In response to my Huffington Post article, “How Universities Became Hedge Funds,” Peter Taylor, CFO of the UC Budget called into question my research and some of my claims. Taylor’s first complaint is that I misrepresented President Yudof’s explanation of why the UC system lent the state $200 million in the summer of 2009 after the state cut the university’s budget by $600 million: However, if you look at the video of Yudof’s explanation of the deal, he says exactly what I indicated. Moreover, Taylor supports my claim that the university would rather spend on construction rather than instruction by stressing how the UC lent the money so it could continue with several new building projects: “UC did loan $200 million to the state of California, but what Samuels failed to say was that the state had stopped funding vital capital projects at eight UC campuses, facilities essential to the UC education, research and public service mission. The state spent that money on 18 projects on UC campuses, including cutting-edge telemedicine facilities that will allow medical professionals at hospitals to serve patients in rural and poor communities.”
The next central bone of contention is my claim that the UC lost $23 billion in its endowment and pension funds. Taylor responds in the following way: “It’s laughable to compare UC endowment investments to elite private schools such as Harvard and Yale, whose endowments – and losses – dwarf UC’s.
While it’s true that everyone lost money in the global financial meltdown, the University of California lost several percentage points less than Harvard or Yale. Our investment asset allocation was very different, and much more conservative. Even in the best of times our highly restricted endowment adds just one percent ($214 million) to our yearly operating income.” However, in my article, I wrote about the “pension and investment portfolios,” and if we look at UC’s own audited statements from September 30 2007 and March 31 2009, we see that the consolidated assets went from $74.6 billion to $51 billion. Moreover, if we look at the endowment performance in 2008, we also find that the UC has been underperforming in comparison to almost all of the other major universities. In fact, Charles Schwartz has shown that since the management of the pension investments was outsourced in 2000, the UC has performed far worse than Calpers and Calstirs, the two largest education pension funds in the state.
While Taylor claims that my article lacks facts, and I should look at the UC’s budget documents, I have shown that Taylor’s office continues to put out false information. For instance, in Yudof’s letter outlining the need for a furlough plan, it is clear that he misrepresented the true fiscal status of the university: “For the current fiscal year, the Governor’s revised budget proposes a combination of one-time and permanent State funding reductions totaling $816.6 million, $640 million of which is offset by the allocation of federal economic stimulus monies (American Recovery and Reinvestment Act [ARRA]).The remaining shortfall in FY 2008-09 of $176.1 million is partially offset by the 7% student fee increase in that year, leaving a net reduction for FY 2008-09 of $77.4 million.” This claim that the UC lost $176 million in 2008-09 was used to justify reducing everyone’s salaries through the furlough plan, but if we look at UC’s own audited financial statements, we find that in 2008-09, they UC’s allocation from the state increased by over $300 million (Page 52 of the annual financial statement).
The furlough letter contained many similar misleading representations: “While the recently approved 9.3% student fee increase for FY 2009-10 will generate, net of financial aid, $125.9 million in revenues to offset the $619.3 million reduction, the net State funding shortfall of $493.4 million for FY 2009-10 coupled with the $77.4 million shortfall in FY 2008-09 requires immediate system wide and campus actions.” The first thing to correct is the notion that there was a $77.4 million shortfall in 2008-09. The truth is that the UC got $3.2 billion from the state in 2008-09, and the university also generated an additional $100 million from the initial fee increase. What this tally also does not include is the cost savings from reducing student enrolments by 2,300; moreover, the 2009-10 decrease in state funding was offset in part by an additional fee increase of $126 million, and the addition of more federal recovery money.
While Taylor attacks me for not looking at the UC’s budget documents, it should be clear by now that the UC’s own documents are highly confusing and often missing important pieces of information.