Editorial: University of California’s unfunded pension liability is a hard reality sandwich

By the Editorial Board

Students and their parents no doubt welcomed University of California President Janet Napolitano’s statement at the UC regents meeting last week that they won’t have to swallow a tuition increase in the 2014-15 academic year.

Of course, Napolitano was restating a promise made by Gov. Jerry Brown, a regent by virtue of his office, but did not go as far as Brown.

When the governor signed the 2013-14 budget earlier this year – one granting UC a 5 percent increase and promising more aid in the coming years – he said he expected that tuition would remain frozen for four years, through the 2016-17 school year.

Instead of embracing the four-year freeze, Napolitano said she is embarking on an overall tuition study, a reasonable step.

In October, the Little Hoover Commission proposed a new master plan for higher education, which is long past due. Napolitano should help lead that effort, along with the community college system, California State University and private nonprofit colleges.

The new UC president also made clear she intends to come to Sacramento to fight for more money for the 10-campus system, $120 million in the coming year. Brown offered what he called a “reality sandwich.”

The governor said he doesn’t intend to give the university more than what he has promised, $125 million this year, $142 million next year and additional boosts in the following two years. In exchange, the governor said, chancellors at individual campuses need to find ways to save money. So does Napolitano.

In her prepared 2,500-word statement to the regents, the former Arizona governor and homeland security secretary used nine words to say how at least part of the additional money she is seeking would be spent: The university needs “additional funding for UC’s retirement plan and enrollment growth,” her statement to the regents says.

The money would not pay for smaller class sizes, or even higher faculty salaries, but rather escalating pension costs. Alas, the need for “additional funding for UC’s retirement plan” is a reality sandwich.

For 19 years ending in 2010, regents required no contribution into the UC pension fund, evidently believing pension fund investments would continue to increase in value in perpetuity. Now, the university must pay $1.2 billion a year toward pension costs to deal with its pension liability.

Students, their parents and taxpayers should not be expected to pay for UC’s mistake. Employees, especially ones whose salaries are at the upper levels, need to pay a greater share of their retirement.

Good government pensions were justifiable when government salaries lagged behind what people in private enterprise earned. But golden pension benefits are hardly reasonable now that University of California administrators’ salaries regularly exceed $200,000 a year.

The Bee’s editorial board endorsed Brown’s Proposition 30 to raise taxes by $6 billion a year in part so that the state could continue to invest in public education, which is fundamental to California’s future. However, the voters did not approve the tax hike so that people paid rich salaries can retire with fat pensions.

Before Napolitano comes to the Legislature for more money, she needs to find serious cost savings at each of the campuses, starting with reducing unsustainably high salaries for administrators and rich pensions that taxpayers cannot afford.

[Source]: Sacramento Bee