This paper will focus on the economic impacts of the policy decision by California Governor Brown to decrease funding of the California State University and University of California systems by way of looking at the impact on the economy of less college graduates. I will do this by looking at two variables. I will first look at the multiplier effect of the state putting money into the California State University system and what will happen as a result of the divestment due to the budget cuts. I will then look at the decrease in the median income due to the fact that the budget cuts will cause a decrease in enrollment which means there will be fewer college graduates and college graduates earn more money than their non-graduate counterparts and. I will look at the decrease in median income due to less college graduates as well multiplier effect of college graduates and the resulting loss of tax revenue due to this decrease.
The full impact of the loss of these graduates needs to be expressed because most of the change occurs from the chain of expenditures that results from college graduates having a higher median income than their non-graduate peers. This chain of spending that is the result from the state funding higher education is called the multiplier effect. This is an economic issue because there is a quantifiable change in the economy due to these budget cuts in the California State University system which means there is less money moving around and there will be fewer college graduates.
The budget proposed by Governor Jerry Brown for the fiscal year of 2011-2012 will have a decrease of 4.5% from the total funds and a decrease of 12.5% from the general fund to the California State University system, a total of $542.4 million. (California State Governor’s Office) The funding would be cut from $4,813.6 million to $4597.3 million from the state’s total funds and a cut from $2,617.4 million to $2291.3 million from the state’s General Fund. (California State Governor’s Office) According to a report presented to the Office of the Chancellor by IFC International for every one dollar spent by the state on the California State University system “the CSU generates $5.43 for California’s economy annually. When enhanced earnings by graduates are taken into account, the annual return rises to more than $23 for each $1 invested.” (ICF International) This, however, does not necessarily mean than the $542.4 million in cuts is multiplied by $23, resulting in a total decrease of $12.475 billion in spending. This is because the relationship isn’t necessarily completely linear. Since the decrease is only 8.5% then the relationship might still be linear, which would mean that there will be $12.475 billion in spending lost. The other reality might be that it is not linear, which would mean the total loss of spending would be less than $12.475 billion.
Another area I will look at for the California State University system’s budget cuts is the resulting...