Contra University of California, Higher Ed Needs Less Federal Money

Napolitano was referring to the PROSPER Act, currently sitting in the U.S. House of Representatives, which she fears would cut federal student aid such as Pell Grants and student loans, rendering college less affordable. Setting aside disagreement about what PROSPER would actually do, it was a pretty rich statement, because the University of California has been a bit of a poster child for questionable financial management.

It was little more than a year ago that the state’s auditor released a report cataloguing significant, dubious financial practices by the university president’s office, including:

• Failing to disclose more than $175 million in discretionary and restricted reserves
• Getting $32 million of that reserve from campus allocations that could have been used for student services
• Not disclosing plans to spend some of those funds ranging from $77 million to $114 million
• Compensating employees with “generous salaries and atypical benefits”
• Poor tracking of university administrative expenses

To top it off, State Auditor Elaine Howle reported that the Office of the President “intentionally interfered” with her office’s “efforts to assess the types and quality of services [the office of the president] provides to campuses.” And this is not the first financial black eye for the system. The flagship Berkeley campus has run massive athletics debts for years, and paid for them with tens‐​of‐​millions of dollars in campus subsidies and debt forgiveness.

In light of this, it seems a bit brash to decry the potential curbing of subsidies that are forced from federal taxpayers, which tallied almost $154 billion in the 2016–17 academic year. Why should people from, say, New York or Nevada be forced to help make up for poor financial practices and decisions in another state?

Of course, this is likely not a problem restricted to the Golden State. Whenever involuntary third-parties—people required to provide money who are neither the consumers nor providers of the good or service—are involved in a transaction, the incentive is to waste. Consumers will tend to think less intensely about prices and what they get for them, and providers will have less incentive to function efficiently, because major funders have to pony up cash no matter what. We see the tip of this iceberg all around.

It is also likely that the presence of federal aid encourages states to spend less of their own money on higher ed. If state policymakers know that federal taxpayer dollars will make sure college stays affordable, they have strong incentives to put state dollars elsewhere and let college prices—which aid can cover—increase to compensate. The ability to do this is why college, in the words of the State Higher Education Executive Officers, is often the state budget “balance wheel.”

Do you want states—not to mention students and schools—to think hard and be efficient about higher education spending? Stop looking to Washington to provide so much of the money.