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A college bargain

Speaker Perez wants to close a tax loophole and provide tuition relief. It's flawed but worth supporting.

April 23, 2012
  • A pair of legislative proposals, SB 1500 and 1501, by Assembly Speaker John A. Prez (D-Los Angeles) would eliminate a tax loophole for businesses and use the resulting revenue to provide large scholarships to middle-class students in the state's public colleges and universities, reducing their tuition costs by two-thirds.
A pair of legislative proposals, SB 1500 and 1501, by Assembly Speaker John… (Rich Pedroncelli / AP Photo )

Among all the painfully underfunded programs in California, which ones should receive extra money if the state were to suddenly bring in an extra billion dollars a year? That's like asking a cash-strapped homeowner who comes into a few thousand dollars which house repair he would tackle after years of deferring the most basic projects. Replace the dying furnace or the balky toilets? How about the dangerously faulty electrical wiring?

Chances are the homeowner wouldn't put a new granite countertop at the top of the list, yet that's in effect what a pair of legislative proposals, SB 1500 and 1501, by Assembly Speaker John A. Perez (D-Los Angeles) would do by eliminating a tax loophole for businesses and using the resulting revenue to provide large scholarships to middle-class students in the state's public colleges and universities, reducing their tuition costs by two-thirds.

But back to our theoretical homeowner, who has a complicating factor to take into account: Much as he might need a plumber's services, what if the only way he could get the home improvement money was if he promised to spend it on the countertop?

That's the political dilemma Perez faces. We can think of more pressing needs than tuition relief for families earning between $80,000 and $150,000, and no doubt so can Perez. A properly funded welfare-to-work program, for example, or medical care for poor children and the impoverished elderly. But to win the votes required to eliminate the loophole, he says he has to come up with a use for the money that will appeal to at least a couple of Republicans as well as more moderate Democrats. Closing the tax loophole is an easier sell when politicians can go to their districts and boast that they'll be providing thousands of dollars in tuition relief for their constituents' kids. It's a reasonable way to bring in money and help Californians, and it ought to be approved, with some changes.

For The Record
Los Angeles Times Thursday, April 26, 2012 Home Edition Main News Part A Page 16 Editorial Desk 1 inches; 34 words Type of Material: Correction
Tuition: An April 23 editorial on legislation to provide scholarships for middle-class students in the state's public colleges and universities misidentified the bills as SB 1500 and 1501. They are AB 1500 and 1501.

No matter how the money is spent, it makes sense to eliminate the break for multi-state corporations that allows them to pick which of two formulas to use as the basis for their taxes each year. By switching to a system that would tax these companies based only on their sales in this state, the bill would bring California in line with other states, give companies more of an incentive to locate and hire here or at least not move away, and raise about $1 billion a year. This page has previously encouraged such a switch, as has the state legislative analyst.

Ideally, the revenue would go into the cash-strapped general fund. And even if it didn't, but was targeted for higher education, it's unclear that tuition breaks constitute the best use. At California State University, where tuition would drop from about $6,000 to $2,000 a year, the bigger problem might not be what families pay -- plenty of middle-class families earning less than $150,000 can afford $6,000 for tuition -- but the scarcity of classes for all the enrolled students. And it's worth remembering that CSU (and UC) students whose families earn about $80,000 or less already receive a free ride on tuition.

Unfortunately, voters -- and therefore the legislators who represent them -- are unlikely to want to give the new revenue to the amorphous general fund or directly to the colleges to spend. Tuition reduction, by contrast, is a clear, tangible, readily understood benefit. The idea of bringing University of California tuition back down to a nostalgia-invoking $4,000 a year (instead of the current $12,000) is naturally appealing.

In reality, the savings might prove to be less. Once middle-class students are receiving these scholarships, there's less pressure on the college systems to keep tuition down -- and there's nothing in Perez's bill that would stop any of them from raising it sooner rather than later. If middle-class UC students are paying only $4,000, the regents might reason, why not raise tuition by a couple of thousand dollars to fix some buildings, give out some employee raises and offer more courses? The students would still get a tremendous bargain as well as attend a more robust educational system. That would probably be a good thing, but it would mean families weren't getting quite the financial relief that had been intended.

Lawmakers should draw the line, though, at providing these breaks at the community colleges. Perez's legislation would direct $150 million toward the system, allowing individual colleges to reduce fees where they deem best -- whether in the actual price of courses or perhaps cheaper parking stickers.

At about $1,500 a year, California's community college system is one of the nation's lowest-priced forms of higher education. Families with incomes between $80,000 and $150,000 should be able to afford the expense, and if for some reason they can't, this amount is easy to fund and pay off via student loans.

The money should still go to those colleges, but it should be used to provide more classes, which are in desperately short supply. In 2009-10, close to 140,000 entering students were unable to register for a single course. What's the point of lowering their fees? They don't have to pay anything at all when they can't get a seat in a class. In a 2009 report, the state legislative analyst noted that community college students would save far more money by being able to finish their education quickly than by paying lower fees, because their living expenses are much higher than college expenses.

With that change, Perez's legislation should be approved. It would employ a sensible method of raising revenue and provide a useful benefit for hundreds of thousands of Californians, even if it is not the most badly needed program right now. In an ideal world, the new proposal would be constructed differently, but as Perez well knows, the California Legislature isn't an ideal world.

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