COLUMN ONE : Privatizing UCLA: Has the Time Come? : With state budgets tight and private funding up, Chancellor Young says the campus is poised to seek more autonomy from UC.

An act of the state 76 years ago created UCLA, and for years a steady flow of state and federal money nourished it, allowing it to grow into one of America’s most celebrated public universities.

But slowly, quietly, as public funds dwindle, UCLA is going private, transforming itself from a state-supported university into a state-assisted one, with federal research dollars and private donations taking up more and more of the slack.

Now, the university is poised to take the next step. Like a restless teen-ager chafing at parental oversight, the Westwood institution has begun to question not only the way it is funded, but the way it is governed. In recent months, UCLA Chancellor Charles E. Young has even raised the possibility of UCLA someday breaking away from the nine-campus UC system.

“I’ve argued for quite some time that we need to develop a new relationship with the state,” said Young, who has guided the university through the last quarter-century.

“When you pay Ford Motor Co. for a car, you don’t tell them how much they spend here, how much they spend there. You pay them for a product. . . . That’s the kind of relationship we should develop.”

Young wants UCLA to join a growing number of public-private hybrid universities that are owned by the state but draw their funding largely from private sources: tuition, contributions, income from services and patents, and funding from industry for research.

Although they remain accountable to the public, these institutions have greater authority to manage their day-to-day operations, much as a private company would.

To many Californians, such a proposal may seem tantamount to “investing in a stock, having the value go up and someone saying, ‘You don’t own it anymore,’ ” said Patrick M. Callan, executive director of the California Higher Education Policy Center, a nonprofit think tank in San Jose.

Moreover, the idea may put Young in direct conflict with the UC Board of Regents, the appointed body that supervises UCLA and controls its expenditures.

Regent Ward Connerly, while lauding Young for “creative” thinking, said he would be a “fierce opponent” of any plan that would effectively make UCLA independent from the UC system and its eight other campuses.

“Any secession from the union would have to be an act of the Board of Regents,” Connerly said. “I don’t see that happening.”

But Young and others say that in the face of tightening state budgets and diminishing public funding, privatization is the wave of the future. To preserve UCLA’s academic quality, he says, such dramatic rethinking must occur.

Just as corporate giants have restructured to become more efficient, universities must reassess even the fundamental principles upon which they were built.

“Whether the University of California can operate viably as a state-funded institution is in serious question,” Young said. “I don’t believe it can.”

As public funding for higher education plummets, a growing number of state-owned universities have begun to transform themselves. This month, UC Berkeley announced that it had raised a record $156 million in private gifts during the 1994-95 fiscal year. Chancellor Chang-Lin Tien called private giving “critical” to the university’s future.

“Faced with declining government support, public universities nationwide are moving toward a more independent financial base,” Tien said, noting that direct state support accounts for about 37% of Berkeley’s budget, as compared to 49% five years ago.

At UCLA--which raised $110 million in private gifts last year, the third highest total in its history--state monies have dropped to 25% of the school’s income.

Businessman John E. Anderson, whose record $15-million gift endowed UCLA’s graduate management school, said UCLA receives so much money from private donors it is already “almost as much a private university as USC.”

That trend is also evident around the country, at institutions such as the University of Michigan and the University of Virginia.

As it is, the UC system already enjoys a measure of autonomy uncommon among public universities. The state Constitution, aiming to free the system from the vagaries of politics, has made UC independent of the Legislature, except for its annual allocation of funds--last year about $1.83 billion. The university’s 26-member Board of Regents decides how to spend the money and sets policy.

But Young believes that the UC system may have grown too big to be managed collectively. In recent months he has publicly questioned whether the UC’s central administration--the UC president and his statewide staff--is redundant. (Young later apologized). And he has chafed at intervention by some regents, whom he has at times viewed as meddlesome. To improve efficiency, he says, more decisions should be left to the campus chancellors, who now struggle with layers of bureaucracy and state regulations.

“Just in the capital area alone, it costs at least 20% more than it would cost anywhere in the private sector to design and build a building,” Young said. “It takes us longer and we don’t come up with as good a product. And you can just multiply that by a thousand.”

Young is not the first to propose privatization in California higher education. Two years ago, as part of his campaign to reduce costs, Gov. Pete Wilson recommended that one of UC’s four law schools be turned into a private institution by 1996. The proposal was dropped after UC argued that fee increases at the professional schools would effectively end state subsidies for law school students anyway.

But in raising these issues today, Young has placed UCLA at the leading edge of a trend that some believe will eventually affect all of the nation’s top public colleges.

“We’re on a trajectory right now,” University of Michigan President James Duderstadt said at a forum last fall, “where the most distinguished and comprehensive of public universities--perhaps as many as 20 to 30--will be forced by the erosion of public support to operate as public-private hybrid institutions if they are to maintain their quality.”

Near-Constant Growth

From its beginnings in 1919 as a two-year college on Vermont Avenue in Hollywood, UCLA has sustained rapid and near-constant growth. Before it was a decade old, the so-called Southern Branch of UC had adopted a four-year curriculum and outgrown its first campus.

In the early 1920s, a booming state economy helped finance the university’s new home, built on 419 scrub-covered acres in Westwood. At first, only a few Romanesque buildings sprang up among the bean fields and chaparral-covered slopes.

Over the next 20 years, UCLA added graduate departments and professional schools, including dentistry, engineering, law, medicine, public health and urban planning.

Today, UCLA serves about 35,000 students, more than any other UC institution including the older, venerable Berkeley. Although the smallest UC campus in terms of physical size, UCLA packs a huge economic wallop--by one estimate, it contributes $1.4 billion to the local economy.

Its 75th anniversary celebration last year at an elaborate convocation with President Clinton was a crowning achievement for Young and UCLA. It underscored the message that UCLA was not merely in Los Angeles, but of Los Angeles--and among the top universities in the nation.

The UCLA Business Forecasting Project is the authority on the Southern California economy. The dean of its School of Theater, Film and Television, Gilbert Cates, produces the Academy Awards.

Whether hosting a presidential debate or housing Olympic athletes, UCLA has proved that it plays on an international stage. It also maintains ties to the local community: former Mayor Tom Bradley, a UCLA alumnus, has donated his papers to UCLA, while Mayor Richard Riordan counts William Ouchi, a professor in UCLA’s school of management, among his closest advisers.

But as UCLA has grown--it now boasts an operating budget of $1.8 billion--it has become a much more complicated place.

“Universities are corporations,” Young said. “They are businesses. They are entities that have income and expense and budgets and have to do long-range planning and to manage, develop systems.”

Gone are the days, Young said, when the “small little club” of 25 or 30 university presidents “ran their places and spent time in the libraries.”

“Whether the students like it, or the faculty likes it, or the regents like it . . . UCLA is . . . a big operation.”

UCLA officials manage not just an academic program, but multimillion-dollar businesses related to the university’s educational mission: A world-renowned medical center and dormitories and apartments that house 8,000 students.

The school owns real estate throughout West Los Angeles, including warehouses and apartments. Its 22,000-space parking operation is among the largest in the nation.

Most of these functions are controlled by a little-known campus department called Business Enterprises, which is run very much in the spirit of a private business.

When Young decided that UCLA was paying too much for off-campus space, for example, Business Enterprises bought an office building on Wilshire Boulevard to house some of the university’s administrative departments. By buying at the trough of the recession in 1993, officials said UCLA got a bargain price of $38.5 million.

Now, officials say, the rent that UCLA once paid to outside landlords is being used to help pay the mortgage on a valuable asset.

When new student housing was needed, Business Enterprises developed a $92-million, 1,400-bed Sunset Village dormitory complex. During the summer, UCLA makes money on the dorm by renting it as a conference center.

This private-enterprise approach has sometimes raised eyebrows. Last year, a management consultant hired by UCLA questioned why Business Enterprises had accumulated a $34-million surplus, while other departments were reeling from deep state budget cuts. Pass the money around and ease the financial pain, the consultant suggested.

Chancellor Young and his assistants rejected the idea, arguing that no prudent business would operate without a reserve. Business Enterprises needed the money for what one official called “a rainy day.”

Similarly, when UCLA recently built two large housing projects off campus, it opted to save money by paying construction workers less than union scale. State law requires that prevailing wages be paid on public construction projects, but Young argued that the work was exempt because it was financed with private loans, not tax dollars.

UCLA officials estimated that the exemption would save $7 million, allowing them to charge students lower rents, documents show. The university system sued to win the right to pay workers at the lower rate, but in January, a Los Angeles Superior Court judge ruled against UC and in favor of a state labor agency that concluded that prevailing wages should have been paid. While UCLA appeals the matter, state labor officials are investigating to determine whether UCLA owes back wages.

Young acknowledges that his decision was a “risk,” but defended it as good business sense. The prevailing wage requirement, he said, “is silly, is stupid” because it forces the university to pay 15% more than private builders on construction projects.

All this is consistent with Young’s central goal: pushing UCLA to become more financially independent.

Already, the lines between private and public colleges are blurring. At private Caltech in Pasadena, more than half of the operating revenue last year--a full 52%--came from federal research dollars. At UCLA, federal funds make up just 12% a year, or $198 million. In the coming months, UCLA officials hope to launch the campus’ second private fund-raising campaign to raise at least $750 million.

But the decentralized system that Young envisions--where each campus can make its own decisions about how to use resources--would have drawbacks as well. Regent Connerly said he worries that lesser-known UC campuses would suffer if their connections to the premier UCLA and UC Berkeley were made less formal.

“I think that UCLA does have a duty to help bring those institutions along,” he said, noting that it was not so long ago that UCLA benefited from its close connection to UC Berkeley. “I doubt whether UCLA would have the reputation that it has were it not for the value that was added by the fact that Berkeley had paved the way.”

Some analysts also caution that if UCLA tried to renegotiate its ties to the state, it could lose more than it gains.

“We do need to . . . get the state out of the business of expensive procedural regulation,” said Callan, of the California Higher Education Policy Center. “But if the contract is renegotiated . . . other things are going to get on the table.

“For instance, how much research and graduate education should the public pay for? . . . If I’m negotiating for the state I might say, ‘Wait a minute. I only want to pay for undergraduate education.’ ”

Callan concludes: “A lot of the people who are pushing this model haven’t thought through all of the political implications.”

Oregon Idea Falters

What has happened at Oregon’s eight public colleges during the past year offers a case in point. In 1994, then-Chancellor Thomas A. Bartlett proposed lessening state regulation and turning the Oregon State System of Higher Education into a “public corporation.” The idea was to streamline the public agency and make it more efficient by making it more independent. Some predicted that $20 million could be saved in two years.

But instead of being heralded as a bold experiment in cost-cutting, the proposal was broadly seen as a threat to state governmental power. Legislators accused the colleges of trying to avoid public accountability. Bartlett retired.

Looking back, some educators feel that the very terms that advocates of the proposal used--terms such as “public corporation” and “privatization”--cause problems. With talk like that, one administrator told the Chronicle of Higher Education recently, the Oregon colleges “confounded our friends and confused our critics.”

The University of Michigan has been more successful at privatizing, though that is partly because it--like the UC system--enjoys constitutionally protected autonomy. There, the state pays for 26% of educational programs, as compared to 42% two decades ago. State support makes up 14% of total revenue, and Duderstadt predicts that will decrease to about 5% by the turn of the century, as private funding grows and state appropriations shrink.

Still, Duderstadt says the university must be careful to balance its increasingly private nature and its public mission.

“It is a very difficult matter because the people on the street in Detroit or Saginaw believe they own the University of Michigan,” he said. “In terms of actual support, they pay for only about one-tenth of our operations, which makes them our smallest minority shareholders. Yet, technically, they still own us.”

Relying on private funding can bring its own complications. Earlier this year, Yale University was forced to return a $20-million gift that was to have funded a new interdisciplinary survey course in Western civilization. The donor, frustrated by how long Yale had taken to establish the course, demanded that he be given the authority to approve its faculty members. Yale deemed this an “unacceptable condition” and returned the money.

The incident was a stark reminder that private donations, like state appropriations, come with strings attached. Some schools have also had trouble collecting promised funds from donors.

Still, some public institutions say the payoff is worth the risk. In 1992, St. Mary’s College, a small liberal arts school in Maryland, reacted to state funding cuts by renegotiating its relationship with the state, forfeiting some money to gain more autonomy.

In sharp contrast to Maryland’s 12 other four-year public institutions, St. Mary’s was given extensive control over its budget, its property and assets, its personnel and procurement and decisions about borrowing money. In exchange, it agreed that its future state appropriations would increase no faster than the rate of inflation. And if the college wanted to grow--building new buildings or hiring more faculty members--it would probably have to tap other resources to pay for it.

Three years later, officials there believe they have struck a healthy balance. With more control over its finances, St. Mary’s can plan with greater predictability than before--a benefit usually enjoyed by private schools. But administrators stress that they still comply with state accountability rules and take their public mission seriously.

Some educators believe that arrangements like the one struck by St. Mary’s may become more common. A sea change is occurring in higher education policy in the United States that is as dramatic as any to date, they say.

A century ago, public universities were created to offer higher education to the common man. Called land grant colleges because states were given federal land to sell to pay for them, these institutions were committed to broad access and service to society.

After World War II, there was a second revolutionary innovation in American higher education. The educational needs of returning veterans, the role of universities in national defense and the booming postwar economy led to the creation of bigger universities where campus-based research was increasingly paid for by the federal government.

Today, former UC President Clark Kerr argues in his book “The Uses of the University,” a third transformation is taking place.

“In the 1860s, there was the land grant university,” Kerr wrote. “In the 1960s [there was] what I called the ‘federal research grant university,’ and in the future may lie increasingly the ‘private grant’ university.”