Perhaps the biggest story of 2009 for the UC system is the way a fake fiscal crisis has been used to consolidate the president's powers and impose austerity plans worthy of an IMF or World Bank takeover. Using the state reduction of $600 million (out of an operating budget of over $20 billion), the Office of the President has suspended most forms of shared governance and has a spent a great deal of money and time on circulating false and misleading budgetary information. This lack of transparency coupled with an authoritarian imposition of furloughs and fee increase has led to a new protest movement composed of students, faculty, workers, and unions.
President Yudof has already signaled that more of the same is coming in our future. By asking the state to come up with an additional $913 million in funding for the UC system, Yudof has guaranteed that the state will not deliver. Once the state fails to give the UC system the university’s requested amount, Yudof will feel justified to impose further draconian cuts to workers' salaries and vital educational services. Instead of looking at how the university can save money by reducing its ever-expanding administrative class, Yudof seems intent on making students pay more for less.
While students, faculty, and unions will be striking and protesting on March 4th to protect public education in the state of California, we will also be working on our local campuses to hold our schools accountable to their public mission. Thus, after students return back to the campuses and find that their increased fees have resulted in an expansion of class sizes and a reduction of class offerings, there will be a renewed spirit of protest.
We should also expect further discussions of how the police acting during the protests of 2009, and the use of tasers, pepper spray, and batons will be investigated and protested. The fact that the university can only run its operations by relying on violence and propaganda shows that the current administration is morally bankrupt and only represents the interests of the people at the top of the system. If the majority of students, faculty, and workers ban together and demand a more just and equitable university, we can defend high quality public higher education in the state of California.
Sunday, December 27, 2009
Monday, December 21, 2009
The New UC Mega Scandal? The U.S. Senate Investigates the UC Budget
In 2007, David Kessler, the Dean of the UCSF Medical School was fired after he complained that the campuses had provided him with false and misleading information concerning the state of its budget. According to the documents sent by the UC to senate investigators Kessler did not understand that many of UC’s budget documents are crafted for particular audiences, and the only legally accountable budgetary figures are found in the audited annual statements (attachment B, page 5). In other words, UC admits that the budgetary figures it releases to its employees and the public are often at odds with its own financial statements.
At the heart of the dispute between Kessler and UCSF is the question of indirect funds for external grants and the use of endowment funds. Kessler contends that he was promised access to over $46 million in funds that he could use at his discretion, while the university argues that the dean did not understand the nature of endowments and grants. According to the official UC response to the federal investigators, while endowment money is usually dedicated to specific purposes, many different administrators have discretion over the actual use of the funds. Likewise, external grants often come with indirect funds that are sent to the Office of the President and then redistributed back to the local programs. According to the UC’s legal representation, indirect funds associated with external grants are stored in a Facilities and Administrative “cost pool,” and these funds may be “spent by the University in its discretion” (Attachment A, page 7). The translation of this statement is that the campus has great deal of flexibility in regards to how it uses the large sum of money gathered by the indirect costs of grants (a total of $1 billion in 2009).
The university claims that for each federal grant, it receives an additional 26% for indirect costs, and the real cost should be closer to 29-30% (page 8). Here is where a major accounting conflict ensues. I have been arguing with several UC faculty members about how indirect costs are distributed and accumulated, and I have argued the following: There is no way of knowing if grants individually or on the whole make or lose money. Since most grants give the same generalized percentage to administration, staff, utilities, and maintenance, it is impossible to track the flow of money pertaining to any particular grant. For instance, if my grant to develop a new drug pays $10,000 into general administration, how could anyone tell if I paid enough of many different administrators' salaries.
When you get into the actual details of a grant, you discover, like every other part of the university, that money from many different sources gets mixed together. For example, if I am a dean, I am being paid out of state funds, student fees, grant overhead, some endowment money, etc. This mixing of funds is precisely what the U.S. Senate is investigating in relation to federal NIH grants - the feds have told me that they cannot track the flow of money because it all gets sent to UCOP and then redistributed back to the campus. Also, a question that I was asked by a senate staffer was "how do you put the price on a grant using a particular facility; after all, UC does not appreciate its assets and lists each building based on its original value" (which is also a fiscal fiction). We would all like to believe that this system is rational, but it is not.
This same problem of accounting for grant money is also causing problems for the U.S. Senate’s investigation of the use of endowment funds. After Kessler made his original allegations, the UC embarked on three separate reviews of their accounting processes, and they found no malfesiance. However, UCSF has just signed on for another expensive audit with Pricewaterhouse Coopers, and this time, they promise to look at the actual financial statements regarding the grants and endowment funds. One of the issues in the Kessler case is the question of how much discretion a dean has in relation to an endowment gift. The UC’s lawyers argue that in the case of a grant given for cancer research, the dean may have tremendous latitude in deciding how the endowed funds are used, and the central argument of the administration is that most endowments give a fair amount of discretion to the administration (page 11). What is troubling is that the UC falsely testified to the
state senate that an external audit showed that the tracking of endowments and grants could be verified by the audited financial statements. It turns out, that the outside consultants never tried to match these different records, and they were never given the proper documentation to audit the UC’s financial statements.
To be continued.
At the heart of the dispute between Kessler and UCSF is the question of indirect funds for external grants and the use of endowment funds. Kessler contends that he was promised access to over $46 million in funds that he could use at his discretion, while the university argues that the dean did not understand the nature of endowments and grants. According to the official UC response to the federal investigators, while endowment money is usually dedicated to specific purposes, many different administrators have discretion over the actual use of the funds. Likewise, external grants often come with indirect funds that are sent to the Office of the President and then redistributed back to the local programs. According to the UC’s legal representation, indirect funds associated with external grants are stored in a Facilities and Administrative “cost pool,” and these funds may be “spent by the University in its discretion” (Attachment A, page 7). The translation of this statement is that the campus has great deal of flexibility in regards to how it uses the large sum of money gathered by the indirect costs of grants (a total of $1 billion in 2009).
The university claims that for each federal grant, it receives an additional 26% for indirect costs, and the real cost should be closer to 29-30% (page 8). Here is where a major accounting conflict ensues. I have been arguing with several UC faculty members about how indirect costs are distributed and accumulated, and I have argued the following: There is no way of knowing if grants individually or on the whole make or lose money. Since most grants give the same generalized percentage to administration, staff, utilities, and maintenance, it is impossible to track the flow of money pertaining to any particular grant. For instance, if my grant to develop a new drug pays $10,000 into general administration, how could anyone tell if I paid enough of many different administrators' salaries.
When you get into the actual details of a grant, you discover, like every other part of the university, that money from many different sources gets mixed together. For example, if I am a dean, I am being paid out of state funds, student fees, grant overhead, some endowment money, etc. This mixing of funds is precisely what the U.S. Senate is investigating in relation to federal NIH grants - the feds have told me that they cannot track the flow of money because it all gets sent to UCOP and then redistributed back to the campus. Also, a question that I was asked by a senate staffer was "how do you put the price on a grant using a particular facility; after all, UC does not appreciate its assets and lists each building based on its original value" (which is also a fiscal fiction). We would all like to believe that this system is rational, but it is not.
This same problem of accounting for grant money is also causing problems for the U.S. Senate’s investigation of the use of endowment funds. After Kessler made his original allegations, the UC embarked on three separate reviews of their accounting processes, and they found no malfesiance. However, UCSF has just signed on for another expensive audit with Pricewaterhouse Coopers, and this time, they promise to look at the actual financial statements regarding the grants and endowment funds. One of the issues in the Kessler case is the question of how much discretion a dean has in relation to an endowment gift. The UC’s lawyers argue that in the case of a grant given for cancer research, the dean may have tremendous latitude in deciding how the endowed funds are used, and the central argument of the administration is that most endowments give a fair amount of discretion to the administration (page 11). What is troubling is that the UC falsely testified to the
state senate that an external audit showed that the tracking of endowments and grants could be verified by the audited financial statements. It turns out, that the outside consultants never tried to match these different records, and they were never given the proper documentation to audit the UC’s financial statements.
To be continued.
Monday, December 14, 2009
Only 3.5% of the UCLA Budget is Spent on Undergraduates: Where Does the Rest Go?
According to Steve Olson, the UCLA budget director, 12% of the UCLA budget in 2008-2009 came from the state, but over 50% of the core budget (instruction, research, and administration) was state funded. While the total UCLA budget was $4.7 billion, I calculate that only about $160 million, or just under 3.5%, was spent on undergraduate education. Furthermore, state funds and student fees brought over $1 billion to the campus, but only a small fraction of this amount was spent on instruction-related activities. If budgets are really a set of priorities, it becomes obvious why undergraduate education is often downsized.
Looking at the UCLA College of Letters and Sciences, the total budget was $234 million in 2008-2009, and 44% of the spending went to fund ladder faculty salaries, 3% to temporary faculty salaries, 9% to operating costs, 14% to benefits, 15% to staff, 9% to graduate assistants, and 6% to other academic titles. During the year, there were 22,000 undergraduates in the College, and I calculate that if we remove the costs associated with graduate education, (50% of the senate faculty courses were graduate courses), it cost the school $6,363 to educate each student for the year (this figure includes funds for salaries, benefits, staff, administration, utilities, and maintenance). While UC got $8,309 in student fees per student and $18,00 in state funds per student, the university still declared that they were losing money on each student, but my calculation shows that UCLA pocketed at least $20,000 on every undergraduate student. As I have pointed out before, the UC asserts that the state only gave $7,400 dollars for each student in 2008-2009, but this number is based on what they call “real dollars,” which includes some undeclared inflation adjustment.
It has been recently revealed that all student fees and state funds are collected by the Office of the President, and then redistributed to the campus according to some secret formula (for a spreadsheet on how much each campus is funded, see here). While the state supports each student at the same level, regardless if the student is a graduate or undergraduate or if the student is from Santa Barbara or Los Angeles, UCOP funds each student on a different basis. For example, in 2008-2009, each student at UCSC received $7,568 in state funding from UCOP, but students at UCLA got $18,745. Apparently, what is happening is that UCOP re-allocates funds students based on their type of education. In fact, each student at UCSF got funded by the state at a rate of $71,000. Here we se direct evidence that not only are undergraduate students subsidizing graduate students, but campuses without professional schools are subsidizing the campuses with professional programs.
In the case of UCLA, the wealthiest campus and the one with the lowest dependence on state funding, we have seen the most draconian cuts to undergraduate programs. There is thus little relation between the recent state budget cuts and the downsizing of undergraduate programs; instead, the more students pay and the more the state gives, the more UCLA increases compensation and funding to people who have little if any connection to academic instruction or research. In fact, the state budget cuts are used to reduce the number of undergraduate courses and to expand undergraduate class sizes.
In a recent provocative statement on the PBS News Hour, President Yudof revealed the inner-logic of the UC funding priorities: "Many of our, if I can put it this way, businesses are in good shape. We’re doing very well there. Our hospitals are full, our medical business, our medical research, the patient care?-so we have this core problem, who’s gonna pay the salary of the English Department? We have to have it. Who’s gonna pay it, and Sociology, and the humanities, and that’s where we’re running into trouble.” From Yudof’s business perspective, the medical centers and research sectors are doing great, but they are being brought down by the needy programs in the humanities and the social sciences. Yet, as I have shown, the opposite is the case; undergraduate programs in the humanities and the social sciences are generating huge profits that are then used to pay for the staff, administration, and faculty that have no relation to the core programs. In this system, the wealthy get wealthier and the poor get starved.
Looking at the UCLA College of Letters and Sciences, the total budget was $234 million in 2008-2009, and 44% of the spending went to fund ladder faculty salaries, 3% to temporary faculty salaries, 9% to operating costs, 14% to benefits, 15% to staff, 9% to graduate assistants, and 6% to other academic titles. During the year, there were 22,000 undergraduates in the College, and I calculate that if we remove the costs associated with graduate education, (50% of the senate faculty courses were graduate courses), it cost the school $6,363 to educate each student for the year (this figure includes funds for salaries, benefits, staff, administration, utilities, and maintenance). While UC got $8,309 in student fees per student and $18,00 in state funds per student, the university still declared that they were losing money on each student, but my calculation shows that UCLA pocketed at least $20,000 on every undergraduate student. As I have pointed out before, the UC asserts that the state only gave $7,400 dollars for each student in 2008-2009, but this number is based on what they call “real dollars,” which includes some undeclared inflation adjustment.
It has been recently revealed that all student fees and state funds are collected by the Office of the President, and then redistributed to the campus according to some secret formula (for a spreadsheet on how much each campus is funded, see here). While the state supports each student at the same level, regardless if the student is a graduate or undergraduate or if the student is from Santa Barbara or Los Angeles, UCOP funds each student on a different basis. For example, in 2008-2009, each student at UCSC received $7,568 in state funding from UCOP, but students at UCLA got $18,745. Apparently, what is happening is that UCOP re-allocates funds students based on their type of education. In fact, each student at UCSF got funded by the state at a rate of $71,000. Here we se direct evidence that not only are undergraduate students subsidizing graduate students, but campuses without professional schools are subsidizing the campuses with professional programs.
In the case of UCLA, the wealthiest campus and the one with the lowest dependence on state funding, we have seen the most draconian cuts to undergraduate programs. There is thus little relation between the recent state budget cuts and the downsizing of undergraduate programs; instead, the more students pay and the more the state gives, the more UCLA increases compensation and funding to people who have little if any connection to academic instruction or research. In fact, the state budget cuts are used to reduce the number of undergraduate courses and to expand undergraduate class sizes.
In a recent provocative statement on the PBS News Hour, President Yudof revealed the inner-logic of the UC funding priorities: "Many of our, if I can put it this way, businesses are in good shape. We’re doing very well there. Our hospitals are full, our medical business, our medical research, the patient care?-so we have this core problem, who’s gonna pay the salary of the English Department? We have to have it. Who’s gonna pay it, and Sociology, and the humanities, and that’s where we’re running into trouble.” From Yudof’s business perspective, the medical centers and research sectors are doing great, but they are being brought down by the needy programs in the humanities and the social sciences. Yet, as I have shown, the opposite is the case; undergraduate programs in the humanities and the social sciences are generating huge profits that are then used to pay for the staff, administration, and faculty that have no relation to the core programs. In this system, the wealthy get wealthier and the poor get starved.
Thursday, December 10, 2009
UC Pays Big Bucks for Fake Compensation Study
The UC has spent a great deal of money on hiring a consulting firm, Mercer, to analyze their compensation, and not only is the study completely flawed and incomplete, but a more effective study could have been done by anyone for free by just using the salary data available on the web. The study (available here) tries to show that the high-paid administrators and star faculty are actually underpaid, while the low-paid unionized workers are above the market rate. Here are the major claims according to the UC:
• On average, cash compensation for UC faculty is 10 percent below market, and total compensation (cash plus benefits) is 4 percent behind comparable institutions.
• Union-represented service workers are closer to the market average than all other categories of employees in the UC system, and their total compensation (cash plus benefits) is 18 percent higher than their counterparts at other institutions.
• The largest compensation gap affects senior management group members (e.g., president, chancellors, deans, vice presidents, chief financial officers) whose cash compensation, on average, was 22 percent lower than their counterparts. Total compensation for top administrators, including university chancellors, was 14 percent below their counterparts at comparable institutions.
• Cash compensation for Managers, senior professionals and professionals and support staff – both union- represented and non-represented – lags behind their counterparts as well. On average, the gap for all of those categories ranges from 13 percent to 19 percent.
• For UC medical centers, results show that cash compensation for most UC medical center employees is near or slightly above market, except for staff physicians whose pay is 18 percent below market.
• In total compensation, all medical center employee groups, except staff physicians, were above market by 4 to 17 percent.
The study comes with a major disclaimer: “The 2009 study followed established industry practices. Consistent with industry practices, cash compensation was defined as base salary, excluding forms of rewards that generally are not a part of ongoing compensation, such as one-time relocation allowances, stipends for assuming additional temporary responsibilities, summer salaries for faculty, one-time bonuses and the like.” The study thus only looks at base pay, while as I have shown, more than 36% of the pay of the 3,600 people making over $200,000 in the UC system comes from non-base pay compensation (and this does not include benefits). The total gross pay of the over $200,000 earners in 2008 was $1 billion and the base pay was $640,000 million (here is the spread sheet:). (I detail, who earned this money, and how it went up 40% from 2006 to 2008 here ). The base pay of the remaining, 147,000 people, half of them unionized, while none of the top are unionized, was $7.3 billion and their gross pay was $7.9 billion (here is the spreadsheet: ).
Another giant flaw in the Mercer study is that their sample is unscientific. They readily admit that they only looked at the salaries of half of the employees (page 9) even though all of the salaries are in the pubic domain. They also excluded whole categories of employees, and as I have shown in my study of senate faculty salaries, due to the incredible imbalance of compensation, with most of the raises going to the people at the top, you cannot simply look at the average salary.
This kind of study and this type of waste of funds is why the workers and the unions and the state do not trust the UC administration. They will pay large sums of money to circulate false information
• On average, cash compensation for UC faculty is 10 percent below market, and total compensation (cash plus benefits) is 4 percent behind comparable institutions.
• Union-represented service workers are closer to the market average than all other categories of employees in the UC system, and their total compensation (cash plus benefits) is 18 percent higher than their counterparts at other institutions.
• The largest compensation gap affects senior management group members (e.g., president, chancellors, deans, vice presidents, chief financial officers) whose cash compensation, on average, was 22 percent lower than their counterparts. Total compensation for top administrators, including university chancellors, was 14 percent below their counterparts at comparable institutions.
• Cash compensation for Managers, senior professionals and professionals and support staff – both union- represented and non-represented – lags behind their counterparts as well. On average, the gap for all of those categories ranges from 13 percent to 19 percent.
• For UC medical centers, results show that cash compensation for most UC medical center employees is near or slightly above market, except for staff physicians whose pay is 18 percent below market.
• In total compensation, all medical center employee groups, except staff physicians, were above market by 4 to 17 percent.
The study comes with a major disclaimer: “The 2009 study followed established industry practices. Consistent with industry practices, cash compensation was defined as base salary, excluding forms of rewards that generally are not a part of ongoing compensation, such as one-time relocation allowances, stipends for assuming additional temporary responsibilities, summer salaries for faculty, one-time bonuses and the like.” The study thus only looks at base pay, while as I have shown, more than 36% of the pay of the 3,600 people making over $200,000 in the UC system comes from non-base pay compensation (and this does not include benefits). The total gross pay of the over $200,000 earners in 2008 was $1 billion and the base pay was $640,000 million (here is the spread sheet:). (I detail, who earned this money, and how it went up 40% from 2006 to 2008 here ). The base pay of the remaining, 147,000 people, half of them unionized, while none of the top are unionized, was $7.3 billion and their gross pay was $7.9 billion (here is the spreadsheet: ).
Another giant flaw in the Mercer study is that their sample is unscientific. They readily admit that they only looked at the salaries of half of the employees (page 9) even though all of the salaries are in the pubic domain. They also excluded whole categories of employees, and as I have shown in my study of senate faculty salaries, due to the incredible imbalance of compensation, with most of the raises going to the people at the top, you cannot simply look at the average salary.
This kind of study and this type of waste of funds is why the workers and the unions and the state do not trust the UC administration. They will pay large sums of money to circulate false information
Tuesday, December 8, 2009
The True Fiscal State of the UC System
If you want to know the truth about the University of California’s finances, there is no better document than the recently released (11/19/2009) Moody’s bond rating for the UC system. First of all, it must be pointed out that this report was released on the same day that the Regents voted to increase student fees 32%, and as the UC Santa Cruz Professor Bob Meister has shown, there is a direct connection between increased fees and decreased interest rates for construction projects. Simply put, the bond raters gave UC a high bond rating-which translates into a low interest rate--because the raters like seeing that the UC has a large pool of unrestricted funds and the system is willing to keep raising fees on its students. Moody’s way of signaling this need to increase student fees and other revenue streams is presented in the following passage: “We expect that combinations of tuition and other revenue increases, expense controls and other operating efficiency initiatives will allow the University to sustain healthy operating performance. Over the long-term, we expect direct funding from the State to continue shrinking as a share of operating revenues, and for the University to leverage its strong market presence in education, patient care and research to provide for revenue growth.” In other words, we should expect the decrease in state funding to be replaced by increases in student fees, diverse revenue streams, and cost-cutting measures.
While the bond raters do realize that unstable funding from the state could limit the UC’s access to unrestricted funds, they highlight the high level of available cash: “The University does face some liquidity pressure due to State funding delays and the potential for more serious disruption to State cash flow. However, with over $6.9 billion in the short-term investment pool and $1.4 billion in the total return investment pool (at the end of FY2009) compared with $2.6 billion of state appropriations in FY2009, the University can likely weather any potential period of disruption in state funding.” Thus, even though the UC claims that it is broke, and it has to resort to drastic cost-cutting measures, the university has access to $8.3 billion in its investment accounts (this is not including its pension fund).
Moody’s points out that the university also has a high level of debt, but most of the servicing is paid for by the state ( and as Professor Meister has shown the student fees serve as collateral): “Although the debt service on the University's State Public Works Board Bonds (SPWBB) have been and are expected to continue to be paid by appropriations from the State, due to the legal obligation of the bonds being supported by an "available funds" pledge of the University, we do not expect the rating on these bonds to fall to levels near the State's other public works board bonds.” Student fees represent a major part of the “available funds” that the UC has pledged as collateral.
In its description of the UC’s fiscal strengths, Moody’s stresses the high level of medical profits and research grants: “The University of California is one of the premier higher education systems in the world, serving over 220,000 students, conducting over $3.7 billion of research annually, and generating in excess of $5 billion of net patient revenue at its five academic medical centers.” We should point out that “net revenue” means profit that could be used for any purpose; however, the UC has decided to funnel much of this money into medical faculty and administrative compensation packages as well as future construction projects. Thus, while UC President Mark Yudof constantly claims that UC does not have access to unrestricted funds, the bond raters tell a different story: “Sizeable balance sheet that remains highly liquid, with $3.5 billion of unrestricted financial resources ($5.9 billion excluding post-retirement health liabilities) and active treasury management monitoring a short-term investment pool approaching $7 billion.” In other words, the UC has at its disposal $12.9 billion, but on its balance sheet, it looks that the UC has less money because a new federal law requires all institutions to account for their future post-retirement health costs. Thus, even though the UC is not actually spending $2.4 billion this year for healthcare for retirees, it has to declare its total liability for all present and future employees. One of the effects of this accounting rule is that the UC can hide billions of dollars of profits.
Supporting the rapid revenue expansion of the university is an equally rapid augmentation of debt: “The University as a whole faces significant capital needs that are likely to result in rising borrowing levels; debt outstanding has grown from $8.3 billion in FY2006 to nearly $13 billion in FY2009 and including new borrowings since the end of the fiscal year, a 56% increase.” Like a hedge fund, UC uses its diverse revenue streams to lower its interest rate in order to borrow more money. What remains to be understood is why the university must continue to take on so much debt as it enhances its profits.
Not only is the UC increasing its revenue through medical profits and higher student fees, but it also augmenting its external research funding : “The UC system collectively represents a vital part of the nation's research infrastructure, as evidenced by its status as the largest university recipient of federal R&D spending in the country. Total grants and contract revenue in FY2009 exceeded $4.5 billion, with research expenditures exceeding $3.7 billion. Grant and contract revenue has grown consistently in recent years, and given the University's prominent research position we expect it to benefit from a spike in federal research funding provided by the federal stimulus bill.” Not only did the UC receive over $716 million in direct aid from the feds for its educational mission, but the UC is currently experiencing a record year in external grant funds, much of it coming in the form of federal stimulus money. In this mode of corporate welfare, professors and facilties supported by the state, student dollars, and federal grants are used to generate huge profits that are then siphoned into unrestricted pools of cash, which later can be redistributed to pay for the growing costs of high-earning administrators, staff, and star faculty.
As I have previously shown , the expansion of the top earners in the UC system has been supported by the combination of increased student fees and the diversification of revenue streams. In 2008, there were over 3,600 people in the system that made over $200,000, and the total compensation for the people earning above 200K increased 80% in just two years (from $640 million to $1 billion). Although Moody’s does not touch on the topic of compensation in its report, it does reveal how the UC produces and hides its profits: “We expect the University to sustain favorable operating performance across the System, driven by highly diversified revenues and a focus on operational efficiencies. UC had generated an average operating margin exceeding 4% through FY2007. Beginning in FY2008, the University was required to report expenses associated with its post-retirement healthcare benefit plans leading to rising operating deficits based on Moody's approach to calculating public university operating margins. In FY2008, the margin was negative 3.1% with the deficit rising to 6.1% in FY2009. Operating cash flow margin, adjusting for the non-cash portion of the post-retirement health expenses, was 11% and 9% respectively.” The translation of this statement is that while on the books it looks like the UC is losing money, once we exclude the retiree healthcare accounting requirement, the UC has been averaging a 10% profit margin. I would add that in 2008, the top 2% of the UC earners made 10% of the total compensation.
With this clean bill of fiscal health, we see why the UC does not have a budget crisis, and how it has used the general economic downturn as an excuse to funnel money into the profit-making sectors, which results in the increased compensation of a small minority of workers at the expense of everyone else. We also see here why the UC wants to increase student fees in order to take on more debt so it can continue to expand and grow. The combination of increased profits and augmented debt turns the UC into a giant hedge fund that reduces the pay for the majority of the employees as it pushes money to the top. I am sorry to say it, but more state money will not fix this problem.
While the bond raters do realize that unstable funding from the state could limit the UC’s access to unrestricted funds, they highlight the high level of available cash: “The University does face some liquidity pressure due to State funding delays and the potential for more serious disruption to State cash flow. However, with over $6.9 billion in the short-term investment pool and $1.4 billion in the total return investment pool (at the end of FY2009) compared with $2.6 billion of state appropriations in FY2009, the University can likely weather any potential period of disruption in state funding.” Thus, even though the UC claims that it is broke, and it has to resort to drastic cost-cutting measures, the university has access to $8.3 billion in its investment accounts (this is not including its pension fund).
Moody’s points out that the university also has a high level of debt, but most of the servicing is paid for by the state ( and as Professor Meister has shown the student fees serve as collateral): “Although the debt service on the University's State Public Works Board Bonds (SPWBB) have been and are expected to continue to be paid by appropriations from the State, due to the legal obligation of the bonds being supported by an "available funds" pledge of the University, we do not expect the rating on these bonds to fall to levels near the State's other public works board bonds.” Student fees represent a major part of the “available funds” that the UC has pledged as collateral.
In its description of the UC’s fiscal strengths, Moody’s stresses the high level of medical profits and research grants: “The University of California is one of the premier higher education systems in the world, serving over 220,000 students, conducting over $3.7 billion of research annually, and generating in excess of $5 billion of net patient revenue at its five academic medical centers.” We should point out that “net revenue” means profit that could be used for any purpose; however, the UC has decided to funnel much of this money into medical faculty and administrative compensation packages as well as future construction projects. Thus, while UC President Mark Yudof constantly claims that UC does not have access to unrestricted funds, the bond raters tell a different story: “Sizeable balance sheet that remains highly liquid, with $3.5 billion of unrestricted financial resources ($5.9 billion excluding post-retirement health liabilities) and active treasury management monitoring a short-term investment pool approaching $7 billion.” In other words, the UC has at its disposal $12.9 billion, but on its balance sheet, it looks that the UC has less money because a new federal law requires all institutions to account for their future post-retirement health costs. Thus, even though the UC is not actually spending $2.4 billion this year for healthcare for retirees, it has to declare its total liability for all present and future employees. One of the effects of this accounting rule is that the UC can hide billions of dollars of profits.
Supporting the rapid revenue expansion of the university is an equally rapid augmentation of debt: “The University as a whole faces significant capital needs that are likely to result in rising borrowing levels; debt outstanding has grown from $8.3 billion in FY2006 to nearly $13 billion in FY2009 and including new borrowings since the end of the fiscal year, a 56% increase.” Like a hedge fund, UC uses its diverse revenue streams to lower its interest rate in order to borrow more money. What remains to be understood is why the university must continue to take on so much debt as it enhances its profits.
Not only is the UC increasing its revenue through medical profits and higher student fees, but it also augmenting its external research funding : “The UC system collectively represents a vital part of the nation's research infrastructure, as evidenced by its status as the largest university recipient of federal R&D spending in the country. Total grants and contract revenue in FY2009 exceeded $4.5 billion, with research expenditures exceeding $3.7 billion. Grant and contract revenue has grown consistently in recent years, and given the University's prominent research position we expect it to benefit from a spike in federal research funding provided by the federal stimulus bill.” Not only did the UC receive over $716 million in direct aid from the feds for its educational mission, but the UC is currently experiencing a record year in external grant funds, much of it coming in the form of federal stimulus money. In this mode of corporate welfare, professors and facilties supported by the state, student dollars, and federal grants are used to generate huge profits that are then siphoned into unrestricted pools of cash, which later can be redistributed to pay for the growing costs of high-earning administrators, staff, and star faculty.
As I have previously shown , the expansion of the top earners in the UC system has been supported by the combination of increased student fees and the diversification of revenue streams. In 2008, there were over 3,600 people in the system that made over $200,000, and the total compensation for the people earning above 200K increased 80% in just two years (from $640 million to $1 billion). Although Moody’s does not touch on the topic of compensation in its report, it does reveal how the UC produces and hides its profits: “We expect the University to sustain favorable operating performance across the System, driven by highly diversified revenues and a focus on operational efficiencies. UC had generated an average operating margin exceeding 4% through FY2007. Beginning in FY2008, the University was required to report expenses associated with its post-retirement healthcare benefit plans leading to rising operating deficits based on Moody's approach to calculating public university operating margins. In FY2008, the margin was negative 3.1% with the deficit rising to 6.1% in FY2009. Operating cash flow margin, adjusting for the non-cash portion of the post-retirement health expenses, was 11% and 9% respectively.” The translation of this statement is that while on the books it looks like the UC is losing money, once we exclude the retiree healthcare accounting requirement, the UC has been averaging a 10% profit margin. I would add that in 2008, the top 2% of the UC earners made 10% of the total compensation.
With this clean bill of fiscal health, we see why the UC does not have a budget crisis, and how it has used the general economic downturn as an excuse to funnel money into the profit-making sectors, which results in the increased compensation of a small minority of workers at the expense of everyone else. We also see here why the UC wants to increase student fees in order to take on more debt so it can continue to expand and grow. The combination of increased profits and augmented debt turns the UC into a giant hedge fund that reduces the pay for the majority of the employees as it pushes money to the top. I am sorry to say it, but more state money will not fix this problem.
Sunday, November 29, 2009
Why the Regents and Yudof Want Us to Blame the State, and Why We Must Resist
There are two main narratives battling to define the current crisis at the University of California. President Yudof and the Regents want everyone to blame all of the UC’s problems on the state. According to this narrative, the simple issue is that the state has defunded higher education, and due to a $1.2 billion cut to the UC, all the campuses can do is raise fees, cut courses, layoff workers, increase class size, furlough faculty, and demand that the state increases its funding by $913 million.
The counter narrative, articulated mostly by the unions and the students, is that the UC just had a record year of revenue, and the system does not have to raise fees or cut services. Instead, the counter discourse argues that the profit-making units should share their profits, and money earmarked for instruction should actually be used for educational purposes. While we do also insist that full state funding should be restored, we recognize that most of the state reductions were made up by federal recovery money ($716 million) and fee increases and cost saving measures that have already been undertaken.
Many faculty members have sided with the administration because it is much easier to blame the state for all of the UC’s problems. By blaming the state and the anti-tax Republicans, we have a clear enemy and an easy narrative: we are all good, and they are all bad. Moreover, by placing the onus of responsibility on the state, we do not have to look at our own internal problems. As I have argued, Yudof wants us to keep our eyes on the state, so we do not look at how the Regents have mishandled the UC’s investments and pension plan.
If the faculty continue to buy Yudof’s narrative, there will be no way of fighting the continual increase in administrative costs and the further privatization of the university. Yudof’s latest gambit is to ask the state, which he knows is facing a $21 billion deficit, to increase the UC’s funding by $913 million. Everyone knows that the state cannot provide this money, and so when the state does not meet Yudof’s request, he will feel justified to make another round of fee increases and budget cuts.
Without budget transparency and shared governance, the people at the top of the UC system can continue to manipulate statistics and scare faculty into accepting their narrative. In this version of the shock doctrine, a fake crisis motivates people to give power to a centralized authority and to privatize a public good, while wages are decreased and profits are kept by a small group of power elites. It is time for the UC faculty to stand up and resist Yudof’s latest power play.
The counter narrative, articulated mostly by the unions and the students, is that the UC just had a record year of revenue, and the system does not have to raise fees or cut services. Instead, the counter discourse argues that the profit-making units should share their profits, and money earmarked for instruction should actually be used for educational purposes. While we do also insist that full state funding should be restored, we recognize that most of the state reductions were made up by federal recovery money ($716 million) and fee increases and cost saving measures that have already been undertaken.
Many faculty members have sided with the administration because it is much easier to blame the state for all of the UC’s problems. By blaming the state and the anti-tax Republicans, we have a clear enemy and an easy narrative: we are all good, and they are all bad. Moreover, by placing the onus of responsibility on the state, we do not have to look at our own internal problems. As I have argued, Yudof wants us to keep our eyes on the state, so we do not look at how the Regents have mishandled the UC’s investments and pension plan.
If the faculty continue to buy Yudof’s narrative, there will be no way of fighting the continual increase in administrative costs and the further privatization of the university. Yudof’s latest gambit is to ask the state, which he knows is facing a $21 billion deficit, to increase the UC’s funding by $913 million. Everyone knows that the state cannot provide this money, and so when the state does not meet Yudof’s request, he will feel justified to make another round of fee increases and budget cuts.
Without budget transparency and shared governance, the people at the top of the UC system can continue to manipulate statistics and scare faculty into accepting their narrative. In this version of the shock doctrine, a fake crisis motivates people to give power to a centralized authority and to privatize a public good, while wages are decreased and profits are kept by a small group of power elites. It is time for the UC faculty to stand up and resist Yudof’s latest power play.
Where the Money Goes in the UC System: Revisiting the Compensation Scandal
In 2006, a series of stories broke in the media documenting how the University of California 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 constantly 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.” However, this discovery of secret deals and broken rules was only he tip of the iceberg. It turns out that for years, the university was hiding from the public its compensations deals by only reporting some of the money that top executives and employees were getting. Thus, even though the UC is a public institution, it failed to fully disclose many of its decisions and policies.
In 2006, a state audit of the UC found hundreds of examples of misspent public funds and secret deals for top administrators. Here are some highlights from The San Francisco Chronicle’s reporting on the auditor’s findings:
-- Thirty-nine people getting extra vacation.
-- Fourteen senior managers receiving honoraria from the university -- $200 to $13,000 -- despite a policy against it.
-- Fourteen senior managers receiving incentive payments in violation of UC policy or not approved by the regents. Some are continuing awards of up to 15 percent of base salary.
-- Thirteen housing-related payments that violated policies;
-- Six sabbaticals granted to employees who didn't qualify for them or who were paid more than policy allowed.
-- Eleven stipends that either were not approved or were extended without approval.
-- Eleven cases of extra severance pay promised.
One of the things to note about all of these examples is that they concern secret deals of extra compensation; in other words, none of this money was listed in the public records of the employee’s salary.
To see how corrupt and wasteful a university can be, it is helpful to look at several other costly forms of secret spending that draw money away from vital instructional activities as they raise the compensation of the wealthiest employees:
The audit revealed that one executive who was paid well to move within California was Mitchell Creem, associate vice chancellor and CFO of medical sciences at UCLA. Creem received a $150,000 relocation allowance and 11 weeks of temporary housing -- well beyond the limit of 30 days. The regents were never told.
In another case, Thomas Jackiewicz, associate vice chancellor in the UC San Diego medical school, received a $40,000 "relocation incentive" even though he lived within California, which violates policy and was not approved by the regents. He also was promised a severance package that exceeded university limits.
These examples show what happens when the administrative class takes over a university, and they are able to reward each other without any level of public scrutiny.
In one of the most shocking findings of the auditor’s report, we find the following statement: “The University of California said it struck at least 700 separation agreements with employees over the past five years -- worth about $23 million.” This finding really got my attention, and so I looked for details for these costly separations, and I found these revelations:
When UC Berkeley Associate Athletic Director Mark Stephens was passed over for a promotion at Cal last year, the university promised to keep him on the payroll, giving him $183,000 over three years while letting him take a full-time job somewhere else.
Two years ago, UC Davis agreed to give a medical professor, Dr. Casey Daggett, $150,000 in exchange for his resignation and a promise to drop all his legal claims against the university.
In 2002, the UC Berkeley athletic department forced administrator Kevin Reneau to step down but agreed to keep him on the payroll for 2 1/2 years at $86,000 per year so he could reach retirement age and his family could qualify for health care benefits.
The Chronicle reported the university's settlement pact with former UC Davis Vice Chancellor Celeste Rose. Under that agreement, UC Davis agreed to give Rose $50,000 and keep her on the payroll for another two years, at $205,000 a year -- without requiring her to do any work -- in exchange for her promise to drop any claims of race or gender discrimination against the university.
Dr. Daggett, an assistant professor of clinical surgery at UC Davis, was promised $150,000 in exchange for his resignation and the release of any legal claims, according to a settlement agreement UC reached with him in March 2004. UC also agreed to drop any claims against him, the agreement said.
These are just a few examples of the hundreds of cases of secret wasteful spending, and they tell us that when a university says it has no money to pay for things like teachers and smaller classes, the reason for the institution’s lack of money may be due to the fact that it has become taken over by a class of administrative employees who are bent on turning public institutions into their own private piggy banks.
In 2006, a state audit of the UC found hundreds of examples of misspent public funds and secret deals for top administrators. Here are some highlights from The San Francisco Chronicle’s reporting on the auditor’s findings:
-- Thirty-nine people getting extra vacation.
-- Fourteen senior managers receiving honoraria from the university -- $200 to $13,000 -- despite a policy against it.
-- Fourteen senior managers receiving incentive payments in violation of UC policy or not approved by the regents. Some are continuing awards of up to 15 percent of base salary.
-- Thirteen housing-related payments that violated policies;
-- Six sabbaticals granted to employees who didn't qualify for them or who were paid more than policy allowed.
-- Eleven stipends that either were not approved or were extended without approval.
-- Eleven cases of extra severance pay promised.
One of the things to note about all of these examples is that they concern secret deals of extra compensation; in other words, none of this money was listed in the public records of the employee’s salary.
To see how corrupt and wasteful a university can be, it is helpful to look at several other costly forms of secret spending that draw money away from vital instructional activities as they raise the compensation of the wealthiest employees:
The audit revealed that one executive who was paid well to move within California was Mitchell Creem, associate vice chancellor and CFO of medical sciences at UCLA. Creem received a $150,000 relocation allowance and 11 weeks of temporary housing -- well beyond the limit of 30 days. The regents were never told.
In another case, Thomas Jackiewicz, associate vice chancellor in the UC San Diego medical school, received a $40,000 "relocation incentive" even though he lived within California, which violates policy and was not approved by the regents. He also was promised a severance package that exceeded university limits.
These examples show what happens when the administrative class takes over a university, and they are able to reward each other without any level of public scrutiny.
In one of the most shocking findings of the auditor’s report, we find the following statement: “The University of California said it struck at least 700 separation agreements with employees over the past five years -- worth about $23 million.” This finding really got my attention, and so I looked for details for these costly separations, and I found these revelations:
When UC Berkeley Associate Athletic Director Mark Stephens was passed over for a promotion at Cal last year, the university promised to keep him on the payroll, giving him $183,000 over three years while letting him take a full-time job somewhere else.
Two years ago, UC Davis agreed to give a medical professor, Dr. Casey Daggett, $150,000 in exchange for his resignation and a promise to drop all his legal claims against the university.
In 2002, the UC Berkeley athletic department forced administrator Kevin Reneau to step down but agreed to keep him on the payroll for 2 1/2 years at $86,000 per year so he could reach retirement age and his family could qualify for health care benefits.
The Chronicle reported the university's settlement pact with former UC Davis Vice Chancellor Celeste Rose. Under that agreement, UC Davis agreed to give Rose $50,000 and keep her on the payroll for another two years, at $205,000 a year -- without requiring her to do any work -- in exchange for her promise to drop any claims of race or gender discrimination against the university.
Dr. Daggett, an assistant professor of clinical surgery at UC Davis, was promised $150,000 in exchange for his resignation and the release of any legal claims, according to a settlement agreement UC reached with him in March 2004. UC also agreed to drop any claims against him, the agreement said.
These are just a few examples of the hundreds of cases of secret wasteful spending, and they tell us that when a university says it has no money to pay for things like teachers and smaller classes, the reason for the institution’s lack of money may be due to the fact that it has become taken over by a class of administrative employees who are bent on turning public institutions into their own private piggy banks.
Using Student Fees to Pay for Losing Teams
While most people think that university athletic departments make money, it turns out that most of them lose money, and many lose large sums that result in using student tuition dollars to subsidize insolvent athletic departments. According to the recently released Knight Commission Report on NCAA sports, “the vast majority of athletics programs reap far less money from external sources than they need to function. Virtually all universities subsidize athletics departments through general fund allocations, student fees, and state appropriations, and the NCAA estimates in a given year that only 20 to 30 athletics programs actually generate enough external revenue to cover operating expenses. Institutional subsidies to athletics can exceed $11 million, according to data provided by the NCAA.”
Not only are these athletic departments losing money, but their expenses continue to spiral out of control: “In 2009, the National Collegiate Athletic Association published a report that found median operating spending for athletics increased 43 percent between 2004 and 2008, but median revenue generated by athletics programs grew only 33 percent over the same time period (Fulks, 2008). In another telltale spending reality a few years earlier, the NCAA reported in 2005 that athletic expenses rose as much as four times faster than overall institutional spending between 2001 and 2003 (Orszag & Orszag, 2005).” What is shocking about this study is that universities are raising tuition at record rates, and part of the reason is to bail out these athletic programs that are too big to fail.
According to the Knight Commission, the expenses breakdown in the following way:
Salaries and benefits, especially coaches’ salaries (32 percent of total expenses);
Tuition-driven grants-in-aid—or sports scholarships (16 percent);
Facilities maintenance and rental (14 percent);
Team travel, recruiting and equipment and supplies (12 percent combined);
Fund-raising costs, guaranteed payments to opponents, game-day expenses, medical costs, conducting sports camps and other miscellaneous costs (12 percent).
The irony of baling out sports programs, while tuition increases and educational quality decreases was recently brought to a head at Cal Berkeley when it was discovered that the university had been for years using millions of dollars to subsidize the athletic department. The San Francisco Chronicle has reported the following: “This year, UC Berkeley's Department of Intercollegiate Athletics - whose football team is in the Bowl Subdivision - is projected to run a deficit of nearly $6 million, rising to $6.4 million next year. To make ends meet, Chancellor Robert Birgeneau expects to lend the athletes more than $12 million by the end of next year.” Not only is Cal lending the athletic department millions of dollars as it raises student fees, cuts classes, layoffs teachers, and reduces in-state enrollment, but it in 2007, UCB forgave the program over $31 million in debt.
In response to this crisis, the UCB senate voted to stop subsidizing athletics, and it is time for all campuses to do the same. Moreover, we need each school to come clean and tell us how much they are spending and who is paying for the bill. People like to blame the state for all of UC’s problems, but this is one that is completely self-generated.
Not only are these athletic departments losing money, but their expenses continue to spiral out of control: “In 2009, the National Collegiate Athletic Association published a report that found median operating spending for athletics increased 43 percent between 2004 and 2008, but median revenue generated by athletics programs grew only 33 percent over the same time period (Fulks, 2008). In another telltale spending reality a few years earlier, the NCAA reported in 2005 that athletic expenses rose as much as four times faster than overall institutional spending between 2001 and 2003 (Orszag & Orszag, 2005).” What is shocking about this study is that universities are raising tuition at record rates, and part of the reason is to bail out these athletic programs that are too big to fail.
According to the Knight Commission, the expenses breakdown in the following way:
Salaries and benefits, especially coaches’ salaries (32 percent of total expenses);
Tuition-driven grants-in-aid—or sports scholarships (16 percent);
Facilities maintenance and rental (14 percent);
Team travel, recruiting and equipment and supplies (12 percent combined);
Fund-raising costs, guaranteed payments to opponents, game-day expenses, medical costs, conducting sports camps and other miscellaneous costs (12 percent).
The irony of baling out sports programs, while tuition increases and educational quality decreases was recently brought to a head at Cal Berkeley when it was discovered that the university had been for years using millions of dollars to subsidize the athletic department. The San Francisco Chronicle has reported the following: “This year, UC Berkeley's Department of Intercollegiate Athletics - whose football team is in the Bowl Subdivision - is projected to run a deficit of nearly $6 million, rising to $6.4 million next year. To make ends meet, Chancellor Robert Birgeneau expects to lend the athletes more than $12 million by the end of next year.” Not only is Cal lending the athletic department millions of dollars as it raises student fees, cuts classes, layoffs teachers, and reduces in-state enrollment, but it in 2007, UCB forgave the program over $31 million in debt.
In response to this crisis, the UCB senate voted to stop subsidizing athletics, and it is time for all campuses to do the same. Moreover, we need each school to come clean and tell us how much they are spending and who is paying for the bill. People like to blame the state for all of UC’s problems, but this is one that is completely self-generated.
UC’s Gender Trouble
In analyzing the salaries of UC employees, I found that in 2008, out of the top one hundred earners, only 11 were women. This low level of female top earners shows why the university’s claims of being a progressive employer often ring hollow. In fact, if we look at specific job categories in the UC system, we find similar trends. For instance, in the field of medical faculty, only 3 women make it to the top one hundred earners. Likewise, only three females are listed in the top 25 highest paid athletic coaches, even though the UCs are required to have gender equality in athletic teams.
In the case of academic deans, 8 of the top 50 highest earners were female, and this statistic is crucial because deans often make important decisions regarding hiring and compensation. Meanwhile, one of the nine campus chancellors were women in 2008.
If we now look at academic titles, we find that 15 of the top 100 paid law professors were women, while in the case of high earning business school professors, only 8 women were in the top 100. Likewise, only 8 of the top 100 paid non-professional school professors were women in 2008. I find this final statistic to be quite surprising since there are many women now teaching in higher education, and many fields are highly committed to gender equality. While some may say that women have only recently entered into many fields, it still appears that the University of California has a serious gender issue when it comes to pay and promotion.
In the case of academic deans, 8 of the top 50 highest earners were female, and this statistic is crucial because deans often make important decisions regarding hiring and compensation. Meanwhile, one of the nine campus chancellors were women in 2008.
If we now look at academic titles, we find that 15 of the top 100 paid law professors were women, while in the case of high earning business school professors, only 8 women were in the top 100. Likewise, only 8 of the top 100 paid non-professional school professors were women in 2008. I find this final statistic to be quite surprising since there are many women now teaching in higher education, and many fields are highly committed to gender equality. While some may say that women have only recently entered into many fields, it still appears that the University of California has a serious gender issue when it comes to pay and promotion.
Friday, November 27, 2009
Proof that We Do Not Have to Raise Fees or Cut Programs
At the last regents meeting, President Yudof said that the state reduced UC’s funding by $1.2 billion during the last two years. It turns out that this figure hides the federal stimulus funds of $716 million and the 2009 state restoration of $164 million. This kind of false representation really upsets the state legislators who are trying to do what they can for the UC system. In fact, I interviewed two top California legislators last year, and they both said the same thing, which is how can the UC expect to get more money from the state, when all it does is attack the state in the media. These legislators are running for office and to have Yudof blame them for all of UC's problems does not help them.
For instance, Yudof has been going around saying that the state decided to stop funding the UC pension plan in 1990. The truth is that the regents voted to suspend contributions because the plan was over-funded, and now we are paying the price. One reason then why the state funding has stayed flat is that the UC told them to stop funding the pension plan, and now the UC is demanding that the state pay for the employer's contribution.
The UC stated on several occasions that their state funding was down in 2009 by several hundred million dollars, but if you download the UC’s latest financial statements and go to page 52, you will see that most of the revenue areas are up, especially funding from the state. 2009 was a record year in revenue, but Yudof called it a crisis and raised fees and cut programs.
Yudof has also been saying that the state support per student has been cut in half since 1990. This is not true; if you take the state appropriations for each year and divide it by the total number of students, you find that state support per student has gone up since 1990. Looking at the actual numbers (the sources are listed at the end of this post) we find that the per student state funding in 1990 was $13,690 (there were 156,000 students and the state gave the UC $2,135,733,000). In 2008-2009, the per student funding was $14,707 (221,00 students and the state funding was 3.2 billion).
I asked Patrick Lenz, the VP of budget about what formula of inflation the UC uses to determine the state’s student funding. He said he did now know, which I find concerning. I know that there is a higher education index that is twice the rate of inflation - this might be what UC is using. Almost every time Yudof speaks, he gives a different rate. Yudof also claims that the UC is over-enrolled by 11,000 students, but I can find no basis for this claim. In fact, UC has cut enrollment 2,300 students this year, and they plan to do the same next year.
For 2010, Yudof is claiming a $600 million cut, but there was also another part of the stimulus money ($76 million) that they never talk about. Also, UC reduced its enrollment by 2,3000 students in 2009, yet it claims that the state needs to fund an additional 11,000 enrollments. Meanwhile, the UC calculates that the enrollment reductions saves $32 million each year, and that the furlough has already saved $185 million and the restructuring of debt has saved $75 million. UCOP also calculates that the previous 2009 fee increase will bring in an additional $56 million, and the 32% increase will bring in $215 million. In other words, they have already made up for their loss of state funding, and this does not include savings due to layoffs and job reductions. The current target is to reduce instructional costs by $400 million, and in fact they have already saved over $100 million.
Our biggest fear is that they will continue to raise fees and cut instructional programs, while increasing the number and cost of administration. Another fear is that they will convince the UC students and faculty that all of the problems are due to the state. While we believe the state needs to restore full funding, it is absurd to blame the state for everything.
Please write a comment if you need more information or if you think some information is incorrect.
You can determine the total state funding for UC by combining these:
http://192.234.213.2/sections/econ_fiscal/Historical_Expenditures_Pivot.xls
http://www.cpec.ca.gov/completereports/2004reports/04-20/21.PDF
http://www.cpec.ca.gov/FiscalData/FundingTable.ASP
Enrollment data:
2000 to 2008 here: http://www.universityofcalifornia.edu/accountability/index.php?in=6.2&source=uw
1964 to 2006 here: http://budget.ucop.edu/enroll/actfte.pdf
2009 projections are here: http://repository.ucop.edu/cgi/viewcontent.cgi?article=1000&context=enrllmt_lrp_reports
For instance, Yudof has been going around saying that the state decided to stop funding the UC pension plan in 1990. The truth is that the regents voted to suspend contributions because the plan was over-funded, and now we are paying the price. One reason then why the state funding has stayed flat is that the UC told them to stop funding the pension plan, and now the UC is demanding that the state pay for the employer's contribution.
The UC stated on several occasions that their state funding was down in 2009 by several hundred million dollars, but if you download the UC’s latest financial statements and go to page 52, you will see that most of the revenue areas are up, especially funding from the state. 2009 was a record year in revenue, but Yudof called it a crisis and raised fees and cut programs.
Yudof has also been saying that the state support per student has been cut in half since 1990. This is not true; if you take the state appropriations for each year and divide it by the total number of students, you find that state support per student has gone up since 1990. Looking at the actual numbers (the sources are listed at the end of this post) we find that the per student state funding in 1990 was $13,690 (there were 156,000 students and the state gave the UC $2,135,733,000). In 2008-2009, the per student funding was $14,707 (221,00 students and the state funding was 3.2 billion).
I asked Patrick Lenz, the VP of budget about what formula of inflation the UC uses to determine the state’s student funding. He said he did now know, which I find concerning. I know that there is a higher education index that is twice the rate of inflation - this might be what UC is using. Almost every time Yudof speaks, he gives a different rate. Yudof also claims that the UC is over-enrolled by 11,000 students, but I can find no basis for this claim. In fact, UC has cut enrollment 2,300 students this year, and they plan to do the same next year.
For 2010, Yudof is claiming a $600 million cut, but there was also another part of the stimulus money ($76 million) that they never talk about. Also, UC reduced its enrollment by 2,3000 students in 2009, yet it claims that the state needs to fund an additional 11,000 enrollments. Meanwhile, the UC calculates that the enrollment reductions saves $32 million each year, and that the furlough has already saved $185 million and the restructuring of debt has saved $75 million. UCOP also calculates that the previous 2009 fee increase will bring in an additional $56 million, and the 32% increase will bring in $215 million. In other words, they have already made up for their loss of state funding, and this does not include savings due to layoffs and job reductions. The current target is to reduce instructional costs by $400 million, and in fact they have already saved over $100 million.
Our biggest fear is that they will continue to raise fees and cut instructional programs, while increasing the number and cost of administration. Another fear is that they will convince the UC students and faculty that all of the problems are due to the state. While we believe the state needs to restore full funding, it is absurd to blame the state for everything.
Please write a comment if you need more information or if you think some information is incorrect.
You can determine the total state funding for UC by combining these:
http://192.234.213.2/sections/econ_fiscal/Historical_Expenditures_Pivot.xls
http://www.cpec.ca.gov/completereports/2004reports/04-20/21.PDF
http://www.cpec.ca.gov/FiscalData/FundingTable.ASP
Enrollment data:
2000 to 2008 here: http://www.universityofcalifornia.edu/accountability/index.php?in=6.2&source=uw
1964 to 2006 here: http://budget.ucop.edu/enroll/actfte.pdf
2009 projections are here: http://repository.ucop.edu/cgi/viewcontent.cgi?article=1000&context=enrllmt_lrp_reports
More On Executive Growth
In a series of studies on administrative growth, Charles Schwartz has discovered some important facts that explain why and how administrators reproduce like rabbits. The first finding concerns the growth in the number of administrators in the UC system: “Administrative growth is not unique to UC, but the rate of growth is higher at UC than most public or private universities. In 2006, in public universities across the country, 49% of the professional full-time employees, excluding the medical school, were faculty members. At UC that percentage was about 25% . . . In 1997, there were almost 2 faculty to every Executive and Senior Manager; by 2007 the numbers are nearly the same for both groups, while the Middle Manager group steadily grows higher.” The finding here is that the growth rate of administration in the UC system is way above average; moreover, administrators are increasing at a much higher rate than the number of faculty in the UC system.
The next major finding concerns the question of how much this exessive growth in the administrative ranks costs and who pays for it: “Execs and Managers receive additions to their regular pay called above or non-base-pay, but because of the high growth of admin. FTE, there are no unfilled FTE and merit slots to fund above-base-pay. Funding comes largely from Core Funds (student tuition and fees, state appropriations). . . Auditors reported that UC paid $11.3M in Above-Base-Pay Additions to Regular Pay in 2004-05, with about $9M coming from core funds and $2.3M from federal and other grants and contracts, endowments, and auxiliary operations (CA State Auditor Report 2006-103).” In other words, student fees and state funds are paying for the increased compensation and growing number of UC administrators. This means that part of the push to raise student fees and eliminate jobs and courses comes from the need to pay the growing army of administrators.
Schwartz has also examine the cost and rate of administrative growth on particular campuses: “UCLA has the smallest increase in overall employment (3%) and also the smallest increase in student enrollment (17%); yet its administration has increased significantly (about 50%) with a wastage that we estimate costs $54 million per year, second only to Berkeley.” As Schwartz shows, at UCLA and Berkeley, the increase in administration is far outpacing the increase in students and the increase in all other categories of employment. In other words, we can assume that student fees and state funds are going into administration instead of instruction.
In Schwartz’s study of the rate of administrative growth in the period of 1996-2006, we find that the biggest increase came in the following job titles: “Computer Programming & Analysis – from 2,084 to 4,325 for an increase of 108% and Administrative, Budget/Personnel Analysis from 4,692 to 10,793 for an increase of 130%.”
Schwartz explains this growing group of middle-management bureaucrats by arguing that, “these positions (F20) seem to be the top level of support staff for the University’s administrative officials. Bureaucratic accretion is the name given to the process whereby administrators proliferate themselves and expand their dominions. The growth rate of this F20 group is huge, comparable to that of the Management group. . . administrators and executives tend to make work for each other, and that because executives prefer to have subordinates rather than rivals, they create and perpetuate bureaucracies in which power is defined by the number of subordinates.” According to this theory, the growth in administrators can be explained by the desire of managers to have more subordinates and fewer rivals.
To calculate how much this administrative bloat costs the university, Schwartz compared the average increase in positions for all employees and then determined the cost for abnormal rate of increase for administrators, and he found that the total extra cost is close to $600 million per year. If we want to help UC find alternative budget solutions, the place to start is here: we need to rein in the costs of excessive administrative and bureaucratic growth.
The next major finding concerns the question of how much this exessive growth in the administrative ranks costs and who pays for it: “Execs and Managers receive additions to their regular pay called above or non-base-pay, but because of the high growth of admin. FTE, there are no unfilled FTE and merit slots to fund above-base-pay. Funding comes largely from Core Funds (student tuition and fees, state appropriations). . . Auditors reported that UC paid $11.3M in Above-Base-Pay Additions to Regular Pay in 2004-05, with about $9M coming from core funds and $2.3M from federal and other grants and contracts, endowments, and auxiliary operations (CA State Auditor Report 2006-103).” In other words, student fees and state funds are paying for the increased compensation and growing number of UC administrators. This means that part of the push to raise student fees and eliminate jobs and courses comes from the need to pay the growing army of administrators.
Schwartz has also examine the cost and rate of administrative growth on particular campuses: “UCLA has the smallest increase in overall employment (3%) and also the smallest increase in student enrollment (17%); yet its administration has increased significantly (about 50%) with a wastage that we estimate costs $54 million per year, second only to Berkeley.” As Schwartz shows, at UCLA and Berkeley, the increase in administration is far outpacing the increase in students and the increase in all other categories of employment. In other words, we can assume that student fees and state funds are going into administration instead of instruction.
In Schwartz’s study of the rate of administrative growth in the period of 1996-2006, we find that the biggest increase came in the following job titles: “Computer Programming & Analysis – from 2,084 to 4,325 for an increase of 108% and Administrative, Budget/Personnel Analysis from 4,692 to 10,793 for an increase of 130%.”
Schwartz explains this growing group of middle-management bureaucrats by arguing that, “these positions (F20) seem to be the top level of support staff for the University’s administrative officials. Bureaucratic accretion is the name given to the process whereby administrators proliferate themselves and expand their dominions. The growth rate of this F20 group is huge, comparable to that of the Management group. . . administrators and executives tend to make work for each other, and that because executives prefer to have subordinates rather than rivals, they create and perpetuate bureaucracies in which power is defined by the number of subordinates.” According to this theory, the growth in administrators can be explained by the desire of managers to have more subordinates and fewer rivals.
To calculate how much this administrative bloat costs the university, Schwartz compared the average increase in positions for all employees and then determined the cost for abnormal rate of increase for administrators, and he found that the total extra cost is close to $600 million per year. If we want to help UC find alternative budget solutions, the place to start is here: we need to rein in the costs of excessive administrative and bureaucratic growth.
Wednesday, November 25, 2009
UC's Fiscal Health
At the same time that UC President Mark Yudof declared a fiscal emergency this summer, the UC was reviewed for a new set of bonds by Moodys, and the bond raters told a very different story than the one the Office of the President was presenting to the public and its own employees. According to recent reports from Moodys, the university generates billions of dollars of profits and has billions of dollars of funds that it can use for any purpose. Here are some of the highlights from recent bond reports, which detail UC’s fiscal health:
1. “Excess of $4 billion of net patient revenue at its five academic medical centers”; [net revenues equals profits]
2. “Healthy and highly consistent operating performance, with operating cash flow in excess of $2 billion driven by a highly diversified revenue stream with no single revenue source exceeding 26% of total revenues”;
3.” Sizeable balance sheet that remains highly liquid, with $5.9 billion of unrestricted financial resources and active treasury management monitoring a short-term investment pool approaching $8 billion in recent years”; [a total of $14 billion that can be used for any purpose]
4. “UC's financial resources have grown from approximately $11 billion in FY2002 to over $15.5 billion in FY2006. Expendable financial resources have grown from less than $8 billion to over $13 billion over the same time period”. [more total revenue and more unrestricted funds]
5. “Resource growth has partially been driven by fundraising success across the campuses. The University reports total private giving in FY2006 approached $1.3 billion with over $10 billion raised in the last decade”. [the endowment funds allows for borrowing and flexible funds]
6. “With expendable financial resources covering pro-forma debt by 1.4 times, and debt service consuming only 3.6% of operating expenses, we believe the University retains significant additional debt capacity”. [UC can borrow more money at a low cost]
It is clear that the medical facilities generate a huge profit that can be shared with the other units. It is also evident that the UC has billions of dollars of unrestricted funds that can be used to deal with the current state budget crisis. Moreover, the UC is able to borrow money at a very low interest rate because it has so much unrestricted funds in its multiple revenue streams. In other words, everything Yudof and the Regents have said about the dire state of the UC’s finances is simply untrue.
1. “Excess of $4 billion of net patient revenue at its five academic medical centers”; [net revenues equals profits]
2. “Healthy and highly consistent operating performance, with operating cash flow in excess of $2 billion driven by a highly diversified revenue stream with no single revenue source exceeding 26% of total revenues”;
3.” Sizeable balance sheet that remains highly liquid, with $5.9 billion of unrestricted financial resources and active treasury management monitoring a short-term investment pool approaching $8 billion in recent years”; [a total of $14 billion that can be used for any purpose]
4. “UC's financial resources have grown from approximately $11 billion in FY2002 to over $15.5 billion in FY2006. Expendable financial resources have grown from less than $8 billion to over $13 billion over the same time period”. [more total revenue and more unrestricted funds]
5. “Resource growth has partially been driven by fundraising success across the campuses. The University reports total private giving in FY2006 approached $1.3 billion with over $10 billion raised in the last decade”. [the endowment funds allows for borrowing and flexible funds]
6. “With expendable financial resources covering pro-forma debt by 1.4 times, and debt service consuming only 3.6% of operating expenses, we believe the University retains significant additional debt capacity”. [UC can borrow more money at a low cost]
It is clear that the medical facilities generate a huge profit that can be shared with the other units. It is also evident that the UC has billions of dollars of unrestricted funds that can be used to deal with the current state budget crisis. Moreover, the UC is able to borrow money at a very low interest rate because it has so much unrestricted funds in its multiple revenue streams. In other words, everything Yudof and the Regents have said about the dire state of the UC’s finances is simply untrue.
Monday, November 23, 2009
A Regents Meeting Recap
I want to congratulate all the unions, workers, and students pulling off a great protest under difficult conditions. We had over 2,000 protesters at UCLA, and there were some great actions. Here are a few highlights:
Hundreds of people stopped traffic at one of the main intersections in L.A. and then marched up through the campus.
Over a thousand people participated in a boisterous rally outside the regents meeting (the rally got international coverage). Even though the police tasered and hit several students and workers, we kept coming back for more.
A very surreal moment happened during the public comments period. After extending their bathroom break for an additional thirty minutes, the regents cut off public comments, while several people were still waiting to speak. This is after months of planning and negotiating, and several hours of waiting patiently. When our group at the meeting started to yell, "Let them Speak," not only did the regents declare their own meeting an "unlawful assembly," but they brought up police with guns into their own meeting to arrest the people who wanted to speak.
Another surreal moment occurred earlier on when several of us had to listen to the regents congratulate each other about how great they are and what a great historic day this was because they were agreeing to fund a new hospital project. The self-praising lasted several minutes, but when a mother of two students was later addressing the regents, not only were they not paying attention to her, but they cut her off, while she was delivering a heartbreaking story.
After the vote on the fee increases, the students surrounded the building and locked arms refusing to let the regents leave the building. A tense standoff lasted for several hours, and hundreds of students and workers joined the human chain. On the other side of the building, people were sitting and lying on the ground to prevent anyone from driving out of the building. When they finally brought Yudof out, they had to use tasers in order to clear a way. What message does this send, when you have to use weapons on your own students?
While most of the police did a good job, there were a couple who acted badly, and they should be investigated and disciplined. We will consider asking for a formal investigation into the conduct of the police. The main problem is that some of them took a very hostile stance by sticking guns in students' and workers' faces without any provocation. There are videos on the web showing how the police tasered and beat several students, and this information will not be ignored.
Another group of students occupied a building for a day, and then left peacefully, and hundreds of students participated in a flash mob by pretending to die outside of the regents meeting (this event made for some powerful photos).
We also had an all night camp out and dance party on Wed. night, which highlighted the building of a growing movement.
I did several radio and television interviews, and the press were very surprised to learn how the UC treats its workers. I think this was a historic event for our coalition, but this is not the end: it is only the beginning.
Here are some of the interviews:
Democracy Now!
CNN
Uprising
Hundreds of people stopped traffic at one of the main intersections in L.A. and then marched up through the campus.
Over a thousand people participated in a boisterous rally outside the regents meeting (the rally got international coverage). Even though the police tasered and hit several students and workers, we kept coming back for more.
A very surreal moment happened during the public comments period. After extending their bathroom break for an additional thirty minutes, the regents cut off public comments, while several people were still waiting to speak. This is after months of planning and negotiating, and several hours of waiting patiently. When our group at the meeting started to yell, "Let them Speak," not only did the regents declare their own meeting an "unlawful assembly," but they brought up police with guns into their own meeting to arrest the people who wanted to speak.
Another surreal moment occurred earlier on when several of us had to listen to the regents congratulate each other about how great they are and what a great historic day this was because they were agreeing to fund a new hospital project. The self-praising lasted several minutes, but when a mother of two students was later addressing the regents, not only were they not paying attention to her, but they cut her off, while she was delivering a heartbreaking story.
After the vote on the fee increases, the students surrounded the building and locked arms refusing to let the regents leave the building. A tense standoff lasted for several hours, and hundreds of students and workers joined the human chain. On the other side of the building, people were sitting and lying on the ground to prevent anyone from driving out of the building. When they finally brought Yudof out, they had to use tasers in order to clear a way. What message does this send, when you have to use weapons on your own students?
While most of the police did a good job, there were a couple who acted badly, and they should be investigated and disciplined. We will consider asking for a formal investigation into the conduct of the police. The main problem is that some of them took a very hostile stance by sticking guns in students' and workers' faces without any provocation. There are videos on the web showing how the police tasered and beat several students, and this information will not be ignored.
Another group of students occupied a building for a day, and then left peacefully, and hundreds of students participated in a flash mob by pretending to die outside of the regents meeting (this event made for some powerful photos).
We also had an all night camp out and dance party on Wed. night, which highlighted the building of a growing movement.
I did several radio and television interviews, and the press were very surprised to learn how the UC treats its workers. I think this was a historic event for our coalition, but this is not the end: it is only the beginning.
Here are some of the interviews:
Democracy Now!
CNN
Uprising
Sunday, November 15, 2009
Why We Must Resist Student Fee Increases
The main reasons why new student fee increases should be rejected is not only will these increases price out many lower- and middle-class students, but more importantly, there is no way of knowing if the money generated by these fees will be used for instructional purposes. In fact, every thing we have heard recently tells us that student fees will not find their way back into the classroom.
As Bob Meister has shown, one reason why the UC administration wants to raise fees is that they have promised to do this in order to lower interest rates for construction bonds. While this move to use student money to build new buildings could be justified if these new buildings would help serve the educational mission of undergraduates, it turns out that most of these planned construction projects have nothing to do with undergraduate instruction (for a list of these projects, click here and scroll to bottom of the main article).
Perhaps more troubling is the recent discovery that student fees from one campus are often used to subsidize activities on the other campuses, and that campuses with professional schools end up getting most of the money. This means that undergraduates are subsidizing graduate students, and undergraduate student fees are being directed away from their intended destination. In fact, I have previously shown that most of the money generated from student fees and state funds never finds its way into the classroom, and the result is that classes get larger, and their are fewer courses in which students can enroll. Furthermore, as the UC has been raising student fees, it has been laying off the lecturers who teach most of the required courses. The university has also been eliminating many sections taught by graduate students and has increased the class size of many of the remaining sections.
Students are therefore being asked to pay more for less, while their fees are used for non-instructional purposes. If the UCs were a publicly traded corporation, it might make sense to raise fees in order to lower interest rates and cut labor costs, but the UC is a public institution of higher education: Its main function is to provide high quality instruction and research for Californians. Please come to the Regents Meeting at UCLA on November 17-19th to defend undergraduates against the move to increase the costs and lower the quality of public higher education.
As Bob Meister has shown, one reason why the UC administration wants to raise fees is that they have promised to do this in order to lower interest rates for construction bonds. While this move to use student money to build new buildings could be justified if these new buildings would help serve the educational mission of undergraduates, it turns out that most of these planned construction projects have nothing to do with undergraduate instruction (for a list of these projects, click here and scroll to bottom of the main article).
Perhaps more troubling is the recent discovery that student fees from one campus are often used to subsidize activities on the other campuses, and that campuses with professional schools end up getting most of the money. This means that undergraduates are subsidizing graduate students, and undergraduate student fees are being directed away from their intended destination. In fact, I have previously shown that most of the money generated from student fees and state funds never finds its way into the classroom, and the result is that classes get larger, and their are fewer courses in which students can enroll. Furthermore, as the UC has been raising student fees, it has been laying off the lecturers who teach most of the required courses. The university has also been eliminating many sections taught by graduate students and has increased the class size of many of the remaining sections.
Students are therefore being asked to pay more for less, while their fees are used for non-instructional purposes. If the UCs were a publicly traded corporation, it might make sense to raise fees in order to lower interest rates and cut labor costs, but the UC is a public institution of higher education: Its main function is to provide high quality instruction and research for Californians. Please come to the Regents Meeting at UCLA on November 17-19th to defend undergraduates against the move to increase the costs and lower the quality of public higher education.
How the Regents Sold the University Down the River
On Sept 17 2008, the Regents Investment Advisory Group met to discuss the UC’s investment strategies in light of the ongoing global financial meltdown. (The notes of the meeting can be found here). The decisions made at this meeting point to a series of questionable judgments, which may have caused serious damage to the university’s fiscal health and a loss of over $23 billion in its investment and pension portfolios. While the regents and the Office of the President would like us to believe that everyone lost money during the great financial meltdown, and so we should not blame management for the loss of billions of dollars, a closer look shows that the regents’ own financial interests could have motivated them to push the UC to raise their stakes in the riskiest investments that were already going bad.
During the early part of the meeting, we find the following entry in the minutes: “President Yudof noted that UC has investments in mortgage-backed instruments. He asked if there has been any investigation into the likelihood of default. He cited the magnitude of the investment and the potential risk of not being able to mark to market.” Yudof here was wisely asking about the UC’s investments in toxic assets and the inability to place a value on these risky investments. The response he got should scare all of us, “As the market turmoil expanded, the non-agency securities became less expensive, and in December, the University bought a fairly significant amount.” In other words, just when things were really going down hill for mortgage-backed securities, the UC increased its investment. While the UC investors thought they saw a bargain, what they were really investing in was a group of assets that they may never be able to sell.
While we do not know how much UC has invested in these toxic assets, we do get some indication, in the following section of the notes: “In response to a question asked by President Yudof, Mr. Wedding stated that the University has about $1.4 billion invested in mortgage-backed securities, of which $0.6 billion is within the UCRP, 40 percent to 45 percent of the total mortgage-backed portfolio.” While $1.4 billion only accounts for a small part of the UCs investment losses, we later read that the investors do not know how much money they have in other types of derivatives and that they cannot value their own assets: “Since May, that market has become very illiquid . . .The University cannot obtain reliable daily or monthly pricing from its pricing providers on many of these securities . . . The majority of them, 95 percent, are still valued AAA, as they were when purchased, but it is difficult to determine a market price . . .The University’s opinion is that it should hold this position rather than liquidate, and that this position will work out over a one-and-a-half to two-year period.” Once again, the UC made a decision to hold onto a large group of investments that it could not value, and even though the bond raters were still giving the mortgage-backed securities high ratings, it was clear that the assets were tied to defaulting loans, and no one could really market these securities.
Instead of putting its money into more stable and safe investments, the UC decided to take advantage of the market instability, and raise its stake in high-risk assets:
“Chief Investment Officer Berggren informed the Committee that this revised policy would result in much higher allocations to both private equity and real estate in the future. . . The recommendation is for an increase in the long-term target for private equity and real estate consistent with the present commitments and with commitments planned for the next few years.” Here we find UC following the failed Yale model of switching university investments from relatively stable bonds and stocks to more volatile investments in securities and real estate.
The question, then, is why did the UC continue to invest in real estate and mortgage-backed securities when it was clear that these areas were seeing the highest level of losses and instability. The answer to this crucial question appears to be that so many of the regents have huge stakes in real estate and financial securities. For example, Richard Blum, who is a major real estate investor, made the following argument at a later investment meeting (2/24/09): “Chairman Blum expressed concern that the University might become too risk-averse. He recalled that, over the last 60 to 70 years, equity and real estate have provided good returns. The current scenario was an event that occurs once in a century. He cautioned that the University’s investment profile might become so conservative that it would prevent the University from achieving its investment goals and taking necessary action when the market begins to recover.” It is clear here that Blum was pushing the regents to investment in his own industry and to continue to take on high-risk investments.
Since the regents are stacked with business people with huge investments in real estate and financial securities, it should be clear that they should not be the one’s managing the UC’s fiscal health. There are simply too many potential conflicts of interest to allow these investors to steer the UC’s investments. As a first step in changing how the regents are chosen, there should be an independent investigation into the UC’s recent investment decisions.
During the early part of the meeting, we find the following entry in the minutes: “President Yudof noted that UC has investments in mortgage-backed instruments. He asked if there has been any investigation into the likelihood of default. He cited the magnitude of the investment and the potential risk of not being able to mark to market.” Yudof here was wisely asking about the UC’s investments in toxic assets and the inability to place a value on these risky investments. The response he got should scare all of us, “As the market turmoil expanded, the non-agency securities became less expensive, and in December, the University bought a fairly significant amount.” In other words, just when things were really going down hill for mortgage-backed securities, the UC increased its investment. While the UC investors thought they saw a bargain, what they were really investing in was a group of assets that they may never be able to sell.
While we do not know how much UC has invested in these toxic assets, we do get some indication, in the following section of the notes: “In response to a question asked by President Yudof, Mr. Wedding stated that the University has about $1.4 billion invested in mortgage-backed securities, of which $0.6 billion is within the UCRP, 40 percent to 45 percent of the total mortgage-backed portfolio.” While $1.4 billion only accounts for a small part of the UCs investment losses, we later read that the investors do not know how much money they have in other types of derivatives and that they cannot value their own assets: “Since May, that market has become very illiquid . . .The University cannot obtain reliable daily or monthly pricing from its pricing providers on many of these securities . . . The majority of them, 95 percent, are still valued AAA, as they were when purchased, but it is difficult to determine a market price . . .The University’s opinion is that it should hold this position rather than liquidate, and that this position will work out over a one-and-a-half to two-year period.” Once again, the UC made a decision to hold onto a large group of investments that it could not value, and even though the bond raters were still giving the mortgage-backed securities high ratings, it was clear that the assets were tied to defaulting loans, and no one could really market these securities.
Instead of putting its money into more stable and safe investments, the UC decided to take advantage of the market instability, and raise its stake in high-risk assets:
“Chief Investment Officer Berggren informed the Committee that this revised policy would result in much higher allocations to both private equity and real estate in the future. . . The recommendation is for an increase in the long-term target for private equity and real estate consistent with the present commitments and with commitments planned for the next few years.” Here we find UC following the failed Yale model of switching university investments from relatively stable bonds and stocks to more volatile investments in securities and real estate.
The question, then, is why did the UC continue to invest in real estate and mortgage-backed securities when it was clear that these areas were seeing the highest level of losses and instability. The answer to this crucial question appears to be that so many of the regents have huge stakes in real estate and financial securities. For example, Richard Blum, who is a major real estate investor, made the following argument at a later investment meeting (2/24/09): “Chairman Blum expressed concern that the University might become too risk-averse. He recalled that, over the last 60 to 70 years, equity and real estate have provided good returns. The current scenario was an event that occurs once in a century. He cautioned that the University’s investment profile might become so conservative that it would prevent the University from achieving its investment goals and taking necessary action when the market begins to recover.” It is clear here that Blum was pushing the regents to investment in his own industry and to continue to take on high-risk investments.
Since the regents are stacked with business people with huge investments in real estate and financial securities, it should be clear that they should not be the one’s managing the UC’s fiscal health. There are simply too many potential conflicts of interest to allow these investors to steer the UC’s investments. As a first step in changing how the regents are chosen, there should be an independent investigation into the UC’s recent investment decisions.
Tuesday, November 10, 2009
A Plan to Protect the University of California
I would like to suggest here a concrete plan to defend high quality public education for the University of California.
The first step is to build coalitions around a set of specific demands. This strategy is necessary in order to unite diverse interest groups within the UC system, and in fact, unions, students, and faculty have already done a good job centering our demands around five basic issues: furloughs, layoffs, budgetary transparency, alternative budget solutions, and shared governance.
By saying no to furloughs for people making less than $40,000, we have united around a very modest and realizable goal. Moreover, this demand shows our commitment to economic justice and a basic sense of fairness.
Linked to the demand to limit the furloughs, and to stop all furloughs by July 1 2010, is the need to halt the layoffs on each campus. The unions have been working on this demand, but it will take a united front to stop the elimination of jobs throughout the UC system. Students need to realize that when the university gets rid of lecturers, courses are eliminated and class sizes expand. Furthermore, faculty, need to know that without lecturers and teaching assistants, professors will not have time to do research, and the quality of education will go down. It is also important to stress that when workers and staff lose their jobs, everyone loses.
Of course, the UC administration will argue that layoffs and furloughs are necessary to maintain the quality of the university, but without budget transparency, we have no way of knowing if the money saved by furloughs and layoffs will actually go to protect things like undergraduate instruction and graduate research. Right now, it seems that students are being asked to pay more for less, while workers and faculty are being asked to do more for less. Furthermore, decisions are being imposed from above, and we are seeing a serious lack of shared governance.
The reason that we have to insist on shared governance and budget transparency, then, is to make sure that decisions are not being made in secret, which will result in the privatization of the university. And privatization, means not only the raising of student fees to such an extent that the university becomes indistinguishable from private universities, but more fundamentally, privatization says that education is no longer considered a free, public good and that knowledge is no longer the free pursuit of knowledge. Privatization also means that decisions are made in private, and private gain becomes the over-arching goal.
One way to fight all of these forms of privatization is to insist on the alterntaive budget solutions that the unions have presented to the administration. These solutions start with a very basic human concept: sharing. Not only should the profit-making units share with the less profit-oriented sectors, but the highest earners should share some of their wealth with the lowest earners. Moreover, if positions have to be eliminated, it should not only be the lowest paid workers who lose their jobs.
A growing number of UC workers, faculty, and students believe that the UC does not have a fiscal crisis; rather it has a crisis of priorities, and we can work together to change these priorities. We need to use the regents meeting at UCLA on November 17-19 to present our demands to the general public and to rally around our shared interests.
The next step after the regents meeting is to go back to our respective campuses and to make sure that our shared demands are accepted. Following some recent success, we need to put pressure on the chancellors on each campus, and this may take the form of sit-ins and other modes of civil disobedience. By working with students, we can force the local leaders to make local changes, which can lead to more system-wide changes. For example, the chancellors can stop layoffs and provide budgetary transparency that enables shared governance. The chancellors can also demand an end to furloughs and service cuts.
The chancellors have to be accountable to the students and faculty, and we need to work together to make them accept our demands. We need to fight for the university we want. Please come to UCLA on the 18th and 19th, and let your voices be heard.
The first step is to build coalitions around a set of specific demands. This strategy is necessary in order to unite diverse interest groups within the UC system, and in fact, unions, students, and faculty have already done a good job centering our demands around five basic issues: furloughs, layoffs, budgetary transparency, alternative budget solutions, and shared governance.
By saying no to furloughs for people making less than $40,000, we have united around a very modest and realizable goal. Moreover, this demand shows our commitment to economic justice and a basic sense of fairness.
Linked to the demand to limit the furloughs, and to stop all furloughs by July 1 2010, is the need to halt the layoffs on each campus. The unions have been working on this demand, but it will take a united front to stop the elimination of jobs throughout the UC system. Students need to realize that when the university gets rid of lecturers, courses are eliminated and class sizes expand. Furthermore, faculty, need to know that without lecturers and teaching assistants, professors will not have time to do research, and the quality of education will go down. It is also important to stress that when workers and staff lose their jobs, everyone loses.
Of course, the UC administration will argue that layoffs and furloughs are necessary to maintain the quality of the university, but without budget transparency, we have no way of knowing if the money saved by furloughs and layoffs will actually go to protect things like undergraduate instruction and graduate research. Right now, it seems that students are being asked to pay more for less, while workers and faculty are being asked to do more for less. Furthermore, decisions are being imposed from above, and we are seeing a serious lack of shared governance.
The reason that we have to insist on shared governance and budget transparency, then, is to make sure that decisions are not being made in secret, which will result in the privatization of the university. And privatization, means not only the raising of student fees to such an extent that the university becomes indistinguishable from private universities, but more fundamentally, privatization says that education is no longer considered a free, public good and that knowledge is no longer the free pursuit of knowledge. Privatization also means that decisions are made in private, and private gain becomes the over-arching goal.
One way to fight all of these forms of privatization is to insist on the alterntaive budget solutions that the unions have presented to the administration. These solutions start with a very basic human concept: sharing. Not only should the profit-making units share with the less profit-oriented sectors, but the highest earners should share some of their wealth with the lowest earners. Moreover, if positions have to be eliminated, it should not only be the lowest paid workers who lose their jobs.
A growing number of UC workers, faculty, and students believe that the UC does not have a fiscal crisis; rather it has a crisis of priorities, and we can work together to change these priorities. We need to use the regents meeting at UCLA on November 17-19 to present our demands to the general public and to rally around our shared interests.
The next step after the regents meeting is to go back to our respective campuses and to make sure that our shared demands are accepted. Following some recent success, we need to put pressure on the chancellors on each campus, and this may take the form of sit-ins and other modes of civil disobedience. By working with students, we can force the local leaders to make local changes, which can lead to more system-wide changes. For example, the chancellors can stop layoffs and provide budgetary transparency that enables shared governance. The chancellors can also demand an end to furloughs and service cuts.
The chancellors have to be accountable to the students and faculty, and we need to work together to make them accept our demands. We need to fight for the university we want. Please come to UCLA on the 18th and 19th, and let your voices be heard.
Thursday, November 5, 2009
UC's Attack on the Middle Class
While most people think that the biggest cause for the future reduction of a diverse student body at UC is the rapid increase of student fees, other factors may play a much bigger role. One of the main reasons why we will be seeing a decrease in both underrepresented minorities and Californians at UC in the future is that there is a plan to reduce the total number of enrolled students. At the same time, several campuses are planning to increase the number of high-paying out-of-state and international students, and this means there will be even less space for in-state students.
However, the biggest driving force behind the coming loss of diversity is the use of SAT scores to determine admissions decisions. As Peter Sacks points out in his Book Tearing Down the Gates, studies show that SAT scores do not predict the success a student will have in college; rather SAT scores predict the average wealth of the parents of the incoming student. Since campuses in the UC system are now motivated to rely more on endowments, they have a strong incentive to accept more wealthy students who will give more money in the present and the future. Universities know that the best way to build an endowment is to make SAT scores the central force in determining admissions. While UC now has a comprehensive admission policy, several campuses still base most of their admission decisions on test scores, which also helps to maintain high ratings in the U.S. News & World Report ranking system.
Nationally, many universities have now replaced need-based financial aid with merit-based aid in order to compete for the highest scoring students. The result is that wealthy students are being subsidized by middle-class students. In UC’s case, middle-class students subsidize lower-class students through a system that raises fees for everyone, and then gives a third of the money back for financial aid to the students whose parents make less than a combined $70,000. It is these same middle-class families that have seen their investments wiped out and their home values plunge. This is the true war on the middle-class: we are now seeing middle-class students dropping out of college because their parents cannot afford the tuition increases. Meanwhile, the middle-class students who do remain in the UC system face huge student loans with high interest rates.
However, the biggest driving force behind the coming loss of diversity is the use of SAT scores to determine admissions decisions. As Peter Sacks points out in his Book Tearing Down the Gates, studies show that SAT scores do not predict the success a student will have in college; rather SAT scores predict the average wealth of the parents of the incoming student. Since campuses in the UC system are now motivated to rely more on endowments, they have a strong incentive to accept more wealthy students who will give more money in the present and the future. Universities know that the best way to build an endowment is to make SAT scores the central force in determining admissions. While UC now has a comprehensive admission policy, several campuses still base most of their admission decisions on test scores, which also helps to maintain high ratings in the U.S. News & World Report ranking system.
Nationally, many universities have now replaced need-based financial aid with merit-based aid in order to compete for the highest scoring students. The result is that wealthy students are being subsidized by middle-class students. In UC’s case, middle-class students subsidize lower-class students through a system that raises fees for everyone, and then gives a third of the money back for financial aid to the students whose parents make less than a combined $70,000. It is these same middle-class families that have seen their investments wiped out and their home values plunge. This is the true war on the middle-class: we are now seeing middle-class students dropping out of college because their parents cannot afford the tuition increases. Meanwhile, the middle-class students who do remain in the UC system face huge student loans with high interest rates.
Sunday, November 1, 2009
Several Regents Support Cutting Taxes, Reducing State Funding for the UC system, and Privatizing Higher Ed
In a recent article on the UC regents, “Beyond UC vs. Sacramento: It’s Relationships That Matter,” Hillary Violet Lehr shows that the people who are supposed to be fighting for the financial health of our university have been working to help defund higher education. Not only have many of the regents funded Republican candidates that have voted against all revenue enhancing measures, but several of the regents have pushed to lower taxes during the recent budget crisis. It is important to stress that Republican governors have appointed most of the UC regents, and several of these regents have been working behind the scenes to reduce the university’s reliance on state funds. In fact, the current Regent Chair, Russel Gould, helped Schwarzenegger in 2004 to negotiate the recent compact between the state and the UC system.
In her article, Lehr discovered that, “New Regent Makarechian spearheaded a Republican strategy group and his elite real estate company gave over $100,000 to Schwarzenegger, and Regent Zettel gave thousands of dollars to the Lincoln Club’s efforts to reduce state taxes.” In other words, the fox is guarding the hen house, and while Yudof and the regents argue in public that Sacramento is the problem, the truth is that some of them are working secretly to cut the state funding of the university and block any new initiatives that would generate additional funds for the system.
Not only are several regents against any new taxes to fund public institutions, but they are actively working to privatize higher education. For instance, regent Blum is a major stake-holder in a company called Career Education Corporation. This organization invests in for-profit colleges and has recently been sued several times for providing sub-prime loans to students at institutions that do not provide the services they advertise. It turns out that the median graduation rate at proprietary schools is 38%, and many students end up without a degree, while accumulating huge student loans with interest rates in the double digits. Moreover, a new law passed by congress uses governmental funds to guarantee these loans, and since over 70% of these loans go into default, taxpayers are left paying the bill, while profiteers like Richard Blum, turn a hefty profit.
Of course, Blum is no longer the head regent, but his replacement may be even worse. As Chris Newfield wrote on his blog, “The ‘UC Commission on the Future’ is headed by Regent Gould, a partisan Republican who, as Senior Vice-President, helped drive Wachovia Bank from one of the nation’s largest banks holding millions in student loans into bankruptcy because of toxic sub-prime home mortgages and credit default swaps.” While Blum’s company funds for-profit schools, Gould helped to supply high-interest, high-default student loans. Gould and Blum thus have a long history of profiting off of student loans and seem to have no qualms about raising student fees to increase their own profits.
It should be obvious that we need a different system for appointing the regents. We must fight to have faculty, staff, and students make up the majority of the regents so that the people protecting the financial health of the institution actually support the notion of high quality public education.
In her article, Lehr discovered that, “New Regent Makarechian spearheaded a Republican strategy group and his elite real estate company gave over $100,000 to Schwarzenegger, and Regent Zettel gave thousands of dollars to the Lincoln Club’s efforts to reduce state taxes.” In other words, the fox is guarding the hen house, and while Yudof and the regents argue in public that Sacramento is the problem, the truth is that some of them are working secretly to cut the state funding of the university and block any new initiatives that would generate additional funds for the system.
Not only are several regents against any new taxes to fund public institutions, but they are actively working to privatize higher education. For instance, regent Blum is a major stake-holder in a company called Career Education Corporation. This organization invests in for-profit colleges and has recently been sued several times for providing sub-prime loans to students at institutions that do not provide the services they advertise. It turns out that the median graduation rate at proprietary schools is 38%, and many students end up without a degree, while accumulating huge student loans with interest rates in the double digits. Moreover, a new law passed by congress uses governmental funds to guarantee these loans, and since over 70% of these loans go into default, taxpayers are left paying the bill, while profiteers like Richard Blum, turn a hefty profit.
Of course, Blum is no longer the head regent, but his replacement may be even worse. As Chris Newfield wrote on his blog, “The ‘UC Commission on the Future’ is headed by Regent Gould, a partisan Republican who, as Senior Vice-President, helped drive Wachovia Bank from one of the nation’s largest banks holding millions in student loans into bankruptcy because of toxic sub-prime home mortgages and credit default swaps.” While Blum’s company funds for-profit schools, Gould helped to supply high-interest, high-default student loans. Gould and Blum thus have a long history of profiting off of student loans and seem to have no qualms about raising student fees to increase their own profits.
It should be obvious that we need a different system for appointing the regents. We must fight to have faculty, staff, and students make up the majority of the regents so that the people protecting the financial health of the institution actually support the notion of high quality public education.
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.
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.
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.
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
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 .
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 .
Saturday, September 26, 2009
Why We Can’t Trust President Yudof
Here is a series of statements that Mark Yudof made during his address to the Regents on Sept. 16th (you can watch these comments at: http://www.youtube.com/watch?v=7DaX7Jh8-R8 ):
1. “We don’t have any reserves.”
2. “In the last fourteen months, our reserves – so called – are down, I suspect, at the end of the day by one third.”
3. “We actually spent 300 million in the so-called reserves in the current year.”
4. “We better be alert and I will be alert that we are not out of reserves in another year.”
5. “The real challenge is, if we are not careful, and this downturn continues a couple of years, there won’t be any checking account.”
These statements show why faculty, students, and unions do not trust Yudof’s leadership. He first claims that there are no reserves, and then he states that they do exist, but they are going down, and finally he argues that the reserves have to be saved for the future. It is impossible for all of these statements to be true at the same time, and so we must conclude that the UC does have money, but it chooses not to spend it. Instead, fees will go up 42% in a year, employees will have their salaries reduced, and services will be cut.
On September 24th, faculty, students, and workers rallied to demand a more fair and transparent budget. We want to know the truth about the UC’s fiscal status, and we do not want to be told one moment that the reserves don’t exist and then hear the next moment that they need to be saved. What needs to be saved is the reputation of the world’s greatest public university.
1. “We don’t have any reserves.”
2. “In the last fourteen months, our reserves – so called – are down, I suspect, at the end of the day by one third.”
3. “We actually spent 300 million in the so-called reserves in the current year.”
4. “We better be alert and I will be alert that we are not out of reserves in another year.”
5. “The real challenge is, if we are not careful, and this downturn continues a couple of years, there won’t be any checking account.”
These statements show why faculty, students, and unions do not trust Yudof’s leadership. He first claims that there are no reserves, and then he states that they do exist, but they are going down, and finally he argues that the reserves have to be saved for the future. It is impossible for all of these statements to be true at the same time, and so we must conclude that the UC does have money, but it chooses not to spend it. Instead, fees will go up 42% in a year, employees will have their salaries reduced, and services will be cut.
On September 24th, faculty, students, and workers rallied to demand a more fair and transparent budget. We want to know the truth about the UC’s fiscal status, and we do not want to be told one moment that the reserves don’t exist and then hear the next moment that they need to be saved. What needs to be saved is the reputation of the world’s greatest public university.
Wednesday, September 23, 2009
Growing Salary Inequality for the UC Senate faculty
This post looks at the growing spread in the UC system between the high earners and everyone else within the senate faculty ranks. Using Jeffrey Bergamini’s new salary data (http://ucpay.globl.org), I first looked at general salary trends within the UC system and found that the number of people making over $200,000 in the UC system increased by 470 between 2004 and 2006; however, during the next two years, the same group increased by 1,183. Moreover, the increase in total compensation to the top earners was $163 million between 2004 and 2006, but the increase between 2006 and 2008 was $320 million. This means that the amount of additional money going to the top earners almost doubled in just two years. In fact, the total pay for the UC system went from $7.1 billion in 2004 to $7.9 billion in 2006 to $9.5 billion in 2008.
During this time of growing salary inequality, we find a profound movement of money to the top, while lower paid workers saw their pay stagnate. Within the professorial ranks, increased inequality can be documented between fields and within particular areas. For instance, as I have previously shown (http://changinguniversities.blogspot.com/2009/08/who-are-high-earners-in-uc-system.html), medical, business, and law professors had abnormally large compensation increases between 2006 and 2008. In fact, if we compare the raises between 2004 and 2006 to the raises between 2006 and 2008, we find that salaries took off after 2006. Thus, the total compensation for full professors in the business schools went from $116 million in 2004 to $128 million in 2006, and then in 2008, the same group jumped to $176 million. In other words, the rate of increase went from 10% to about 40%.
If we now look at the professors outside of the professional schools, we find some interesting salary trends, which all point to the movement of wealth to people at the top. For example, in 2004, there was 216 full professors making more than $200,000,and in 2006, the number of high earners grew to 194, but in 2008, this same category jumped to 380. Therefore, the number of full professors making over $200,000 nearly doubled between 2006 and 2008. Meanwhile, if we look at the salaries of assistant professors during this same period, we find that the number of assistants making less than $70,00 stayed almost the same between 2004 and 2008 (577 in 2004; 553 in 2006; 558 in 2008). This statistic tells us that the salary growth for academic professors was concentrated at the top.
In fact, if we look at the number of full professors making over $250,000, we see that in 2004, there were17 people in this group, while in 2006, 35 made over $250,000, but in 2008, there were 69. The top earners between 2006 and 2008 nearly tripled, and over half of them were at UCLA. It is no wonder that in 2008, the UCLA College declared an internal budget deficit unrelated to state funding.
If we look at the salaries of associate professors, we discover that there was relatively the same number of them making below $100,000 from 2004 to 2008 (949 in 2004; 960 in 2006; 936 in 2008). Once again, this points to relatively flat salaries for everyone else except full professors at the top. It is also important to note that the numbers of faculty in each of the ranks stayed almost the same between 2004 and 2008. For instance, there was 3,112 full professors in 2004, and in 2008, there was 3,208. This statistic tells us that the increase of compensation was not caused by an increase in the number of full professors; rather, we find that the average salary in this rank went up $18,000 during this period, and the biggest increases went to the people at the very top. In comparison, the average assistant professor’s salary increased by $5,000 from 2004 and 2008, and the average associate professors salary increased by $11,000.
Perhaps the most telling statistic is the number of people in each academic professorial rank. In 2008, there was 3,208 full professors, 1,250 associate professors, and 1,140 assistant professors. In other words, more than half of the academic professors are full professors, and with the current move to freeze new hires, we should see an even greater divide between the highest paid professors and everyone else. This means that it will become more expensive to teach classes and the cost of graduate education will escalate.
During this time of growing salary inequality, we find a profound movement of money to the top, while lower paid workers saw their pay stagnate. Within the professorial ranks, increased inequality can be documented between fields and within particular areas. For instance, as I have previously shown (http://changinguniversities.blogspot.com/2009/08/who-are-high-earners-in-uc-system.html), medical, business, and law professors had abnormally large compensation increases between 2006 and 2008. In fact, if we compare the raises between 2004 and 2006 to the raises between 2006 and 2008, we find that salaries took off after 2006. Thus, the total compensation for full professors in the business schools went from $116 million in 2004 to $128 million in 2006, and then in 2008, the same group jumped to $176 million. In other words, the rate of increase went from 10% to about 40%.
If we now look at the professors outside of the professional schools, we find some interesting salary trends, which all point to the movement of wealth to people at the top. For example, in 2004, there was 216 full professors making more than $200,000,and in 2006, the number of high earners grew to 194, but in 2008, this same category jumped to 380. Therefore, the number of full professors making over $200,000 nearly doubled between 2006 and 2008. Meanwhile, if we look at the salaries of assistant professors during this same period, we find that the number of assistants making less than $70,00 stayed almost the same between 2004 and 2008 (577 in 2004; 553 in 2006; 558 in 2008). This statistic tells us that the salary growth for academic professors was concentrated at the top.
In fact, if we look at the number of full professors making over $250,000, we see that in 2004, there were17 people in this group, while in 2006, 35 made over $250,000, but in 2008, there were 69. The top earners between 2006 and 2008 nearly tripled, and over half of them were at UCLA. It is no wonder that in 2008, the UCLA College declared an internal budget deficit unrelated to state funding.
If we look at the salaries of associate professors, we discover that there was relatively the same number of them making below $100,000 from 2004 to 2008 (949 in 2004; 960 in 2006; 936 in 2008). Once again, this points to relatively flat salaries for everyone else except full professors at the top. It is also important to note that the numbers of faculty in each of the ranks stayed almost the same between 2004 and 2008. For instance, there was 3,112 full professors in 2004, and in 2008, there was 3,208. This statistic tells us that the increase of compensation was not caused by an increase in the number of full professors; rather, we find that the average salary in this rank went up $18,000 during this period, and the biggest increases went to the people at the very top. In comparison, the average assistant professor’s salary increased by $5,000 from 2004 and 2008, and the average associate professors salary increased by $11,000.
Perhaps the most telling statistic is the number of people in each academic professorial rank. In 2008, there was 3,208 full professors, 1,250 associate professors, and 1,140 assistant professors. In other words, more than half of the academic professors are full professors, and with the current move to freeze new hires, we should see an even greater divide between the highest paid professors and everyone else. This means that it will become more expensive to teach classes and the cost of graduate education will escalate.
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