University of California Profits from Selling Seats to Out of State and International Students, and Does So at Great Expense to California Families.
The University of California may be out of compliance with the University's Master Plan. As a California public institution, the UC should have as its priority a commitment to serve California residents.
"According to the Master Plan for Higher Education in California (Master Plan), which proposed the roles for each of the State’s institutions of higher education, the university should select for admission from the top 12.5 percent of the State’s high school graduating class". [Summary - Results in Brief - 2nd Paragraph]
The University of California may in fact be failing to meet that mandate when it refers California students that are qualified to enter flag ship schools like UC Berkeley and UCLA into a referral pool that only offers them UC Merced.
During the Course of a 2014-15 audit, the audit found that 98% of California students who were denied admission to the UC of their choice and became part of the referral pool declined the offer because the majority of offers were to UC Merced. Students that were qualified to attend flagship schools like UCLA and Berkley went outside the UC System, often to expensive California private schools, or out of state schools with expensive out of state tuition rather than accept UC Merced.
While the UCs' decision to increase nonresident enrollment may result in billions of dollars in increased tuition revenues for the University, the UC fails to consider the cost burden that is placed on the families of displaced California students.
California's best and brightest students are being forced to spend hundreds of thousands of dollars in increased tuition to get a comparable four year education outside the UC System. The estimated cost to 2014-15 California families was hundreds of millions of dollars.
As a result of the Audit, the University committed to enrolling an additional 10,000 California students in fiscal years 2015-16, 2016-17 and 2017-18. Now that the audit period has ended, the UC has changed its policy again. This year on their web site the policy states:
"If you're in the top 9% of California high school graduates and aren't admitted to any of the UC campuses you apply to, you'll be offered a spot at another campus if space is available."
In English... California's best and brightest are no longer guaranteed a seat in the UC system.
As a result of changes in UC policy, California's Best and Brightest (the top 9%) may no longer guaranteed a seat at a UC at all.
The UC is suppose to be admitting students from the top 12.5% of the State's high school graduating class and guaranteeing a seat to the top 9% of high school graduates. But new UC policies now state that the UC will only guarantee the top 9% a seat on a space available basis.
Results in Brief
The University of California (university) is one of the premier public university systems in the nation, enrolling more than 252,000 students at its 10 campuses as of the fall of 2014. As a public institution, the university should serve primarily those who provide for its financial and civic support—California residents. However, over the past several years, the university has failed to put the needs of residents first. In response to reduced state funding, it has made substantial efforts to enroll more nonresident students, who pay significantly more annual tuition and mandatory fees than resident students—$37,000 compared to $12,240 in academic year 2014–15. The results are stark: From academic years 2010–11 through 2014–15, total nonresident enrollment at the university increased by 82 percent, or 18,000 students, while resident enrollment decreased by 2,200 students, or 1 percent.
The decision to increase nonresident enrollment has had profound repercussions for residents who apply for admission. According to the Master Plan for Higher Education in California (Master Plan), which proposed the roles for each of the State’s institutions of higher education, the university should select for admission from the top 12.5 percent of the State’s high school graduating class. Based on the university’s interpretation, to comply with the Master Plan, the university guarantees admission to all residents who meet this standard, although not necessarily at the campuses of their choice. Although the university stated that its decision to enroll more nonresidents has not precluded it from meeting its Master Plan commitment to admit qualified residents, we do not believe that the university has sufficiently substantiated this claim.
Specifically, the Master Plan recommends that nonresidents possess academic qualifications that are equivalent to those of the upper half of residents who are eligible for admission. That is, nonresidents should demonstrate higher qualifications than the median for residents. However, in 2011 the university modified its admission standard to state that nonresidents need only to “compare favorably” to residents. During a three-year period after this change, the university admitted nearly 16,000 nonresidents whose academic scores fell below the median for admitted residents at the same campus on every grade point average and admission test score we evaluated. By admitting nonresidents with lower academic qualifications on these key indicators than the median for residents it admitted, the university essentially deprived admittance to highly qualified residents.
To increase tuition revenue in the face of state funding shortfalls, the university implemented two key procedural changes that encouraged campuses to maximize nonresident enrollment. In 2008 the university began allowing the campuses to retain the nonresident supplemental tuition revenue (nonresident revenue) they generated rather than remitting these funds to the Office of the President, which resulted in campuses focusing resources on enrolling additional nonresidents. Also in 2008, the Office of the President began establishing separate enrollment targets—systemwide targets for the number of students each campus should strive to enroll each year—for nonresidents and residents, and it allowed each campus to establish its own separate enrollment targets. In subsequent years, each of the four campuses we visited—Davis, Los Angeles, San Diego, and Santa Barbara—increased their individual campus enrollment targets for nonresidents at a faster rate than their targets for residents. These two procedural changes satisfied the university’s goal: In fiscal year 2014–15 the university generated $728 million from the supplemental tuition that nonresidents paid—a growth of $403 million, or 124 percent, from fiscal year 2010–11.
Furthermore, over the past 10 years, the university began denying admission to an increasing number of residents to the campuses of their choice. If residents are eligible for admission to the university and are not offered admission to the campuses of their choice, the university offers them spots at an alternative campus through what it calls a referral process. In contrast, nonresidents, if admitted, are always admitted to at least one campus of their choice. Of particular concern is that, over the same time period, the university’s campuses denied admission to nearly 4,300 residents whose academic scores met or exceeded all of the median scores for nonresidents whom the university admitted to the campus of their choice. According to the university, the referral process is critical to it meeting its Master Plan commitment to admit the top 12.5 percent of residents. However, few of the residents whom the university admits and refers to an alternate campus ultimately enroll. In academic year 2014–15 for example, 55 percent of residents to whom the university offered admission to one of the campuses to which they applied enrolled, while only 2 percent of the 10,700 residents placed in the referral pool enrolled.
According to the university, it estimated that it admitted the top 14.9 percent of the eligible California high school graduating class in academic year 2014–15, which included the residents in the referral pool. If we exclude the residents placed in the referral pool and who did not ultimately enroll at the referral campus, the university actually admitted 12.4 percent of the California high school graduating class—less than the 12.5 percent Master Plan commitment. Because placements in the referral pool result in significantly fewer enrollments of residents than admissions to their campus of choice, we question whether the university should include the residents in the referral pool when computing its admission of the top 12.5 percent of California high school graduates.
The university’s admission decisions have also hampered its efforts to meet its own and the Legislature’s desire that the university’s student body reflect the diversity of the State. While underrepresented minorities—which the university considers to be Chicanos/Latinos, African Americans, and American Indians—represent 45 percent of California’s population, they make up 30 percent of the university’s overall undergraduate population. Although nonresidents bring geographic diversity to the university, only 11 percent of domestic undergraduate nonresidents were from underrepresented minorities as of academic year 2014–15. The university will struggle to ensure that its student population reflects the diversity of the State if it continues to increase nonresident enrollment.
In reaction to state funding reductions, the university has doubled resident mandatory fees—base tuition and the student services fee—over the past 10 years, which has made it difficult for California families to afford and budget for this important investment. We expected the university to justify these tuition increases by basing resident tuition on the actual costs to educate students. However, the university has not conducted a usable study to determine those costs, thereby limiting its ability to appropriately justify tuition increases. Although the university produced a report on the total costs of education that the Legislature required, the university cautioned that decision makers should not use the report as a solid rationale for policy decisions or resource allocations because the university used many assumptions, estimates, and proxies to calculate the costs it included in the report. That cost study is also problematic because the source of the data it uses does not tie to readily available public financial data, such as its audited annual financial report.
The university could have taken additional steps to generate savings and revenue internally to mitigate the impact of its admissions and financial decisions on residents. For example, the Legislature required the university to enroll an additional 5,000 residents in academic year 2016–17 as a condition of receiving $25 million in state funds. While the university estimates these 5,000 students will cost approximately $50 million to educate, or $10,000 per student, in addition to the tuition they pay, it has not conducted a study to support that estimate. The university plans to use its other funding sources to pay for the remaining $25 million, primarily by not offering financial aid to new nonresidents. These actions suggest that the university has the ability to use funds that it had dedicated for other purposes to enroll additional residents.
We also identified key areas in which the university could have reduced its costs in recent years, thus making funds available to enroll more residents. For example, the university’s spending on employee salaries increased in eight of the last nine fiscal years despite the State’s fiscal crisis. By fiscal year 2014–15, its annual salary costs had risen to $13 billion. The university also paid its top executives significantly more than employees in other high‑level state positions receive: 14 of 15 of those in its top leadership positions earned at least $400,000 in fiscal year 2014–15, which was significantly more than the executive branch paid the governor and directors of several large state departments. Although the salaries of the university’s chancellors rank low in comparison to other higher education and research institutions, the university could do more to help justify its salaries and benefits by conducting regular compensation and benefits studies.
Moreover, the university could have engaged in cost-saving efforts related to one of its initiatives and to recruiting. Specifically, the university did not maximize the benefits that it could have achieved through an initiative it developed in 2010 called Working Smarter, which the university asserts generated $664 million in savings and new revenue. The university’s goal for Working Smarter was to generate administrative savings and new revenue sources that it could redirect to the university’s academic and research missions. However, the university is unable to substantiate the $664 million of savings and new revenue that it asserts the initiative achieved or even how much the university redirected to its academic and research missions. In addition, the university does not require campus participation in the initiative, nor does it centrally manage the savings or revenue that the campuses generate. The university estimates that if it had achieved a campus participation rate of 80 percent for one program alone, it would have generated $9 million of additional savings. We also found that in fiscal year 2014–15, the university spent $4.5 million to recruit undergraduate nonresidents, a 400 percent increase over the previous five years. A reasonable limit on nonresident recruiting expenditures could have resulted in significant savings for the university.
Additionally, the university publicly claimed in its operating budgets that increased enrollment of nonresidents has allowed it to enroll more residents. The university subsequently clarified to us that nonresident revenue has enabled campuses to continue to enroll residents above state-funded levels. However, the number of residents enrolled at the university actually decreased by 2,200 students—or 1 percent—from fiscal years 2010–11 through 2014–15 while nonresident enrollment increased by 18,000 students, or 82 percent. Thus, contrary to the university’s claim, the amount of nonresident revenue the campuses received has not had a significant impact on the number of residents that they enrolled. In fact, our review of each campus’s spending of nonresident revenue revealed that they spent these funds across a variety of areas, not all of which directly benefited residents.
The university also did not sufficiently monitor 18 programs that do not directly relate to teaching students but which nonetheless received $337 million in state funds for fiscal year 2014–15. Although these programs may provide indirect and important benefits to students, the university has not regularly evaluated its need to continue funding them through state appropriations rather than seeking alternative funding sources. For example, the university acknowledged that it could potentially find alternative sources of funding for two programs to which it allocated $33 million in state funding in fiscal year 2014–15.
In addition, the university’s efforts to equalize its per-student state funding across its campuses did not completely address past concerns regarding its methods for allocating state funding. After our 2011 audit identified inequity in per-student funding among the campuses and a lack of transparency in how the university distributes funds, the university embarked in 2012 on an effort to address these concerns, which it refers to as rebenching. However, we identified several problems with rebenching, including the fact that the university based the formula it uses to redistribute funds not on the actual costs to educate different types of students but instead on costs it judgmentally assigned.
Moreover, the university made allocation decisions that excluded $886 million in state funds from the amount it distributed to campuses through per‑student funding for fiscal year 2014–15. This amount represented nearly one-third of the university’s total state funding for that year, significantly affecting the amount of per‑student funding each campus received. Specifically, if the university includes all funds that the State provides to the university, per-student funding would be as much as $10,900 per student or as little as $7,600 per student if the university continues to exclude that state funding.
Although the university’s actions may be justified, this information is not transparent or easily accessible to stakeholders. Furthermore, not including nonresident revenue in a per-student funding calculation contributes to the persistence of per-student funding inequities among the campuses. These funding inequities have continued to disproportionately affect underrepresented minority students. Specifically, the highest‑funded campuses when we include nonresident revenue—Berkeley, Los Angeles, and San Diego—are among the four campuses with the lowest percentage of underrepresented minority students.
During our audit, the university stated its intent to address several of the key concerns that we raise in this report. In November 2015 the university committed to enrolling an additional 10,000 residents over the next three academic years. In addition, the university addressed two of the flaws we identified in its efforts to equalize per-student state funding. Nonetheless, because of the significant adverse repercussions for residents and their families resulting from the university’s past actions, legislative intervention is necessary to ensure that a university education once again becomes attainable and affordable for all California residents who are qualified and desire to attend.
Specifically, the Legislature should consider limiting the percentage of undergraduate nonresidents that the university can enroll each year. Between academic years 2005–06 and 2007–08—before the fiscal crisis—nonresidents comprised about 5 percent of the university’s new undergraduate enrollment. By academic year 2014–15, that percentage had climbed to more than 17 percent, which translated into more than 7,200 additional new nonresident undergraduates enrolled over a 5 percent limit. Implementing a 5 percent limit on new nonresident enrollment would allow the university to enroll an equivalent number of additional new resident undergraduate students per year—about 7,200—more than the number it enrolled in academic year 2014–15.
Requiring the university to enroll these additional residents would necessitate an increased annual financial commitment from both the university and the State to compensate for the increased enrollment of resident undergraduates and the decrease of nonresidents. If the Legislature were to commit additional funds to the university for the purpose of meeting agreed-upon enrollment percentages, it could do so using a phased-in approach. Specifically, the Legislature could require the university to meet enrollment targets within, for example, four years, and it could provide the university with incremental increases in appropriations each year until the university reaches those targets.
To meet its commitment to California residents, the university should do the following:
To ensure that the university meets its commitment to residents and to bring transparency and accountability to admission outcomes, the Legislature should consider excluding the students who the university places in the referral pool and who do not ultimately enroll at the referral campus when calculating the university’s Master Plan admission rate until the percentage of students who enroll through the referral process more closely aligns with the admission percentages of the other campuses.
The university should conduct a cost study at least every three to five years and ensure that it represents the costs to educate students and contains amounts that are based upon publicly available financial reports. The university should use the results of the cost study as a basis for the tuition it charges and for the proposed funding needs that it presents to the Legislature.
To ensure that it has accurate information upon which to make funding decisions, the Legislature should consider amending the state law that requires the university to prepare a biennial cost study. The amendment should include requirements for the university to differentiate costs by student academic levels and discipline and to base the amounts it reports on publicly available financial information.
To ensure that the university does not base future admission decisions on the revenue that students generate and to make the university more accessible to California residents, the Legislature should consider amending state law to limit the percentage of nonresidents that the university can enroll each year. For example, it could limit nonresident undergraduate enrollment to 5 percent of total undergraduate enrollment. Moreover, the Legislature should consider basing the university’s annual appropriations upon its enrollment of agreed-upon percentages of residents and nonresidents.
To improve its internal operations and promote cost savings related to the $13 billion it spent on employee salaries in fiscal year 2014–15, the university should conduct a systemwide assessment to identify ways to streamline and reduce its employee costs.
To maximize the savings and new revenue from the Working Smarter initiative and ensure that the university uses those funds for its academic and research missions, the Office of the President should:
To ensure that its recruiting efforts benefit residents, the university should prioritize recruiting residents over nonresidents and establish a limit on the amount of funds it spends to recruit nonresidents. In particular, the university should focus its efforts broadly to ensure that it effectively recruits residents who are from underrepresented minorities.
The university should track the use of state funds for programs that do not directly relate to educating students, annually reevaluate these programs to determine whether they continue to be necessary, and explore whether they could be funded from alternate sources.
To increase its transparency and help ensure that it can justify its spending decisions, the university should make publicly available how it allocates state funding to the campuses and to other programs or uses.
To ensure that its rebenching efforts lead to equalized per-student funding among the campuses, the university should update the costs it uses in its formula every three to five years to ensure that they reflect the actual costs of instruction.
The university disagreed with a key conclusion of our report—that increasing nonresident enrollment has disadvantaged California resident students. However, in its response the university did not provide evidence that refuted our conclusion nor did it identify any factual errors with our draft report. Nevertheless, the university indicated that it plans to implement only seven of our 21 recommendations.
We are disappointed that the university objects to many of our recommendations despite clear evidence that improvements are needed. Beginning on page 105 we provide our perspective on the university’s response to our report.
FINANCIAL DAMAGE TO CALIFORNIA TAXPAYERS AND STUDENTS DENIED ADMITTANCE
Report at page 43 & 44
"Legislative Intervention Could Help to Ensure That the University Meets Its Commitment to Residents The university’s decision to increase nonresident enrollment at the expense of residents will have a long-lasting impact unless the Legislature and the university take steps to restore the university’s historic commitment to residents. These steps must not only ensure that the university prioritizes residents’ interests in the future but also repairs the damage that its past decisions have caused. In November 2015—during the course of our audit— the university committed to enrolling an additional 10,000 more residents over the next three fiscal years. However, the enrollment of 10,000 additional residents will not fully rectify the ramifications of its decision to admit nonresidents while referring or denying admission to more qualified resident applicants.
Based on the university’s assertion that it increased nonresident enrollment because of decreases in state funding and rising costs, we would have expected it to decrease—or at least hold constant— its nonresident enrollment when state funding began to increase. Instead, as previously shown in Figure 3 on page 18, state funding has been increasing steadily since fiscal year 2012–13. However, the university has acknowledged that it intends to continue to admit increasing numbers of nonresidents, and in its 2016–17 operating budget, the university indicated that nonresident revenue continues to be a key part of its financial plan. Thus, until the university’s financial incentive to enroll nonresidents is mitigated, it will likely continue to admit increasing numbers of nonresidents."
Note: The State of California is enjoying record high revenues. The current 2018-19 Budget is a record high $209 billion dollars. The State budget in 2010 was $131 billion. [California Budget Summary Schedules] The State has "CHOSEN" not to increase funding for schools K-12 and higher education. The UC has chosen to increase revenues by selling seats to out of state and international students so that they could increase employee compensation. The UC is balancing its books on the backs of the California families they have historically served.
TUITION LET'S DO THE MATH
10,700 California Residents admitted to the UC System; but not to the school of their choice, were placed into a referral pool and offered UC Merced as their only UC option. Only 2% accepted the offer to attend Merced (214 students). 98% (10,486 students) went outside the UC System at much greater cost to their families.
The students that accepted UC Merced paid $12,240.00 per year in Tuition.
The students that went out of the UC System to other comparable flagship schools (for example USC) paid on average $47,562.00 per year in Tuition.
The difference in Tuition displaced families had to pay was $35,322.00 per year.
Over 4 years a California family would have to spend $141,288.00 to get a comparable education to UCLA/UC Berkeley.
In 2014-15 dollars may have cost the 10,486 displaced California families as much as a total of $500,000,000.00.
Every time UC "sells" a seat to an Out Of State or International student at a UC flag ship school like UCLA/UC Berkeley, the University makes an additional $24,760 in tuition per student.
$24,760 per student X 10,486 Displaced California residents referred to Merced = $259,633,360 per year
$259,633,360 X 4 years = $1,0385,533,440 (over $1 billion dollars and that was for the year 2014-15 alone)
In 2014-15, the UC made over $1 billion in additional revenue by "selling" seats at UC flagship schools, unjustly enriching the University at the expense of California families.
Sadly, the California residents that were denied a seat were more qualified than the Out of State and International students that filled them.
The following is the letter that the Auditor sent to the Governor March 29, 2016.
AUDIT FINDINGS - 2015-107
March 29, 2016
The Governor of California
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the University of California’s (university) enrollment, executive compensation, and budget. This report concludes that over the past several years, the university has undermined its commitment to resident students. Specifically, in response to reduced state funding, the university made substantial efforts to enroll nonresident students who pay significantly more tuition than residents. The university’s efforts resulted in an 82 percent increase in nonresident enrollment from academic years 2010–11 through 2014–15, or 18,000 students, but coincided with a drop in resident enrollment by 1 percent, or 2,200 students, over that same time period.
The university’s decision to increase the enrollment of nonresidents has made it more difficult for California residents to gain admission to the university. According to the Master Plan for Higher Education in California, which proposes the roles for each of the State’s institutions of higher education, the university should only admit nonresidents who possess academic qualifications that are equivalent to those of the upper half of residents who are eligible for admission. However, in 2011 the university relaxed this admission standard to state that nonresidents need only to “compare favorably” to residents. Combined with the university’s desire to enroll more nonresidents because of the additional tuition that they pay, the relaxing of this admission standard had dramatic results. During the three-year period after this change, the university admitted nearly 16,000 nonresidents whose scores fell below the median scores for admitted residents at the same campus on every academic test score and grade point average that we evaluated. At the same time, the university denied admission to an increasing proportion of qualified residents at the campus to which they applied—nearly 11,000 in academic year 2014–15 alone—and instead referred them to an alternate campus. However, only about 2 percent of residents who the university referred actually enrolled. Moreover, increasing numbers of nonresident students have enrolled in the five most popular majors that the university offers at the same time that resident enrollment has generally declined in those same majors.
The university could have taken additional steps to generate savings and revenue internally to mitigate the impact of its admissions and financial decisions on residents. For example, the university’s spending on employee salaries increased in eight of the last nine fiscal years despite the State’s fiscal crisis. By fiscal year 2014–15, its annual salary costs had risen to $13 billion. In addition, even though the university publicly claimed that it redirected $664 million to its academic and research missions through an initiative it developed called Working Smarter, it could not substantiate the asserted savings or revenue amounts or demonstrate how much of this amount directly benefited students.
Moreover, the university’s funding allocation decisions have not completely resolved its unequal distribution of per-student state funding across its campuses, resulting in certain campuses continuing to receive less state funds per student than others. After several reports identified inequity in per‑student funding among the campuses and a lack of transparency in how the university distributes that funding, the university embarked on an effort which it refers to as rebenching. However, we identified several problems with rebenching, including the fact that the university does not base the formula it uses to redistribute funds on the amounts it actually costs to educate different types of students. The university also excluded $886 million in state funds from the amount it distributes to campuses through per‑student funding for fiscal year 2014–15 for programs that do not relate directly to educating students. Further, even though the university asserts that the additional revenue from its increased enrollment of nonresidents allows it to improve education quality and enroll more residents, the university does not give campuses spending guidance or track how they use these funds. Lacking such guidance or oversight, we found campuses spend these funds in an inconsistent manner.
Because of the significant harm to residents and their families resulting from the university’s actions, we believe that legislative intervention, as outlined in the report, is necessary to ensure that a university education once again becomes attainable and affordable for all California residents who are qualified and desire to attend. For example, we recommend that the Legislature consider amending state law to limit the percentage of nonresidents the university can enroll each year and consider basing the university’s annual appropriation upon the university following this requirement.
ELAINE M. HOWLE, CPA
CURRENT DATA FOR UCLA
In 2018 30% of incoming freshmen were not residents of California.
There appears to be inconsistencies within the UC web site regarding what the UCs' will do for the top 9% of students that do not get the school of their choice. This leads me to believe that the shift in policy that ONLY guarantees a seat to a student in the top 9% of the state of California is a new policy.
University of California Profits from Selling Seats to Out of State and International Students, and Does So at Great Expense to California Families.
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