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UC System Contemplates Tuition Hikes, Faces Shocking Pension Obligations

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Students rebel against a 8 percent tuition hike to overcome some short-time budget shortfalls; meanwhile, the University of California system faces a truly daunting nearly $30 billion in unfunded pension and health care liabilities.

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Via the Santa Cruz Sentinel, details on the fiscal problems the hike is meant to help resolve--connected, natch, to the state's larger lack of money issues:

State support for UC is 10 percent below 2007-2008 levels, and the current state budget has only restored $370 million of the $637 million in cuts from a year ago....

The proposed 8 percent increase, $822, would bring fees to $11,125, or an average of $12,150 with campus-based fees included....

Student body leaders plan to be at the Board of Regents meeting next week to express their concerns over the impact of the added fees. "With all the cuts, this is not the UC Santa Cruz I originally came to," said Claudia Magana, UC Student Association president. "In four years student fees have increased almost 50 percent. How are you supposed to plan for that?"

Still, the hikes would only hit students from families that can theoretically afford it--those with $120K or more annual income. And any student with family income under $80K (a higher limit than the previous $70K) would have their fees covered by the state. And UC president Mark Yudof vows that of the $180 million that the free increase should bring in, a third will be used for student financial aid.

The cheaper Cal State system is also contemplating hikes:


Cal State trustees will vote this week on two tuition hikes, 5 percent, $105, for the second part of the current school year and 10 percent on top of the new fee, $440, for the 2011-2012 school year.

At the Inside Bay Area site, Daniel Borenstein lays out the real long-term UC system money problem: Employee health care and pensions. The grim details, and Yudof's mild current plans to deal with them:

First, on health care:

Since 1962, UC has promised health care coverage to retired workers. But rather than set aside money to cover the costs, the university has only paid the health insurance premiums when they come due. It's like promising a pension but failing to save money to fund it. It's a financial time bomb.

To adequately cover the retiree health benefits current and former workers have earned, UC should have set aside $16.1 billion by July 1, 2011. That "unfunded liability" is equal to more than two-thirds of the university's annual budget.

Yudof proposes two changes. First, he would reduce for all retirees the university's standard contribution to health care premiums from 89 percent of the cost to 70 percent over about the next six years.

Second, he would change the eligibility rules. UC currently makes the full standard contribution for 20-year employees who are at least age 50 when they retire. Under the new rules, 20-year employees would have to be 65 when they retire in order to receive the full benefit. Younger employees and those with less experience would receive smaller amounts.

But Yudof chose not to apply the second change to about half the current employees, thereby significantly reducing the potential savings. Consequently, the university would still be left with an unfunded liability of $13.4 billion by next year. Moreover, since Yudof has no plans to set aside money for future costs, the debt would continue to grow, reaching $21.9 billion in 2020.

And pensions, on top of that? Turns out for the past two decades, employees of the UC system haven't been making any contributions to their future benefits at all. And that might be good for them, in the short term, but in the long term bad for them, and the state's taxpayers and future would-be users of the UC system:

The contribution "holiday" started in 1990, when the UC retirement system had surplus funds, which ended this year. If the university and its workers had made payments over the past two decades, there would still be more than enough money in the pension system today.

Instead, the retirement program is underfunded and getting worse. The $6.3 billion liability does not yet account for most of the 2008 investment losses. To climb out of the hole, two things must happen.

First, UC and employees must contribute enough to cover the liability increase created each year as employees earn more future pension benefits. Right now, that liability increase is about $1.4 billion a year, or, put another way, about 17.6 cents for every dollar of salary.

UC policies adopted earlier this year require UC and its employees to start contributing again, but not enough to cover the liability increase. Employees are now paying 2 to 4 percent of payroll, and the university is contributing 4 percent. By 2012, that will ramp up to 5 percent and 10 percent respectively, shy of the needed total 17.6 percent. That shortfall means the system underfunding will worsen.

California's Board of Regents will be considering the changes to student's fees and employee's benefits this week.

Past City of Angles blogging on student's anger over last year's tuition hike in the UC system..

Image taken by Flickr user Curtis Cronn. Used under user Creative Commons license.

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