How California's Oil and Water Policies Are Bankrupting Higher Education

Oil and water don't usually mix -- except in California politics. Over the last couple of decades, interests representing offshore oil extraction and inland water infrastructure have teamed up, using their muscle to de-fund a once-famous system of public higher education.

On the gubernatorial watches of governors Edmund "Pat" Brown, Sr., a Democrat (1959-1967), and Ronald W. Reagan, a Republican (1967-1975), a bipartisan siphoning of tax dollars earmarked initially for higher education began to flow to the State Water Project (SWP), one of the largest water and power systems in the world. It conveys an average annual 2.4 million acre-feet of water in California through its 17 pumping plants, eight hydroelectric power plants, three pumping-generating plants, 29 dams and reservoirs, and about 675 miles of aqueducts and pipelines.

The money came from a little-known source of public funds: tidelands oil revenue. This energy source, publicly owned, lies off the California coastline, mostly near Long Beach and the state receives a share of the money made from the oil recovered in the tidelands. How this money, which was originally intended to help ensure that Californians could afford higher education, ended up being shifted to the SWP has largely occurred at the margins of the public radar screen.

Education vs. Water

The state's 1960 Master Plan for Higher Education established as a goal that the University of California and California State University system, and the junior (now community) colleges should admit and enroll all eligible California students. Then, higher education was more accessible and affordable than it is now, due in part to the flow of revenue from tidelands oil.

But that didn't last. When Reagan was governor, he boasted that "we'll trade a university for some water," according to author and economist Michael Perelman.

The re-routing of tidelands oil revenue from higher education to the SWP helped to change California's policy priorities and its commitment to upward mobility via post-secondary study. According to data from the California State University system, "The Capital Outlay Fund for Public Higher Education (tidelands oil revenue) was the CSU's primary source of funds prior to fiscal year 1985-86. The revenue from this source diminished significantly and CSU priority needs were beyond the available funds."

Note the use of the passive voice in the last sentence. In fact, the State Lands Commission, state Department of Water Resources and state Legislature shifted (public funds) tax dollars from higher education to water infrastructure construction.

The amount of CSU money from the tidelands oil revenue for the 23 years ending in 1985-86 was $528.3 million, according to the CSU system, $65 million more than the State Lands Commission figures. It is worth noting that a near exact amount, $508 million, flowed from the California Water Fund to finance costs associated with the SWP.

The SWP Boondoggle

According to Mark Arax and Rick Wartzman, authors of The King of California: J.G. Boswell and the Making of a Secret American Empire, Gov. Pat Brown (father of Jerry Brown, the state's current attorney general, past mayor of Oakland and two-time governor), "sought to solve California 's great conundrum: Most of the water is in the north, while most of the people are in the south."

While the SWP sounds good on paper, the actual project has been a boondoggle -- it was sold to the public as a project that would pay for itself, but it never has. In fact, SWP costs have exceeded $6 billion and there is no end in sight.

"The Project was underfinanced since the very start," said Reagan. "It was not my intention to dwell in this, but the people were allowed to believe that the original bond issue would cover the program cost. This was never true."

The water infrastructure construction actually began knowingly under-financed and contractually over-committed. The financial impacts of that flawed start would propel the state to change its financial support for higher education and water-works projects.

Big Ag's Big Muscle

The State Water Project is paramount for many big agricultural interests that also have a lot of political pull. In California, where the economics and politics of agribusiness are big, a key point to bear is the 160-acre limitation for farms receiving water from a federally run water system known as the Central Valley Project, which was intended to limit the amount of water under the Reclamation of Act of 1902. This was a national policy undertaken to assist small farms and farmers. They embodied, at least in the so-called Jeffersonian ideal of yeoman agriculture, a force for democracy and equality. Corporate farming, on the other hand, creates land monopolies and social class disparity.

But when California's SWP was created, it did away with the 160-acre limit, thereby helping to pave the way for Big Ag to grease the taxpayers a bit more. Take J.G. Boswell, the subject of Arax and Wartzman's book. He was the biggest farmer in America, and made ample use of the SWP for his corporate agribusiness that grew cotton and other crops on over 200,000 acres of land in California's San Joaquin Valley, beginning in 1921. According to data published by the U.S. Department of Agriculture, Boswell's agricultural empire received tens of millions of dollars in crop subsidies.

Many of the same landowners that pushed for the SWP are also the major beneficiaries to this day.

Saving Higher Ed

At the same time that California's vast hydraulic policy was getting started, public higher education became a high policy priority in California.

According to the Master Plan for Higher Education framework, UC was to choose from the top 12.5 percent of graduating high school seniors for enrollment in undergraduate, graduate and professional coursework through doctoral degrees. CSU was to choose from the top third of graduating high school seniors. They would enroll in undergraduate and graduate education through the master's degree. All other students were to be admitted to the state community colleges. With this plan, California achieved national and global recognition for higher education equity. As things turned out, though, that "golden era" ended.

In 1965-'66, a full-time CSU undergraduate student residing in California paid $76 ($511 adjusted for inflation today) to enroll for two semesters versus $3,048 for the same period in 2008-09, according to the state Postsecondary Education Commission. A full-time UC undergraduate student who lived in California paid $220 ($1,480 adjusted for inflation today) for a year's enrollment in 1965-66 compared with $7,126 for enrollment in 2008-09.

Currently, California has a projected 2009-2010 general fund budget of $84.5 billion. Meanwhile, the state's cash deficit, or amount of borrowing, for the combined current year (past and present fiscal years) is $20.2 billion. Against this backdrop, the housing market crash is the immediate cause of the current crisis in public education funding. GOP Governor Schwarzenegger and lawmakers on both sides of the aisle have slashed spending for higher education, hiking UC and CSU student fees by double-digit rates most recently. Furlough days for UC and CSU professors are another outcome of the spending cutbacks.

In response to the crisis, Assembly Majority Leader Alberto Torrico, D-Fremont, is the sponsor of Assembly Bill 656 to impose a 12.5 percent severance tax on California natural gas and oil producers. That new tax would shift roughly $2 billion to the state's colleges, community colleges and universities annually.

According to him, California is the only major oil-producing state that lacks a natural gas and oil severance tax, "giving the energy away for free," he said at a March 4 rally for public education at the state capitol. Torrico noted that Texas, the state with the biggest gross domestic product nationally after California, imposes such an extraction tax on energy companies. Likewise, Alaska imposes a severance tax on oil producers.

Torrico's assembly bill and the current student-worker movement to resist austerity measures to California's post-secondary system of public education have their work cut out for them. Besides the funding shortfall, they face a debt service component of the state budget with a rising appetite in part a result of an historical and bipartisan commitment to funnel tax dollars from higher education to water infrastructure construction.

Currently, debt service is the second biggest part of the California general fund after education, kindergarten to university. Bill Lockyer is the state treasurer of California. He frets that the rising burden of debt from the state's water works on the tax-supported general fund "will force even more cuts to vital services already reeling from severe budget reductions." In a missive to residents, Lockyer noted "a timely and pressing case study" on California water system improvements suggests the need to chart a new way to pay for such infrastructure. "The case for user-funding for most water system improvements is compelling, both as a matter of equity and fiscal prudence."

In the meantime, the $11.1 billion Safe, Clean and Reliable Drinking Water Supply Act of 2010, which among other purposes, will ensure water reliability and supplies for the SWP will be on the November 2010 California ballot. That brings us back to Gov. Schwarzenegger and the other proponents of this $11.1 billion general obligation bond act known as "The Water Package."

They have to provide a cushion of assurance to bond syndicators. How? Here is where spending cuts for higher education enter the budget picture. These cutbacks, along with those to health and human services generally, help to provide a fiscal cushion to issue more bonds, which in turn are repaid with general fund revenues from state taxpayers. Between 2000-'06 more than $19.6 billion in General Obligation water- and water-related bonds were approved by the voters; a significant portion of those funds were also used to keep the SWP financially afloat. Interest payments on this debt cost more than $10 billion; all of which is repaid from California's deficit-ridden general fund.

The movement to defend public higher education in California faces multiple battle fronts. How things got to this point and why are two pressing questions for activists and their allies with regards to the quality and quantity of fiscal reform. On that note, maybe it's time to focus on a decades-long trend of state policy priorities for oil and water that put the general fund into turmoil before the real estate recession made a bad budget picture worse.

Ironically, water, which is the fuel that drives California's $1.8 trillion Gross Domestic Product, has become a liability on the general fund and a curse on students' ability to get an affordable education. Hopefully, we will all learn a lesson from this oil-for-water fiasco.