When Tanya Schevitz, a higher education reporter for the San Francisco Chronicle, asked UC about their fee increase for this year, Brad Hayward, the UC spokesman, said the fee increases are necessary "to maintain and improve the quality of education, expand student mental health services, increase financial aid and help raise faculty and staff salaries closer to market rate." Hayward added significantly that the UC system is "underfunded" by the state by $77 million.
Let's consider how this works. First, assume that the university develops an annual budget of $100 million. Assume further that $50 million of this $100 million is requested from state government. Finally, assume that the state only provides $25 million of the amount that was requested. In a private market circumstance, that would be the end of the story, as the institution would be required to adjust to a $75 million budget. Not so with most public universities. In their case, the $25 million that was not funded is considered an "unfunded" obligation of the state. The university doesn't tighten its belt in view of the amount that it actually received; it dips into its reserves, if it has any, raises fees (a more probable scenario), and operates as if the "unfunded" amount is an account receivable. As a consequence, there is no internal discipline for the institution to live within its means.
I often hear that NCLB be is "underfunded". I wonder if the terminology usage is similar?