By Oliver Staley, Bloomberg News, Jan. 13, 2011
California’s culture of innovation, which propelled the growth of Silicon Valley and Hollywood, was built on a public higher-education system that spawned 56 Nobel Prize winners and is home to one campus that produces 1,000 engineers a year.
California’s culture of innovation, which propelled the growth of Silicon Valley and Hollywood, was built on a public higher-education system that spawned 56 Nobel Prize winners and is home to one campus that produces 1,000 engineers a year.
Now, as governments in China and India boost funding for expansion of their universities, Governor Jerry Brown’s proposed 16 percent cut in the higher-education budget jeopardizes the flow of talent that powers Google Inc., Apple Inc. and the rest of California’s knowledge-based economy. The elite University of California system may no longer be able to guarantee admission to the top 12.5 percent of the state’s high-school seniors. Annual tuition for residents, which was less than $4,500 a decade ago, is scheduled to rise to at least $11,124 in the next school year.
From the University of California, Berkeley, the highest- ranked public university in the U.S., to San Jose State, which each year graduates more than 1,000 engineering students, the 33 public universities act as incubators for new companies and a ladder of economic mobility for 650,000 students. As the state struggles to overcome a $25.4 billion deficit, the $1.4 billion cuts in higher education imperil the ability to create the next generation of jobs and the tax base to meet government costs, said Robert Ackerman, founder and managing director of Palo Alto, California-based Allegis Capital.
‘Upside-Down’
“It’s ass-backwards, it’s upside-down, it’s stupid,” said Ackerman, whose firm has investments in computer networking and software companies including Allegiance Inc. and Solera Networks Inc., both in South Jordan, Utah. “We’re reducing the ability to create the next generation that is going to create the jobs that’s going to pay the pension obligations that this state has, let alone create the jobs we need.”
Florida and New York are among states that have also reduced spending on higher education.
Florida lowered its general-revenue spending for 28 public colleges and 11 universities by 14 percent over the last three years to $2.8 billion in fiscal 2011, according to a Dec. 7 policy briefing for the state’s House of Representatives. Funding for the State University of New York, a system of 64 colleges and universities, fell $355 million to $8.09 billion for the fiscal year ending March 31, according to state documents.
“We hire thousands of college grads in the United States,” said Jeffrey Immelt, chairman and chief executive officer of General Electric Co., based in Fairfield, Connecticut, speaking at the Consumer Electronics Show in Las Vegas on Jan. 7.
‘Our Lifeblood’
“I worry about, with all the state budgets, that some of these great state institutions will become weakened,” Immelt said. “That, for us, is our lifeblood.”
California is particularly vulnerable because of its economy’s reliance on the technology and entertainment industries, said Stephen Levy, director of the Center for Continuing Study of the California Economy, based in Palo Alto.
The state is home to 14 percent of the companies in the Standard & Poor’s 500 Index including Google, in Mountain View; Apple, in Cupertino, and Burbank-based Walt Disney Co. California’s $1.89 trillion economy declined in 2009 for the first time in more than 30 years, according to data compiled by Bloomberg.
Deficit Rises
California’s deficit is expected to reach $25.4 billion over the next 17 months and follows three years of wrestling with $100 billion of combined budget gaps. The longest recession since World War II, which began in December 2007 and ended in June 2009, cut tax collections 8 percent.
“Failing to continue to support the public higher-ed system in California will have devastating long-term consequences,” said Mitch Kapor, founder of Lotus Development Corp. and a San Francisco-based investor in technology start- ups. “That institution and what it produces is at the source of long-term innovation and competitiveness in the area.”
The University of California guarantees admission to the top 12.5 percent of the state’s high-school seniors. As budgets decline and applications increase, it may no longer be able to make that promise, said Nathan Brostrom, the executive vice president for business operations.
Pressure Point
“If the strong demand for a UC education continues, that may become a pressure point,” Brostrom said.
At California’s community colleges, as many as 350,000 students, or 13 percent of its enrollment, may be turned away after $400 million is cut, Chancellor Jack Scott said. The reductions will hurt low-income students who need affordable public education to move into the middle class, said Uday Karmarkar, a business professor at the University of California, Los Angeles.
“The terrible picture for California’s future is a bifurcated economy, where you have retirees and the wealthy elite on one level, and farm workers and a concierge economy underneath,” Karmarkar said. “It’s a medieval economy.”
While public funding for higher education dwindles in the U.S., the governments of India and China are plowing resources into their public institutions of higher learning. To produce elite scholars, China has identified seven universities it will fund at a higher rate, and two — Peking University and Tsinghua University — it wants to elevate into the top 20 in the world, according to a 2010 article in Foreign Affairs magazine by Yale University President Richard Levin.
India Partnerships
To educate its growing population, India needs 600 more universities and 35,000 additional colleges, Human Resources Minister Kapil Sibal said in November. The country is seeking foreign universities to partner with Indian institutions and has attracted interest from Duke University, in Durham, North Carolina, Boston University and Georgia Institute of Technology in Atlanta.
“Right now, if I were the Chinese university system, I’d be running ads showing up on UC’s websites, recruiting students to universities in Beijing and Shanghai,” Ackerman said.
Berkeley, the University of California’s flagship campus and the top-ranked public university by U.S. News & World Report, is already feeling the impact of cuts that began in the 2008-2009 academic year.
Berkeley professors have won 17 Nobel Prizes while at the school, more than the faculty of Princeton University, in Princeton, New Jersey or Yale, in New Haven, Connecticut, according to the Stockholm-based Nobel Foundation. Researchers at the university discovered plutonium, invented the cyclotron and founded Cetus Corp., the first biotechnology company.
Professors on the Move
Since January 2007, five professors in Berkeley’s economics department, rated fifth in a global ranking of research influence maintained by the University of Connecticut, have left for private institutions including Princeton, Stanford University, near Palo Alto, Harvard University, in Cambridge, Massachusetts, and the University of Chicago.
The economics department has raised more than $11 million from private sources to help make up for state cuts and is making six offers to replace the departed professors, said Gerard Roland, the chairman of the department, in an e-mail.
“We are of course concerned with the cuts but since the 2009 crisis, the expectation is that we must rely less on state funding and more on private funding,” Roland said.
No Essays
At a meeting of University of California history department chairs, professors discussed how they can no longer assign papers or ask essay questions on exams because they don’t have time to grade them, said Daniel Simmons, who leads the university’s Academic Senate and is a law professor at the Davis campus.
“Their teaching-assistant support is declining and they have to deal with more students in each class,” Simmons said. “The student-faculty ratio at the university has steadily declined over the years, and we’re beginning to see the inability of the faculty to individually guide students.”
Even with tuition increases, California education is still a bargain compared with private colleges like Stanford, where tuition, fees and room and board costs an estimated $55,385.
The cuts won’t drastically harm the University of California system, said Nat Goldhaber, managing director of venture-capital firm Claremont Creek Ventures in Oakland, California. Goldhaber is a product of the University of California system — both his parents taught there and he attended classes at the school from 1964 to 1985, eventually earning undergraduate and graduate degrees.
Crying Over
“The University of California, although they will cry over the loss of any funds at all, is unlikely to be significantly affected,” Goldhaber said.
The $500 million reduction is relatively small compared with the University of California’s overall budget, he said.
The system’s spending plan for the 2010-2011 academic year is $21.8 billion, including revenue from hospitals and federal contracts, which are restricted and can’t be shifted to make up for state cutbacks, according to budget documents. The core educational budget is $6.28 billion.
Any decline in Berkeley and other public universities may harm the nation, said John L. Hennessy, president of Stanford. Hennessy, an electrical engineer, founded two Silicon Valley companies and sits on the boards of Google and Cisco Systems Inc., based in San Jose.
“We worry about the health of public institutions in this country,” Hennessy said. “Most of the higher education in the U.S. is provided by public institutions and they do a fantastic job. We don’t think that it will be healthy if those institutions cannot maintain their world-class status.”
–With assistance from Ari Levy, Brian Womack, Joseph Galante and Ryan Flinn in San Francisco; Michael Marois in Sacramento; Michael Quint in Albany and Simone Baribeau in Miami. Editors: Robin D. Schatz, Pete Young
Read the original story in businessweek.com.