Capital Finance an Important Piece of the Puzzle for California’s Higher Education Goals

New Report – Paying for Space: A Brief Framing the Issues and Opportunities in Capital Finance for Higher Education in California

The debate about how much it will cost to ensure that California’s public higher education systems can meet all students’ needs often focuses on the funds needed for regular operations—items like employee salaries, benefits, and other regular operating costs. But there is another massive expense looming on the horizon: an immense and pressing need to repair, improve, and expand facilities in our public colleges and universities.

The California Community Colleges, the University of California, and the California State University have estimated that they will need a combined $47.2 billion to modernize and maintain their existing facilities in the next five years alone. This sum would pay for the proposed Central Valley portion of the high-speed rail system nearly five times over.

Unfortunately, neither the state nor the institutions have a coherent plan for paying the bill.

We need a systematic approach to paying for renovations, repairs, and deferred maintenance, beginning with decisions about revenue sources and ways to establish funding priorities.

This requirement is made even more apparent by the fact that the high school graduation rate has increased for the seventh year in a row and the proportion of high school graduates who have completed the courses required for admission to University of California and California State University campuses has increased by nearly half. Here in California, we have made a bargain with our high school students: if you work hard in high school, there will be a place for you in our public colleges and universities. We must keep our end of the bargain.

It will be challenging, but it is both necessary and doable–and there is no time to waste.

Paying for Space, a new report commissioned by the College Futures Foundation and authored by consultant Patrick J. Lenz, identifies a series of challenges the systems face in protecting the state’s 100-year investment in public facilities for higher education.

Highlights from the report

  1. Fund allocations for capital outlay are inconsistent, uneven, and unclear. The state planning and policy process for funding capital projects is ad hoc and dependent on short-term revenue availability instead of long-term planning.
  2. The historic separation of operating and capital budgets may be contributing to the funding problems. Experts argue that separating operating and capital budgets understates the cost of higher education by between 15 and 25 percent. Moreover, the distinctions between operating and capital expenses are increasingly blurring, with more capital expenses going to technology, maintenance, and repair than ever.
  3. The needs for capital funding in higher education are enormous and growing. The California Community Colleges, the University of California, and the California State University have estimated that they will need a combined $47.2 billion to construct new facilities and modernize existing facilities in the next five years alone. A process is needed to rationalize priorities between items like deferred maintenance, health and safety needs, renovation and renewal, and construction of new space.
  4. Deferred maintenance needs are growing as ongoing maintenance is being cut. There is currently no reliable or sufficient source of revenue to meet the huge backlog of deferred maintenance needs.
  5. Undergraduate enrollments will grow, with no plan as to how they will be accommodated, or whether new capacity space should even be an option. The state has no explicit plans for accommodating these students, including guidelines for determining whether new capacity space will be needed, or where it might be needed.
  6. Federal infrastructure financing may pose some potential for revenues. There are signs from Washington that federal support for infrastructure could once again become a priority. There may be long odds against such an eventuality, but California should to be ready to advocate for its fair share of any such potential funding.

Taken together, these challenges are like living under a leaking roof in a heavy downpour; the problem will not go away on its own and it will only get worse until it gets fixed.

While these are significant challenges, there are ways to address the problem.

California needs to move away from an approach to higher education capital finance characterized by a lack of planning, prioritization, or clarity about where revenues will come from—and towards a policy-defined, systematic approach. In order to do that, we must first clarify the issue, then honestly assess need, and finally develop a policy framework that sets ground rules for priorities and revenues.

The report also highlights existing examples of creative solutions that could aid future decision making. These include: examples of public-private partnerships and joint ventures that allow shared use of facilities across higher education segments—including community colleges and public and private universities; and other innovative ways to maximize space and coordinate between educational institutions. Systems are also beginning to institute year-round operations as well as online learning.

As part of its commitment to offering solutions to California’s higher education finance challenges, College Futures Foundation is supporting a new research project by The Public Policy Institute of California to analyze California’s current approach to capital finance in higher education with an eye toward practical solutions.

The future of our state and our students hinges on our California’s ability to provide a quality education to every student who is qualified and motivated to seek a college degree. But California’s economic future and the future of our civil society are being put in jeopardy because we have not come up with workable ways to pay for our public university systems. This includes building and maintaining a vast network of facilities that are essential to providing a quality education.

The solutions are available to us, but achieving them will require a systematic and thoughtful approach that take the long view and which understands that these are investments in our state and our students that will pay dividends for generations to come

Download Paying for Space: A Brief Framing the Issues and Opportunities in Capital Finance for Higher Education in California