Cal State Budget Cuts Are Bad for Business

It doesn’t get much attention in the business pages, but few things matter more to the long-term health of California’s economy than what’s happening now to the sprawling Cal State University system.

Thanks to a state budget shortfall of perhaps $11 billion in the current and upcoming fiscal years, Gov. Pete Wilson and legislative leaders have asked state agencies to prepare for a possible 15.5% budget cut, which would mean $250 million less in state money for the Cal State system.

Hoping to avert that eventuality, Cal State has announced dire-sounding plans to prepare for an 8% cut. Chancellor Barry Munitz says the system is being pushed into an abyss.

Of course, anyone whose ox is gored will scream bloody murder, and no doubt CSU is portraying these cuts in the worst possible light in order to avert them. But in fact, CSU has already had several years of bare-bones funding, and this year will probably have to slash spending radically. Christopher Cabaldon, chief consultant to the Assembly Higher Education Committee, warns: “The cut is likely to be double digits.”

So why is this such a big deal for business?

First and most obviously, a knowledgeable work force is indispensable these days, and higher education may be the cheapest way to produce one.

Paul Brinkman, co-author of the book “The Economic Value of Higher Education,” figures that society gets a 12% average annual return on every dollar spent on higher education, even by the narrow measure of incremental taxes paid. That’s to say nothing of the financial gain from increased entrepreneurial behavior, less crime, better health and a more informed citizenry, all of which go hand in hand with a college degree.

Brinkman says individuals probably also get back 12% a year on what they spend for college, and a recent Census Bureau report, based on 1987 data, says holders of bachelor’s degrees earned an average of $1,829 per month, almost double the $921 earned by high school graduates with no college.

Second, with 362,000 students at 20 campuses, Cal State is the backbone of four-year higher education in this state. CSU says it produces 50% more business graduates, computer scientists and engineers than all the other colleges and universities in California combined.

Third, what happens at CSU will reverberate throughout the economy for years to come. For one thing, its graduates tend to stay in California: CSU cites an estimate that its alumni now make up 10% of the state’s work force. CSU also prepares 70% of the California public school teachers educated here; by debasing the training of future teachers, we risk doing likewise to public education.

Higher education all over California is on short rations. But the state’s two-year college system (with an astounding 1.5 million students) is assured a fairly steady funding level by Proposition 98. And the elite University of California system gets far less of its money from the state, so it won’t feel its own cuts as severely.

Does spending less mean less education? Not automatically. Studies of grades K-12 seem to show little correlation between spending and performance--except at the extremes. But Cal State teachers already carry a heavier classroom load than their UC counterparts, and a lot of the frills have already been eliminated.

Even allowing for exaggeration, the picture at Cal State is grim. Cabaldon, for instance, says some schools would eliminate entire courses of study immediately, forcing some students to transfer or begin new majors, and likely delaying some graduations. The average Cal State student already takes 5.5 years to finish, partly because students are so often shut out of oversubscribed courses. The lost earnings and productivity arising from delayed graduations are never fully recovered.

At San Francisco State’s School of Business, Dean Arthur Cunningham says the budget reductions would force him to lay off all his lecturers--who tend to have the most experience in business--in favor of tenured and tenure-track professors.

Students would need six years to get an undergraduate degree, and the enrollment of 7,000 couldn’t be maintained. A program in hotel and restaurant management, begun two years ago to train managers for the city’s big tourist business, would have to be curtailed.

Now, a lot of this is nobody’s fault. Recessions happen, tax revenue falls, and thanks to various propositions and requirements, the Legislature has little spending or fund-raising flexibility.

But some of this is Cal State’s fault. The system has never raised an endowment, for example, and while other colleges dog their alumni for contributions--my alma mater keeps better track of me than my mother does--Cal State received a paltry $96 million in donations in 1990-91, versus $414 million at the much smaller UC system.

It’s time for CSU to make sure that its more than 2 million alumni give something back.

Cal State also needs to work harder on corporate ties, which won’t be easy. Cunningham notes that in the Bay Area, for instance, executives are often from Stanford or UC Berkeley. Those executives support those institutions for sentimental reasons, even though their businesses depend on middle managers and computer programmers from Cal State.

Cal State’s biggest mistake has been failing to raise fees. Higher prices tend to discourage consumption, and nobody wants to discourage consumption of education. But Cal State is an amazing bargain at just $936 a year, the second-lowest fees of any truly comparable institution in the country. As a result, CSU students pay just 14% of overall expenses, which come to about $2 billion.

CSU is now proposing a 40% hike in fees, but that would still bring in only about $80 million after deducting the additional financial aid some students would need.

Further hikes are inevitable, but that’s not even so bad. Full-time Cal State undergraduates earned a median income of $4,800 in 1988 (the latest figures available), and the parents of dependent undergraduates that year earned $43,800.

At Cal State Northridge, half the students have parking permits, so presumably they can afford cars. What they can’t afford is for the Cal State system to deteriorate any further.