A state oversight agency Monday sent an urgent message to California’s higher education leaders and public officials: out with the old, in with the new.

In a report on the future of higher education, the Little Hoover Commission said that it’s time to scuttle the 1960 Master Plan for Higher Education and draw up a new agenda that creates more college graduates to meet workforce demands.

The current three-tier system, developed originally to expand enrollment for an influx of baby boomers, is failing to produce sufficient degree holders in a new era of finite resources, the commission found.

“California is projected to face a shortfall by 2025 of 1 million students with four-year degrees and more than 2.3 million with degrees, certificates and diplomas needed to meet the state’s workforce requirements,” the report said.  “Enrollments at California’s higher education institutions have not kept pace with population growth, and tens of thousands of qualified California students are unable to attend public colleges every year.”

Key stumbling blocks are insufficient course offerings and so-called bottleneck courses such as English, algebra, history and others that students need to graduate but are in high demand and often over-subscribed.

California community colleges, for example, had to cut classes and turn away more than 600,000 students in recent years because of budget reductions.

Though the state increased higher education spending this year, institutions can no longer depend on the general fund to support enrollment needs, the commission said.

“The economy now is a different one than before we went into the recession,” said Stuart Drown, the commission’s executive director. “There is clear job growth in areas that require some level of higher education, and we should be producing graduates here in California.”

The commission is an independent, quasi-governmental 13-member panel whose conclusions are submitted to the governor and legislature. 

The report found that all three segments -- community colleges, California State University and the University of California -- had lagged behind institutions such as Stanford, Harvard and MIT in adopting online technology that could reach thousands more students.

Many faculty, students and administrators remain cautious of online efforts, especially after a highly touted experiment at San Jose State University produced mixed results, with many students initially failing the for-credit introductory classes. The university temporarily suspended its collaboration with the for-profit online provider Udacity this semester to work out kinks.

"It’s easy to oversell online education but easy to reject it, and what’s happening now is resistence,” Drown said. “But it’s something that needs to be explored and developed.”

Though institutions have begun to address the challenge of helping  students finish degrees or certificates, the report recommends a number of additional strategies, including incentives for developing online courses, especially those that can be transferred to all campuses at all three systems, and linking a portion of state funding  to performance, such as increased participation and completion rates.

College officials said they are still studying the report.

“The CSU is engaged in a number of initiatives that strive to increase efficient and effective service to students,” said Ephraim P. Smith, executive vice chancellor and chief academic officer for the Cal State system. “We are reviewing the commission’s findings and recommendations, and anticipate continued collaboration with the other higher education systems to meet workforce demands for degreed professionals across all industry sectors.” 

Paul Feist, a spokesman for the community colleges chancellor’s office, said his system looked “forward to the discussions the report will generate in the spirit of improving public higher education.”

“The California community college system has embarked on a comprehensive student success initiative that is designed to improve graduation and transfer rates and meet the workforce needs of our changing economy,” Feist said. “At the same time, we’re improving efficiency, transparency and accountability."

A University of California spokeswoman had no comment, saying the report was still being reviewed. 

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