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What Lies Ahead?

Why would a return to business as usual be inadequate? In its own way, each of the reports emphasize two issues: the striking enrollment growth and associated costs that can be foreseen over the next decade as the population increases, a projected growth that has been called Tidal Wave II; and a concern that state budgetary resources will prove inadequate to fund this expansion if higher education continues to operate under business-as-usual procedures. First, consider the projected enrollment growth.

	Figure 4: Click for larger image

Tidal Wave II
Tidal Wave II has been a term commonly used for several years to refer to the "echo-boom" that is caused, in part, by the children of the original "baby-boom" generation coming of college age. In California, this echo-boom is compounded by net in-migration from other states and by immigration from other countries, each of which contributes to the potential demand for higher education. All four of the reports accept the consensus view that Tidal Wave II can be expected to add approximately 500,000 additional students to California higher education between the mid-1990s and 2005-06 (see Figure 4).⁶

Each of the reports also emphasizes the fact that the California population is increasingly diverse, with as many as 150 different languages spoken, and with Asian, Latino, and black youngsters making up increasing shares of the potential group of college-going citizens. RAND's Breaking the Social Contract, however, is the most outspoken of the reports in its concern about the future of California society if the several minority populations fail to gain access to higher education. Figure 5, which demonstrates the issue, shows an index that conveys the ratio of the number of students in higher education for various ethnic/racial groups to the total number of 18- to 29-year-olds in those groups. Given the link between higher education and earnings in the labor market, the RAND authors argue that California could be sitting on a keg of social dynamite if the gaps between participation rates by race and ethnicity are not narrowed.

	Figure 5: Click for larger image

This dilemma has been made more difficult by the enactment of Proposition 209, which prohibits the use of racial or ethnic preferences in admissions policies. The problem facing the University of California, for example, is indicated by Figure 6. Finding acceptable ways to increase enrollment of Latino and black students in the UC campuses is, perhaps, the most challenging issue facing that system. In addition to the moral aspects of this issue, the practical political fallout for UC is likely to be damaging if its student body is not broadly representative of the state's citizens.

In February 1998, the Office of the Legislative Analyst published a report suggesting that projected increases in enrollment will not be of tidal wave proportions.⁷ This is not the place to critique that report,⁸ other than to note that it contains little of the social concern best exemplified by the RAND report, and assumes that current low participation rates by Latinos and blacks will continue. The report also argues that enrollment can be suppressed below levels it might otherwise reach, through such policies as raising tuition, changing eligibility standards, and other techniques of enrollment management. In my interviews throughout the state, I found virtually no one willing to accept the Analyst's report as the right basis for policy decisions, and the next governor will quickly discover that his own executive branch agencies use the larger figure for planning purposes.

State Budgetary Outlook
If we assume that as many as 500,000 additional students may knock on the doors of California's colleges and universities in the next decade, why do the reports assume that operating under a business-as-usual mode will be unable to handle such growth? I draw directly from the reports in exploring this question.

Shared Responsibility provides the most comprehensive analysis of the financial problem and ways to solve it. Their calculations indicate that:

The expenditures required over the next ten years to accommodate the 488,000 new students would be about $5.2 billion in new programs and buildings under the "business-as-usual approach." This estimated cost is only for the additional state costs of educating the additional undergraduates. . . . Belief that $5.2 billion for programs and buildings will be available over the next ten years if current fiscal and educational practices continue requires optimistic-indeed, unrealistic-assumptions about state revenue growth or higher education's share of these revenues, or both.⁹

Authors of this report provide a framework for actions by the state, by colleges and universities, and by students and parents for sharing the benefits and burdens of meeting the enrollment challenge in a more cost-effective way (to be described later).

	Figure 7: Click for larger image

The RAND report paints an even gloomier economic picture, based on an assessment of multiple future demands on the state's general fund (see Figure 7). Essentially, the authors of the RAND report see much of the state's budget as determined by mandatory expenditures for health and welfare programs, K-12 education, and corrections, leaving higher education increasingly vulnerable as part of the small, discretionary share of the budget. Over time, they see that discretionary share diminished, thereby denying higher education the amount of state support required to meet Tidal Wave II.

	Figure 8: Click for larger image

The California Citizens Commission focuses more on business cycles in the economy, emphasizing that although the economy is surging now, downturns will inevitably occur, resulting in cutbacks similar to those of the early 1990s. The commission also notes that higher education has received a steadily declining share of state general funds over the past 20 years, as Figure 8 shows. As a result, the commission stresses the need for fundamental reform in the method of financing higher education, moving away from the year-at-a-time approach and toward a method of stabilizing funds over the cycle. But even should their reforms be enacted, the commission also argues that institutions must achieve productivity gains if the enrollment demands of Tidal Wave II are to be met.

California at the Crossroads is essentially an argument by the higher education institutions for a second multi-year compact, modeled on the previous one adopted by Governor Wilson. The document is most specific in presenting its budget request to the state; it is less precise in dealing with restructuring higher education and increasing the accountability of colleges and universities. The report is not clear on whether or not Tidal Wave II can be handled by the colleges so long as their budget request is met, nor does it suggest that anything other than a lack of will may prevent the state from providing the funding proposed. In this respect, this report is less comprehensive than the other three.

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© 1998 The National Center for Public Policy and Higher Education