Wednesday, October 28, 2009

Know Your Regents, Part Two: The Case of Richard Blum

After Gerald Parsky ended his term as the head regent, Richard Blum took over this powerful position, and this change was important for many reasons. First of all, Blum was a major investor and owner of real estate, and he had major stakes in companies that handled defense projects and infrastructure building for the U.S. Military. Blum is also married to Senator Diane Feinstein, who sat on the defense appropriations committee, while her husband was submitting bids for defense contracts. According to Feinstein, she never knew which contracts belonged to her husband’s interest because the contracts were listed without the names of the bidder. However, an investigative reporter, Peter Byrne, asked Blum’s lawyer about this potential conflict of interest, and the lawyer responded that they gave Feinstein a list of all of Blum’s bids, so she would know to remove herself when they were discussing her husband’s contracts. Congressional records show that she never did remove herself.

Since Blum, as head regent, was involved in the process of choosing the money mangers and investment strategies for the UC system, it seems highly likely that he was able to steer UC money into his own interests. In fact, we know that Blum was a major stakeholder in the construction company URS and that in May 2001, UC announced that it would pay URS $150 million to manage the reconstruction of Santa Monica Hospital. In other words, just as his wife approved her husband’s bids for defense contracts, Blum himself got the regents to accept his own company’s construction bids.

But the story gets much worse; Byrne has reported that, “URS, which designs and sells advanced weaponry, also held a $125 million design and construction contract at UC's Los Alamos nuclear weapons lab. So URS had substantial interests in UC capital projects when Blum, its principal owner, became a "decider" on construction planning and awarding contracts.” Blum was then not only married to a powerful senator who was the member of the defense appropriation committee, but as a regent, he helped steer the university into contracts with companies in which he held a major stake.
Perhaps the most destructive role Blum has played as a regent is his constant push to get the UC to invest more in real estate and high-risk derivatives. Even as the stock market was falling and real estate was crashing, Blum is on record telling the finance committee that they should increase investments into what we now call toxic assets. The UC now holds billions of dollars of assets and investments that cannot be priced, and this loss of money goes along with a loss of $23 billion in its investment and pension funds (see the assets links below).

The case of Richard Blum should leave no doubt that the regents need to be democratized and that we should all gather together at UCLA on November 18-19 to fight for a fundamental change concerning how the regents are chosen and how priorities are made in the UC system.

How to Find UC Assets:
For latest report, click here, and go to Page 3:

UCRP is the pension fund

GEP is the collective endowment fund

STIP is the short-term investment fund

TRIP is a new investment fund

High point for total assets (over $74.6 billion) is 9/30/07, click here.

Recent low point: 3/30/09 ($51 billion, click here.

New link to short alternative budget video, click here.

Monday, October 26, 2009

Why You Should Care About the UC Regents

The Regents are one of the most powerful groups of people in the UC system, but their activities and their priorities often remain hidden from public view. Political appointees serving 12-year terms, most of the regents are successful business people with no background in education. Their central role appears to be to ensure the financial health of the UC system. However, for the past nine years, they have done very poorly at this task.

In 2000, the head regent, Gerald Parsky, was able to oust the highly regarded treasurer of the UC, Patricia Small, in order to outsource the control of some UC investment accounts. Until the time of her departure, Small oversaw one of the most successful university investment portfolios in the country (for a detailed analysis of Parsky’s role in the UC regents, click here). In fact, the UC’s pension investments were so good that the employees, the employer, and the state did not have to pay into the pension system for close to twenty years. However, this once over-funded plan is now under-funded.

Starting in 2008, in just fifteen months alone, the UC pension fund, endowments, and other investments lost over $23 billion. While UCOP and the regents will tell you that everyone lost money during this time, Charles Schwartz has shown that the UC’s investments have been underperforming most comparable institutions since the outsourcing started in 2000. In other words, UC investors have gone from being the best to being one of the worst, yet no one has lost their job or has even been admonished. Instead, people are getting raises and special retirement deals.

The regents seem to have a penchant for secrecy and private negotiations that directly conflicts with the UC’s status as a public institution. In fact, unions and faculty members have sued the regents on several occasions to force them to follow laws regarding public meetings and financial transparency. One reason why the regents may prefer that their dealings remain relatively shielded from view is that they have many vested interests that can affect their judgment and priorities. For example, Regent Parsky pushed the regents in 1999 to hire an outside investment firm, the Wilshire Group, to look at the UC’s financial strategies and assess their effectiveness. This private company reported that the UC could get a much higher rate of return if it outsourced the control of many of its investments and got rid of the current treasurer. The Wilshire Group also recommended that UC hire the Wilshire Group to manage the transformation of the UC’s investments. In other words, the result of their careful analysis was to recommend themselves for a giant contract. The Wilshire Group ultimately also made significant contributions to the reelection campaign of George W. Bush; Regent Parsky was Chair of Bush’s California Campaign Committee.

Under Parsky’s leadership, the UC not only began to invest in riskier financial instruments, but it also lost its ability to know how its own money was being invested. Not only did Parsky and the regents privatize the investments of a public institution, but they also began to make some of their most important decisions in private. During this same period, a series of scandals broke out in the UC system regarding executive pay, and once again, the regents were shown to be breaking the law by not following public transparency rules. It turns out that the regents were granting lavish compensation packages to top administrators, and many of the perks going along with the high salaries were not reported. After several articles in the San Francisco Chronicle and a legislative hearing, it was discovered that the regents were repeatedly breaking their own rules in order to give people hidden compensation. According to one Chronicle article, “University auditors told the UC Board of Regents they had found that 143 exceptions to the university's compensation policies had been made to give extra pay or benefits to 113 senior managers.” Even though the UC is a public institution, it failed to fully disclose many of its decisions and policies, and this secretive nature also relates to the handling of UC investments. In fact, it took legal action to force the university to begin to reveal the full nature of its compensation and investment activities.

The regents still insist on making public decisions in private. But with so many questions raised by the current budget crisis, many unions and faculty members are calling for changes to UC’s regental system. Most importantly, the regents must become democratized. Instead of having the governor appoint the regents, UC employees should elect UC faculty, staff, and students to sit on the pension board and the board of regents. Without these changes, the regents will continue to make decisions that undermine the already ailing health of the UC’s finances. Please come to the regent’s meeting, November 17-19 at UCLA and demand a democratic role.

Monday, October 19, 2009

How Administrators Took Over the University of California

In the UC system, we have a saying, “When two administrators walk into a room, three always walk out.” The question then is how do administrators reproduce and what effect does their reproduction have on the University of California. While I will not describe the mating habits of administrators, I will show how the growing rise of the administrative class means less money for everyone else, higher student fees, and a loss of shared governance.

According to a 2008 UCLA Faculty Association report, “Over the past decade, the numbers of Administrators in the UC almost doubled, while the number of faculty increased by 25%. The sharpest growth took place among Executives and Senior Managers: 114%. Because Administrators command high salaries and benefits, any increase in their number higher than the expected growth rate for the University results in high costs: rough estimates of the costs of carrying extra administrators at UC range around $800 million.” The first thing to stress here is that during the last decade, as the number of students increased in the UC system, there were fewer faculty to teach them, but many more administrators to run the show. In this structure, power shifts to the administrative class, while the faculty are pushed out of shared governance. Moreover, due to their high compensation packages, administrators suck up the funds that could be spent on faculty salaries and wages for the lowest paid workers.

As I pointed out in a previous post, “In 2008, there were 397 administrators in the over 200k club making a total of $109 million, and in 2006, the same group had 214 members for a collective gross pay of $58.8 million. This group and its collective salaries, then, almost doubled in just two years.” Not only has the administrative class grown in numbers and the percentage of the budget they consume through their salaries, but during the current period of “fiscal emergency,” we have seen several million dollars spent on increased compensation for administrators.

UPTE has documented that during the same regents meeting where a fiscal emergency was declared and the furlough system was approved, hundreds of administrators got compensation increases, which came under the form of administrative stipends, supplementary retirement contributions, houses, low-interest mortgages, automobile allowances, slush funds, airfare (for non work-related travel), relocation expenses, and salary-range adjustments (for a detailed list of all of the increases, click here). Thus, while President Yudof says there have been no salary raises, he is not mentioning all of the different ways that administrators are being compensated. Moreover, these highly compensated individuals are only having their base pay reduced by the furlough system, and so the majority of their compensation is not being taxed.

One of the most egregious examples of how administrators end up costing the university so much money is the hiring of the new Chancellor at UC Davis. Linda Katehi’s salary is not only 27% higher than her predecessor, but the outgoing chancellor will be paid $315,000 per year, while he will be on administrative leave. The former chancellor will also get a new executive assistant, who will make over $91,000 (not including benefits). In other words, by getting a new chancellor, UC Davis will have to spend an additional half a million dollars a year.

Let’s remember that these incredible compensation deals are being made during a time when the UC president says we have no money so we will have to all take pay cuts and students fees will have to go up 42% in one year. It should be obvious to anyone that UC does not have a budget crisis; it has a crisis in leadership.

Tuesday, October 13, 2009

UC-AFT List of Demands for the UC Administration

1. Our first demand is to stop the fee hikes.
We feel that Yudof should have made a deal with the governor with a trigger that if the state does not fund the UC at a certain level, student fees would go up. But Yudof has already pushed for drastic fee increases, and so the state has no reason to increase our funding. Undergraduates are now subsidizing everyone else, and yet the administration continues to cut undergrad courses and programs. Moreover, due to the reliance on non-senate faculty to teach over 50% of the student credit units and the increase in class sizes, the cost of undergraduate education has gone down significantly. We say increase enrollments and stop fee increases. In other words, protect access, diversity, affordability and quality.

2. Our second demand is to reverse the layoffs, protect vital services, and stop pay cuts for the lowest paid workers.
We are seeing layoffs, furloughs, increased workloads, increased class size, the closing of libraries, and decreased services, and we don't think it has to be this way. Pay cuts to the lowest paid workers have created safety and health issues for students, faculty, and Staff. Moreover, at UCLA, the administration has laid off most of the long-term lecturers in the College, and they are talking about suspending all writing and language requirements. This loss of essential courses will hurt UCLA's reputation for years and threaten its accreditation.

3. Our third demand is to consider progressive budget solutions. The unions have suggested alternative budget proposals, like borrowing money from the medical centers and sharing profits between units and reducing administrative units. In fact, UCSD is lending itself $40 million, and other campuses could do the same. Also, UC lent the state $200 million; we ask, why didn't they lend $200 million to the core fund?

4. Our fourth demand is budget transparency. The UC budget is $20 billion, and the state contribution represents about 16% and only 3% of the total budget was cut. We think this reduction should be shared equally between units. Medical centers bring in hundreds of millions in profits every year, and parking, housing, and services, all turn a profit. Taxing all units 5% would resolve the budget crisis. Moreover, according to its own legal financial statements, only 35% of the UC budget is legally restricted; in fact, courts have ruled that the UC budget is only restricted by its priorities.

5. Our final demand is to stop the union busting and bargain in good faith. UC administrators are claiming that the unions refused to discuss the furloughs, while in UC-AFT’s case, the librarians did accept the furloughs, and the lecturers were removed by the Office of the President from consideration. Other unions have had temporary layoffs forced on them, and their contracts have not been honored. We are also seeing outsourcing of union jobs and increased work with less time and for less money. UC should be a leader in fair and equitable employment practices.

It is too easy to blame the state for all of UC’s problems. While we need to fight for increased state funding, we have to look at the UC’s own budget structures

Thursday, October 1, 2009

Telling the Truth about the UC Finances

A key to faculty, students, and staff working together to defend access, quality, and affordability at the University of California is for all of us to understand the way the system is funded and managed. I would like to take this opportunity to clear up some myths and misrepresentations that have been circulating concerning the current crisis:

1. “The state’s per-student spending for education at UC, adjusted for inflation and enrollment growth, has fallen nearly 40% since 1990 from $15,860 in 1990 to $9,560 today in current, inflation-adjusted dollars.” This common stat is very misleading. First of all, the state does not simply fund the UC on a per student basis; the state adds to a base fund the additional cost of educating each new student. As Charles Schwartz and others have shown, this complicated formula is highly misleading and depends on several wrong assumptions: 1) that students are all taught by professors; 2) that there is no difference between the cost of educating undergraduate and graduate students; and 3) that each new student results in an increase in costs for administration, staff, utilities, and libraries. As I have shown, since over 50% of the undergraduate student credit hours are now being generated by lecturers and grad students, and not by professors, the actual cost to educate a student has gone way down since 1990. Also, the UC has continued to expand class size to reduce educational costs.

2. “The Governor reneged on his promise and cut the university’s budget by 20% over the last 2 years. This radical defunding has not only accelerated the rate of fee increase by 9.3% this year with a proposed mid-year increase of another 16% but also threatens the national ranking of our university.” UCOP and the Regents want us to blame the state for all of the UC’s problems, and yes, part of the UC’s problems are related to the decrease in state funding, but the state only funds less than 16% of the UC budget, and the total cut to the UC budget was less than 3%. The problem is that the UC insists that only state money and student fees can pay for education, and yet it is clear that undergraduate fees subsidize the expansion of research and administration in the UC system. Also, in the past, when the state cut the UC’s budget, money was borrowed from other sources like Medical center profits and investment funds. This type of short-term borrowing could be done again if the UC wanted to resist increasing student fees and decreasing educational quality.

3. “We cannot fundraise our way out of this problem. While an important source of funding, private philanthropy and sponsored projects finance specific activities, not the core budget.” This is the great lie of UCOP: The UC is constantly shifting money around and the vast majority of the UC budget is legally unrestricted. In fact, a lot of recent endowment money is earmarked by the donors to support undergraduate and graduate education. Also, money from external grants pays the salaries of graduate students so that they can teach the courses that have been bought out by research faculty. The simple truth is that the profitable units do not want to share their revenue so they will be able to maintain their high compensation packages.

4. “Unlike some private universities, we don't have massive endowments to make up for state money shortfalls.” While UC has lost a large sum recently in its pension fund and investment accounts, it still has over $50 billion worth of investments. Much of this money cannot be used to close the current budget deficit, but the endowment fund and the short-term investment portfolio hold over $12 billion, and some of this money could be utilized to support the general budget. Moreover, just as the UC recently used its large investment portfolio to borrow $200 million to lend to the state, it could do the same to support ongoing operations.

5. “UC is fighting to get more money from the state.” This is only half right because if they really wanted to get more money next year, they would not raise student fees now. Since the UC has already come up with a plan to make up for lost state funding, the state has no reason to restore or increase its funding for the UC system.

By blaming the state for all of UC’s problems and by buying the official line concerning the underfunding of undergraduate education, we are left with no alternative than to hope the state restores our funding. Instead, we should endorse the alternative budget solutions that have been presented by AFSCME, and we should push Yudof to both get more money from the state and to make sure that UC’s funds are spent in a fair and transparent way. This means stopping the continual movement of money to the top earners .