Short of an Intervention, Expect Rising Tuition to Continue at State Universities

California State University Fullerton in Fullerton, Calif., on March 8, 2023. (John Fredricks/The Epoch Times)

Commentary

It should come as no surprise that the California State University (CSU) Board of Trustees recently raised tuition for its students. And it should be no shock that this will continue, but even more aggressively in the future.

This sad but true predicament was discussed two years ago for the University of California (UC), its sister system, in The Epoch Times, with “Students Will Pay the Price for University of California’s Financial Missteps,” July 31, 2021.

The consolidated financial statements for the CSU’s 23 campus system for the last ten years will tell a tale that carries over to most municipalities in the last decade. It’s not a pretty story.

For the year ending June 30, 2013, the unrestricted net position for CSU gave the appearance that all was well, showing $1.882 billion in unrestricted net assets. Being in the supposed black is what we would like to see.

The same could be said for the following year, June 30, 2014, with $1.987 billion in unrestricted net assets. But the foot dragging Government Accounting Standards Board (GASB) finally decided to require municipalities to report their unfunded actuarial accrued liabilities for defined benefit pension plans on the balance sheet.

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For the year ending June 30, 2015, CSU had to disclose $5.514 billion in new, previously not clearly disclosed liabilities on its balance sheet. This took a positive $2 billion organization to a negative $4 billion one, showing an unrestricted net deficit of $3.886 billion, and putting CSU in the red.

This situation held for the years ending June 30, 2016 and June 30, 2017, showing unrestricted net deficits of $3.610 and $3.664 billion, respectively. But the ever so slow GASB finally decided that other promises that created a liability also had to be reported on the balance sheet. The most common one was some form of lifetime retiree medical benefits, usually reported under the heading of other post-employment benefits.

Not funding this massive financial promise added a major shock to the CSU audited financial statements for June 30, 2018, adding $13.493 billion to the liability side of the balance sheet and increasing the unrestricted net deficit to $17.796 billion. This is what occurs when the public employee unions politely request a promise from the governing body, with the reverberations of such an innocuous request not initially appearing in the financial statements. And besides, someone in the very distant future will pay for this obligation. Right?

Dealing with such a major debt is a current defining conundrum for the Trustees. Putting blame on them is a “water under the bridge” subject. The real blame lies with the unions, who could get away with such a negotiating strategy in the shadows, and GASB, which was asleep at the switch.

Here’s where the CSU’s unrestricted net deficits stand now:

• June 30, 2019: $(18,216,636,000)
• June 30, 2020: $(18,814,327,000)
• June 30, 2021: $(19,066,127,000)
• June 30, 2022: $(17,651,054,000)

The size of the debt fluctuates with how well the pension investments perform from two years prior, due to a timing lag. This means the June 30, 2023, the deficit will be much larger, as the 2021 returns were disappointing.

To add to the dilemma, the balance for this post-employment benefit debt has grown from $13.919 billion in 2018 to $15.434 billion in 2022.

When you consider that the population for the state of California is a little under 40 million people, it means that we each owe about $450 on a per capita basis if we all had to chip in to crack this nut.

The Board of Trustees is trapped. Let me explain. The state legislature in Sacramento is in no mood to give these 23 campuses additional funding as it would jeopardize the programs they want to pursue. Raising dorm and parking fees only goes so far. Raising tuition is the only option.

California State University Fullerton in Fullerton, Calif., on March 8, 2023. (John Fredricks/The Epoch Times)

This is how it works in California. The unions obtain generous retirement benefits and still expect large salary increases. So much so, they’re willing to go on strike to achieve them. And why not? The taxpayers and the students will eventually be on the hook. But how long can this last? When will the taxpayers wake up? And when will students look for other educational opportunities in neighboring states?

In the meantime, the Trustees should hunker down and provide some pushback. They need to do what the UC system did when Jerry Brown was governor. His simple strategy was to offer new hires the ability to participate in a defined contribution plan instead of the defined benefit pension plan. This UC option has been received with high participation rates. But public employee unions despise 401(k)-type alternatives and will try to kill them every chance they get, usually in the Capitol with budget trailer bills in or around the month of June.

The Trustees should also renegotiate the terms of the retiree medical benefits arrangement. Reducing cost of living adjustment rates and integrating with Medicare are two negotiable recommendations that can have a major impact.

The trouble is that Trustees are usually well-to-do appointees who enjoy their titles but are in no mood for a tussle with the unions who really run the show.

I personally benefited from an education at California State University Long Beach as an accounting major, even being recognized as one of the school’s “distinguished alumni“ in 2014 by the CSULB Alumni Association.

When you see the current tuition trend, all I can say to parents of future CSU students is to save more now from the even lower amount of disposable income that you have, in order to pay for the tuition. Or better yet: Have your child take out a student loan and wait for a future United States president to come along and forgive the debt. Yeah, like that’s going to happen. The voters who actually paid for their higher education costs would go nuts. Right?

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.