits. Different research studies estimate that college graduates earn over $400,000, $900,000, $1.2 million, and $1.6 million more than non-college graduates over the course of a lifetime. Others, on the other hand, argue that although there is clear individual benefit, there are public benefits to having an educated workforce that the state should encourage. One study indicates that for every new dollar California invests to get more students in and through college above current levels, it will receive a net return on investment of three dollars. Additionally, studies have indicated that California faces a skilled workforce gap, which has a significant impact on California’s economy.
California currently provides the bulk of higher education funding, with differences across the different systems, and student fees (tuition) comprise a much smaller percentage of funding. However, the cost of higher education has increasingly been born on students and families. However, tuition for CSU remains relatively low to comparable institutions at $4,884 for 2011-12. CSU tuition is currently about 61 percent of the group average. UC tuition for 2011-12 is $11,124, putting UC in the middle of comparable groups.
The state should continue to fund higher education as it (1) ensures an efficient allocation of society’s resources as it address market failures, specifically the positive externality of higher education, (2) reduces income disparities and provides a safety net by providing low-income students access to higher education, specifically higher wages and (3) fosters economic growth through a skilled workforce whose earnings and productivity are higher than unskilled workers. In light of budget shortfalls, an alternative financing mechanism of high fee, high financial aid model is offered if the level of financial aid drastically increases to meet student needs and more transparency is provided in how financial aid is calculated so that families are aware of their expected contribution. Other financing suggestions to contain cost by reducing time-to-graduation, charging different rates based on class time and major, and investing in retention efforts.