Thursday, January 14, 2010

How the UC Hides its Money

In notes from the Regents Committee on Finance meeting from Nov. 18 2009 , one sees how the UC is able to bring in a record level of revenue but still claim that it has no money. During Assistant Vice President Plotts presentation of the Annual Financial Report, we are told that, “The University’s total assets were $42 billion, an increase of approximately $74 million over the previous year. Total liabilities were somewhat over $22 billion. Liabilities increased by $2.3 billion over the same period. Net assets were slightly under $20 billion and declined by $2.25 billion.” This combination of good and bad news is highly confusing, but the first thing to stress is that the main reason that the liabilities have increased by $2.25 billion is that due to a recent accounting law change, the UC is declaring on its books over $1.5 billion in future healthcare costs for retirees. As the report later notes, the UC is not actually spending this money or saving it up; instead it is merely listing the projected future costs on its ledger, and this move allows it to hide a large chunk of its unrestricted funds. In Plotts’ own word, “The obligation for retiree health, mentioned above, is $1.5 billion; but the University has funded only $279 million of this expense. The difference is recorded on the balance sheet as a liability.” Through this accounting move, $1.2 billion that could be used for any purpose, like closing the UC budget gap, simply goes away, but in reality, it does not go anywhere.

The use of the unfunded healthcare liability to hide the true state of the UC’s finances is revisited later on in the report: “Mr. Taylor responded that the decline in unrestricted net assets is due to a variety of causes. The increasing cost of the retiree health program is probably the largest single factor. Campuses are drawing on different sources of revenue to bridge over difficult financial times, and spending down unexpended plant funds on construction projects.” In this statement, the budget director claims that the biggest reason for the loss of unrestricted funds, which could have been used to close the budget gap, is the retiree healthcare liability, but we have to remember that the UC is not actually spending this money. It is therefore unclear why he connects the healthcare of retirees with the fact that the campuses are spending down their reserves.

In a very telling moment, Plotts declares, “There is no free-floating reserve that can be applied to UC financial problems.” I think he protests too much in this report because he spends an extensive amount of time justifying the lack of unrestricted funds, while he also reveals an increase in revenue. Not only is the UC hiding its money through its unfunded retiree healhtcare liability, but it is clear that the system pools money from many different sources, and then invests it through its endowment and short term investment pool. Moreover, since these investments lost a lot of money in the fiscal year ending July 1, 2009, Plotts is able to declare that the UC has lost most if its unrestricted funds: “These assets have sometimes been mistakenly thought of as a free-floating reserve. These funds are allocated in advance to a wide variety of academic and student programs. Mr. Taylor emphasized that, on June 30, 2007, the University’s unrestricted net assets were $6.5 billion; now, two years later, on June 30, 2009, unrestricted reserves were at $3.54 billion, a decline of $3 billion. He projected that, by June 30, 2010, these reserves will be below $1 billion.” According to this statement, there are no unrestricted funds because all of the money is dedicated to academic and student programs; however, these funds have gone down over $5 billion in the last two years, and they will go down even more this year. The first thing to point out is that these funds have recently gone up quite a bit, so does that mean that several billion dollars are now accessible? Or does this mean that when the investments lose money, everything has to be cut, but when the investments gain, none of the money can be used?

This report indicates that the UC did have a lot of unrestricted funds, but this money has been lost by the poor return in its investments: “unrestricted net assets, not restricted by an external party but committed internally, declined by almost $1.8 billion.” As the unions have been arguing for a long time, most of the UC’s money is only restricted by its own priorities, and this statement admits that these funds are not restricted by law or some external authority; however, the new claim is that these funds have now been mostly lost.

Another way that the university hides its revenue and available funds is by simply misreporting funding its gets from different sources. While its own audited financial statements show that the UC received an increase in state funding for the year ending in July 2009, this report claims a massive loss: “The University will always show an operating loss, because State educational appropriations are required to be reported as non-operating revenues, which declined by about $1.75 billion this year. The decline in non-operating revenues reflects reduced State educational appropriations and a decline in the fair value of investments.” Since state appropriations actually went up during this period, it must be that these state funds were lost by being invested.

What I suspect is going on is that the UC is placing funds from many different sources, including student fees and state funds, into its investment accounts. By using this structure, the system is able to hide its unrestricted funds and to redirect money from its investment accounts into its chosen priorities, which is often increasing the compensation of the star administrators, faculty, and coaches. The end result of this process is that the UC declares that it is broke, while it raises record revenue and redistributes income from the poorest students and workers to the wealthiest employees

41 comments:

  1. Hey Bob,

    You've got a great blog going on here. I have been following it since you went on Democracy Now!

    What I wanted to let you know was that I made a poster for the Budget Cuts Protest on the 4th of March. I have included a link to the main flier but their are various versions of it for printing (CMYK) in large format and small as well as just using on a computer or digital device (RGB). Hopefully you can help distribute these to the people who can make it go viral so we can get a huge turnout.

    Cheers

    Nick Bygon

    The web address is
    http://www.flickr.com/photos/nickbygon/4275662202

    ReplyDelete
  2. If it is true that the UC is hiding its revenues via several sources, what exactly is being done about this issue?

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  3. A very enlightening post. I had no idea such dishonest and irresponsible practices were taking place at the top of the UC system. Specifically, that bit about recording retiree healthcare costs as a liability to leave $1.2 billion virtually unaccounted for and to invest with doesn't paint a nice picture of the UC system, or its heads. Also, it makes me wonder what the other $20.8 billion in liabilities are supposed to be in. Moreover, allocating unrestricted funds to academic and student programs and curtailing subsequent contributions for the sake of investment? BJ Kang should take a look at the UC system. Shoot, it'd be nice if UC students got some of the money; in fact, I've no doubt it'd improve education.

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  4. This article frustrates me because of the dishonesty and secretive nature of the UC system's practices. When I read that the UC's are placing state funds and student fees into investment accounts in order to redirect money from investment accounts into "chosen priorities, I could not believe the UC's would swindle money like this. Redistributing money from poorest UC students and faculty to the richest ones is stealing from the poor and giving that money to the rich. It makes me sick that the UC's claim will always claim they are broke by misreporting funding they get from different sources.

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  5. I think the UC’s hidden treasure box described in this post can be better described as a “I-need-a-bailout-without-the-public-knowing” fund. I think the reason why UC uses such a dishonest approach is because they want a way to cover up their actions. They don’t want the public to know how much money they are losing in their investments, especially since student fees contribute to their funds.

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  6. This comment has been removed by the author.

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  7. It's unfortunate that this kind of behavior seems to be more and more prevalent in our government's institutions. As the corporate sector and profit motivated interests exhibit spheres of influence in sectors where they should not (public service, education, health care). This is why it is so important to have a vigilante and watchful citizenry.

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  8. I think all the dishonesty from the UC system is crap. It's our money and we deserve to know what it's being used for. Also, it'd be nice if it actually went towards our education, instead of the investments. I agree with x in that their dishonesty is a result of them trying to cover up all the money they have lost. All of this obviously isn't right, but what can we do to change it?

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  9. It is apparent that the UC's authorities want the UC's money for themselves or for purposes other than investing in education because they are hiding the money. If they were planning to make the investments and use what they gained to improve our education, Mr. Plotts would have proudly included this fact in his report. The authorities need to be reminded that the UC's exist to educate students.

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  10. I was shocked by the variety of ways the UC hides the revenue. I am curious to know exactly where this hidden revenue goes.
    It is also frustrating to pay so much for my education and to not receive the benefits of paying thousands of dollars. I found the part in your blog about the UC “merely listing the projected future costs on its ledger” particularly frustrating.

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  11. It is appalling to hear about the misuse of money by the UC’s. I am disgusted to hear that the money that we as students pay to the colleges are used to further the interests of the UC officials instead of going right back into benefitting the students. I feel that all unrestricted funds should be removed and that every last dollar of revenue the UC receives should be accounted for.

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  12. How can a publicly funded program, like the UC system steal money from the people it serves? It is immoral and impractical. State funds and student fees should be spent on the students who pay to attend, not on hidden priorities and higher salaries. The students should be provided with top notch educations, not just the prestige the highly paid professors create. Also, what is the point of declaring bankruptcy when the state has no more funds to offer? The UC should re-budget in order to better serve its students rather than attempt to secure more funds.

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  13. If it is true that money is being redirected to “priorities” how is it that this isn’t being resolved? There should be more exposure to the cold facts in order for the word to spread and to get a strong alliance of people to fight against this injustice.

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  14. The UC system seems to be using our money as a gambling pool for their own profits. They are keeping any winnings and then making the students and professors make up for the losses.

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  15. a. When I first came to UCLA I wondered why the UC system claimed that the reason for all the budget cuts were because of the lack of money it encountered. It was strange to me because since the first day here at UCLA there has been a lot of construction going on and it makes me question if the money the students are paying simply go to funding those projects that are not necessary to have at this time. Why spend money instead of saving it for something useful?
    .

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  16. I think it's shocking and very unfair for the students who attend the UC's. Students are paying for most of their tuition from out of their pockets and taking loans. Is it very necessary to spend a large sum of money on healthcare liabilities for retirees or important employees? The students who are attending college in order to receive an education should be the number one priority because without the students, there could not be a university that exists. If students cannot afford to attend college, all the hard work they did would be useless in the end.

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  17. I agree with everyone that the dishonesty of the UC system is appalling and absurd. The UC system seems to have more of a business influence then on education. I guess letting a group of investment bankers and real estate agents handle the finances of a group of universities would only culminate to one goal: increase the profit. When this is the primary goal, the value of education decreases because there is nothing for them to gain by improving educational quality. What I would still like to know is where these “unrestricted funds” are going. In my opinion, this money is probably being embezzled the same fashion that several large companies did after receiving their bailout money in the past year.

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  18. The fact that the UC system uses deception through accounting tricks to hide the availabliity of its funds is despicable. The UC already overcharges its students, and increasing student fees by over 30% when its cleary unecessary is a travesty. These unethical practices should be brought to light.

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  19. Where does all this revenue go? I had no idea that the UC were loosing so much money in so little time. We are giving all this money to the UC and it seems like they are blowing it away on nothing. We should be able to have some say on where 3 million dollars go in two years.

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  20. It disgusts me to find out that the UC system would try to hide funds that they have available. I feel like it is very unnecessary to increase the students' fees and they are just collecting more money to hide. This dishonesty needs to be dealt with and it cannot go on any longer.

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  21. Now I feel a lot better about paying more tuition. Why is this information nowhere else to be found? I usually read the daily bruin but I haven’t seen anything about this. Maybe I’m just to ignorant and assumes that the people in charge don’t f me over.

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  22. It feels like the UC regents have forgotten, or perhaps have never realized, how difficult it is to come up with the thousands of dollars that it costs to attend colleges like UCLA. Their actions and dishonesty everyone has mentioned lacks any regard to students and hardworking faculty members. Realize how much students sacrifice to be here.

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  23. There is definitely a need for a comprehensive examination of the UC budget and funding. We, the people who fund our education, need a reason to keep believing in the system and know where our hard earned money goes to exactly.

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    Replies
    1. I think you're right, the fund transparency makes people trust.

      - blog online -

      Delete
  24. It seems to me that whenever the UC system gets money from one place or another they continue to use it on things that they want, instead of towards education. If they are short on money they need to realize that what they are doing is not working, they need to come up with new ways to distribute their money.

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  25. It is hard for me to believe that the UC system would do this to it's students. It is especially hard to believe that it would take money from the poorest students and give it to the administrators. In this light it seems like all their talk about having low income students afford to go to a UC is really for their benefit.

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  26. The UC systems is displaying dishonesty at it's best. College is expected nowadays in order to be successful and it is becoming increasingly more and more expensive. I cannot believe that the UC system would make it even more difficult for students to be able to go to university. The people who work for the administration make plenty of money. They do not need to take it from anyone else.

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  27. UC President Yudof needs to address the immediate obstacle of UCB Chancellor Birgeneau Loss of Credibility, Trust
    The UCB budget gap has grown to $150 million, and still the Chancellor is spending money that isn't there on expensive outside consultants. His reasons range from the need for impartiality to requiring the "innovative thinking, expertise, and new knowledge" the consultants would bring.

    Does this mean that the faculty and management of a world-class research and teaching institution lack the knowledge, impartiality, innovation, and professionalism to come up with solutions? Have they been fudging their research for years? The consultants will glean their recommendations from interviewing faculty and the UCB management that hired them; yet solutions could be found internally if the Chancellor were doing the job HE was hired to do. Consultant fees would be far better spent on meeting the needs of students.

    There can be only one conclusion as to why creative solutions have not been forthcoming from the professionals within UCB: Chancellor Birgeneau has lost credibility and the trust of the faculty as well as of the Academic Senate leadership that represents them. Even if the faculty agrees with the consultants' recommendations - disagreeing might put their jobs in jeopardy - the underlying problem of lost credibility and trust will remain.

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  34. As I have called attention to previously, the primary way that the UC covers its unlimited assets is by announcing a multi-billion dollar retiree human services risk, while just paying two or three hundred million dollars a year to take care of these expenses. However, UC is doing nothing incorrectly here on the grounds that it is required by law to announce this risk; be that as it may, it hides cash by not explaining to its representatives the genuine motivation behind why its unhindered assets are so low.

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