The PSA Tax Relief Master Plan for California HE


The Reclaim California Higher Education (RCHE) Master Plan maintains that an additional $48 in annual taxes per median household would be enough to fix the system. The organization claims that this additional tax revenue would make all college and university education tuition-free and restore state funding to the 2001 level of 1.17% of AGI.

For several reasons, I think this “$48 fix” is broken. As an alternative, I will present the financials for what might be called, the PSA HE Tax Relief Master Plan.

My model – the Professional Society of Academics (PSA) – does not require additional tax money, but rather far less public money than is currently spent on HE. Of course, even if PSA were implemented, the government would not reduce taxes or give out refund checks; but nor would they be legislating new taxes, as RCHE recommends. And anyhow, one of the benefits of PSA is that the tax money it saves and earns the state can be used to improve the finance of other valued social goods such as healthcare or primary/secondary education.

But just for amusement let’s look at what that tax relief might look like under the PSA Master Plan. First, I’ll show what it costs to establish and operate a baseline academic practice under my model. Then, on a national scale I’ll look at existing sources of funding to see what can be accomplished with far less money, not more. Finally, I’ll apply the PSA finances to the California circumstance and estimate the scale of tax relief.

Cost of Professional Academic Practice
The practice costed here liberates academics from the exploitative conditions of factory work to more independent and intimate relations with student and community, where HEIs are mere electives and individuals the fulcrum of responsibility, authority and service in a proper public HE system. Because this inversion in service entails greater freedom in the organization and application of expert labor there are many forms a private academic practice might take.

Such practices might be solo or small to large partnerships. They might operate out of a home office, a virtual office, a community-based office, work space on existing campuses or some such combination. They might exclusively offer education and no research services, the opposite, or some balance. Practices might offer only online courses, more traditional classroom lectures, a combination of both, or a configuration of new and existing teaching platforms and learning environments.

The fact that, under PSA, academics are not employees of HEIs but entrepreneurial academics that exercise this sort of professional prerogative in the provision of their expert services is a major influence on the cost to operate an academic practice and so HE in general.

The following is thus only one possible cost for a philosophy practice. It is chosen as a baseline because it most resembles the traditional institutional means of providing face-to-face, on-campus HE service, which is arguable the most expensive means of provision.

It is a solo academic practice headquartered out of the home but with external office and lecture facilities and services located in downtown Toronto, Canada, within two blocks of the University of Toronto. The figures are quoted in US dollars.

One-time Start-up Costs:

1
$1000-2000
Home headquarters furniture and equipment (chair, desk, printer, etc.)
2
$4000-6000
Computer Hardware and Software (adequate for client files, record keeping, communication, accounting, online instruction, etc.)
3
$1000-2000
Setup, installation and consulting fees (banking, accounting, internet, library services, etc.)
4
$2000-6000
Business cards, logo, and other initial design work
5
$2000-4000
Advertising and promotion for opening (including the professional society website and others that operate as yellow pages for academic service)
6
$5000-8000
Legal and other professional fees (establish the practice or partnership, initial professional membership and licensing dues/fees)
7
$2000
Miscellaneous set-up expenses
8
$17,000-30,000
Total


Ongoing Monthly Costs:

1
$7,500
Academic Practitioner Salary
2
$2,400
Teaching Assistant Wages
3
$2,000
Office/Lecture Space and Other Services
4
$150
Advertising
5
$150
Postage, Shipping, Office Supplies, Banking
6
$150
Website Hosting and Internet Fees
7
$50
General Business Insurance
8
$200
Health Insurance
9
$200
Retirement
10
$500
Membership and other professional dues/fees (professional society, accountant, professional development courses, journal subscriptions, etc.)
11
$13,300
Total

After initial set up the total cost to operate the baseline practice in philosophy is nearly $160,000 per annum. This would provide the professional academic with health insurance, retirement savings, a gross annual income of $90,000, and a year-round teaching assistant working 20 hours per week for a respectable $30 per hour.

It includes modern physical office space, lecture facilities and equipment, reception and housekeeping services, and other amenities.

It includes costing for education but not research, though there is overlap in items such as journal subscriptions, association dues, conference fees, advertising, support staff and office supplies.

This is naked but not naïve costing to open and operate an entrepreneurial practice in philosophy, assuming there was a model in place to provide it professional licensure and support. It is cursory discussion of the impact of professional prerogative on costs associated with practice business models, working conditions and terms of service.

Entrepreneurialism goes hand in hand with versatility and innovation.  As such, each business plan for an academic practice will be unique. For instance, some practitioners may not want a teaching assistant or only require one for 10 hours per week 8 months of the year. Some academics might prefer to operate a virtual practice with no physical office or lecture space. The exercise of either of these professional prerogatives would reduce the operating costs of the practice to $131,200 and $136,000 per annum, respectively; and combined these prerogatives would result in an annual practice cost as low as $107,200.

There has been no discussion of tax deductions and business incentives or expected sources of practice revenue such as tuition, research grants, consultancy fees, interest on investments, publication royalties, course sales or donations – each traditional revenue sources for universities and colleges, ultimately secured by the effort and quality of academic labor.


Public Finance of Professional Academic Practice
My claim is that the professional entrepreneurial model can operate with distinct advantages over the ailing institutional model and for as little as one-quarter its cost. To illustrate this, I will consider finance of PSA through its baseline academic practice and current sources of revenue and expense in public HE. On the revenue side, I will look at: 1) average tuition and fees and 2) state and local contributions. On the expense side, I will look at: 1) instructional and 2) combined instructional, research, academic and student support.

After considering each of these separately, as the sole source of finance for PSA on the national scale, I will then consider its finance in the California circumstance.

The National Center for Education Statistics (NCES) reports that in 2013-14, with the aid of 96,000 FTE graduate assistants, a full time equivalent faculty (FTEF) of 665,000 provided education to nearly 11 million full time equivalent students (FTES). Unless otherwise stated, discussion is restricted to NCES FTE 2013-14 data on public HE, adjusted to constant 2014-15 dollars.

The average tuition and fees for public institutions in 2014-15 was $6,639. With 11 million FTES this represents national institution revenue of $73 billion. Assuming 665,000 FTEF, that’s an annual income of nearly $110,000 and an 80% reduction in the total current cost of public HE.

HEIs received $9,081 per FTES in state and local grants, contracts and appropriations for 2013-14. Using the NCES FTES and FTEF counts that’s an income of $150,000 per annum. If the same contributions at the federal level are included that’s $13,913 per FTES and so an annual income of $230,000 per FTEF. This is $70,000 more than the baseline practice annual revenue of $160,000, allowing for nearly 50% more FTEF at 45% of current total HE expenditures.

The 2013-14 public institutional expenditure on instruction alone was $8,070 per FTES. This produces an annual income of nearly $134,000 per FTEF. At 26% of the total $337 billion spent on public HE this formulation offers plenty of elbow room for system-wide enrollment capacity and academic compensation improvement.

If the expenditure on instruction, research, student and academic support services was combined the figure would be $18,000 per FTES, for an annual income of nearly $300,000 per FTEF. With this 40% reduction in total expenditure, the number of FTEF in the public HE system could be nearly doubled.

On their own, any one of these sources is more than sufficient to fund PSA, making nation-wide, tuition-free HE feasible at all levels, along with the expansion of enrollment capacity and improved compensation for academics and graduate teaching assistants. The same is true of California.


Finance of PSA in California
For the same 2013-14 period, the NCES reports 1.5 million FTES in California, while for the year 2011 it reports 71,505 FTEF. With an estimated 10% increase in faculty, I will use 79,000 as the FTEF figure for 2013-14. Except for this adjustment, discussion is restricted to NCES FTE 2013-14 data on public HE, adjusted to constant 2014-15 dollars.

The average tuition and fees for California public HEIs was $5,126. With 1.5 million FTES that’s revenue of $7.7 billion, divided by 79,000 FTEF for an annual practice income of $97,468. Tuition and fees represent 16% of the $47.6 billion in total expenditures at California institutions. From this perspective, clearly it is possible without more public money to eliminate tuition, expand enrollment and eradicate labor exploitation.

State and local grants, contracts and appropriations came to $13.7 billion in revenue for public HEIs. Under the PSA model this results in an annual FTEF income of $173,417. On this formulation, academics could be properly compensated in a tuition-free system. $13.7 billion represents 28% of current expenditures in California HE. So, there is plenty of room for capacity expansion, including inter-state and international student enrollments, which introduce new money to state and private coffers.

Institutional expenditure for instruction was $11 billion, providing FTEF an income of $139,240 per year. This expense is 23% of total HEI expenditures.

I could do this all day. But let’s last look at the $9.4 billion RCHE hopes to raise through additional taxes. As the only source of funding for PSA that’s an annual practice income of $118,987 and represents 20% of the institutional model expenses.

With total HEI expenditures of $47.6 billion it is clear from these calculations that PSA stands to reduce the public burden for HE. But even if I have grossly underestimated the cost of replacing the current institutional model with the professional entrepreneurial model, it is essential to recognize - PSA requires no more money. This is in stark contrast to the institutional model which constantly cries poor and plans like that of RCHE which ask for more public money.

A major way the RCHE Master Plan falters is it offers no solution to the capacity and compensation problems of the California HE system. Without a response to the inter-related problems of rising tuition (debt), insufficient institutional capacity and faculty labor exploitation the “$48 fix” is only throwing more public money at a defunct model.

I think Californians should aim for a better promise than the one RCHE hopes to restore. They can once again have a world renown HE system and for much less than the current one. If California were to adopt PSA, it would have a comprehensive response to the myriad troubles faced by its HE system. And maybe some tax relief…yeah, right.

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