UC president, governor agree to freeze tuition for 2 years

Gov. Jerry Brown and UC President Janet Napolitano smile after updating the University of California Board of Regents on their ongoing discussions about proposed tuition increases in San Francisco, Calif. on Wednesday, March 18, 2015. less Gov. Jerry Brown and UC President Janet Napolitano smile after updating the University of California Board of Regents on their ongoing discussions about proposed tuition increases in San Francisco, Calif. on ... more Photo: Paul Chinn / The Chronicle Photo: Paul Chinn / The Chronicle Image 1 of / 5 Caption Close UC president, governor agree to freeze tuition for 2 years 1 / 5 Back to Gallery

SACRAMENTO — University of California students would not face the tuition hikes that UC regents planned over the next two years under a much-anticipated deal announced Thursday that settles a dispute between UC President Janet Napolitano and Gov. Jerry Brown.

But UC would begin raising tuition starting in the 2017-18 year by as much as 5 percent a year for three years, although university officials said the hikes would probably follow the rate of inflation.

In all, the pact would cost the state almost $1 billion in extra funds over the next four years, nearly half of which would be given to UC over the next three years to help it pay its substantial pension obligations and the other half going toward UC’s budget.

UC officials announced the deal Thursday as the governor was unveiling his revised budget proposal, a record-high $115.3 billion spending plan for the 2015-16 fiscal year. Along with the tuition freeze, Brown proposed new spending of $380 million in earned-income tax credits for the state’s poorest workers and $62 million to pay for health care for undocumented immigrants who could win residency rights under President Obama’s immigration overhaul.

Brown said that UC holding tuition flat for two years is “very good indeed.”

Months of negotiations

The agreement, struck over the weekend, follows months of backroom wrangling between Napolitano and Brown after the governor threatened in January to withhold $120 million in the next fiscal year if UC failed to rescind tuition increases it had approved. Napolitano insisted $220 million was needed next year to avoid capping enrollment for in-state students or increasing tuition.

UC’s dispute with the state led the regents to vote in November to raise tuition by 5 percent for next fall — to $12,804 — with further tuition hikes over the next four years that would have added up to a 28 percent tuition hike over five years.

“It is critical to note, though, that while this agreement provides the University fiscal stability and much-needed revenue, it does not fund California student enrollment growth — so our work is not done,” Napolitano said in a statement. “The Governor’s budget proposal now moves to the Legislature for consideration, and we will continue our discussions with legislators about ways to secure additional permanent funding to enroll more California students.”

Under the deal, Brown would not oppose any additional money the lawmakers agree to give to UC, as he did last year when he vetoed $100 million for the university, UC officials said. UC is anxious for new enrollment money; Napolitano announced in March that in-state enrollment would be frozen at current levels, even as more out-of-state students would be welcome at all campuses, excluding UC Berkeley and UCLA.

The agreement is expected to end — at least temporarily — student protests over tuition increases. Students have been protesting the tuition increases and briefly shut down the regents meetings in November and March, at one point removing their shirts and throwing fake money to make their point.

In March, students blocked all entrances to UC Santa Cruz and shut down Highway 1 near the campus for several hours to protest the tuition hikes.

In his budget proposal, Brown criticized the UC system for taking a “pension holiday” from annual contributions to its defined-benefit retirement system and instead relying on unsustainable investment returns. UC’s actuaries estimated in November that the university faces $7.6 billion in unfunded liabilities and $14.5 billion for retiree health care.

Contributions to pensions

To win the tuition freezes, Brown agreed to contribute to UC’s pension obligations, paying out $436 million over the next three years. The money would come from the voter-approved Proposition 2, the rainy-day fund, and could be used only for the pension debt. UC has been asking the state for years to help, as it does for California State University.

“This is not free money. They are paying down debt which will put them in a stronger position,” Brown said. “It’s not available for adding new professors or raising salaries or anything they want to do. It’s to stabilize their finances going forward.”

Brown’s administration said UC also agreed to give new employees hired after July 2016 a choice of a defined benefit plan pension capped at $117,000 a year or a defined contribution plan. The defined benefit plan cap is the same as currently imposed by the state for employees hired after 2013. UC currently has a much higher cap of $265,000.

UC would receive an additional $507.3 million to its base budget through 2018-19, with the potential of the state Legislature increasing that in the coming weeks. The Legislature has until June 15 to finalize the state budget, including the current agreement with UC.

UC also agreed to address concerns long held by the governor, in particular, adding more online courses to move students more quickly through school. The state agreed to help UC shore up crumbling buildings and infrastructure across its 10 campuses with $25 million for deferred maintenance and assist the university in becoming more energy-efficient with an additional $25 million from the state’s cap-and-trade program.

Under the agreement, the state would increase UC’s approximately $3 billion state allocation by 4 percent each year, starting at $119.5 million in the fall, which UC spokeswoman Dianne Klein said was the most funding the state has provided since the start of the recession in 2007. It would allow UC’s in-state undergraduate tuition to remain at $12,192 — where it’s been for four years, excluding room, board and mandatory fees — through 2016-17.

The tuition freeze doesn’t apply to out-of-state students, who have long been a cash cow for UC because they pay a base tuition that is $23,000 more than California residents pay.

Napolitano is expected to ask the regents next week to authorize her to raise the supplemental fee paid by out-of-state students by up to 8 percent.

Easing 3-year graduations

Under the deal, UC would make it easier for students to graduate in three years by expanding the number of entry-level classes given online, adding academic advisers, and combing through all the requirements for each major to see what can be eliminated.

“We’d still maintain quality, and it doesn’t mean everyone would graduate in three years,” Klein said. “But UCLA has already been reviewing course requirements and asking, ‘Do we need all of them?’”

One tentative piece of the agreement includes a plan for a third of all new UC enrollees to be transfer students from California community colleges. But implementing that would require new enrollment money from the Legislature so freshmen aren’t displaced by transfer students, Klein said.

Nanette Asimov and Melody Gutierrez are San Francisco Chronicle staff writers. E-mail: nasimov@sfchronicle.com, mgutierrez@sfchronicle.com Twitter: @NanetteAsmiov, @MelodyGutierrez