Friday, January 28, 2011

The State of the State: Fighting Budget Cuts One Day at a Time

For the last several days, I have been in Oakland and Sacramento trying to work out a deal to limit the state budget cuts to the UC system. I testified at the Assembly hearing and met with the Legislative Analyst for Higher Ed and Governor Brown’s point person for the universities. So I will begin with what I know for sure: I know nothing for sure. There is a flurry of activity, and no one knows what Brown is going to end up doing. He is asking for a lot of feedback from a lot of people, but each conversation is framed with the idea that things are going to be bad, and they might get even worse.

While the governor’s initial budget proposal calls for unallocated cuts of $500 million to the UC system, many legislators believe they should make targeted cuts. To help the legislature in this process, I have worked with AFSCME to propose a deal where the state would only reduce the UC by $250 million in exchange for the UC cutting the salaries and perks of the highest compensated administrators. We have also supported the position that there should be no additional fee hikes or enrollment cuts. In fact, I believe I have convinced several key people that the worst thing the UC could do is to cut undergraduate admissions. I have shown that last year, the UC brought in $23,000 per undergraduate in fees and state funds, but only spent $8,000 in direct instructional costs. It would thus be financial suicide to reduce undergrad enrollments since undergraduates subsidize research, graduate education, student services, and administration.

Yes it would be great if we were in a position to advocate for no cuts right now, but there are going to be reductions, and so we should try to make sure that they do not hurt the core mission of the university.

Wednesday, January 19, 2011

Fighting for Funding and Administrative Reductions

Next week, I will be going with several union leaders to speak to state legislators regarding the UC budget. We will propose that the state limits Governor Brown’s funding cuts if the UC promises to reduce its administrative costs by $500 million. Our strategy is to help restore funding and to protect vital services without having to resort to furloughs, layoffs, and tuition increases.

Here are the administrative savings AFSCME and UC-AFT will present to state legislators:

1. Eliminate $530 million in Management Inefficiencies.
Since 2004, UC’s management has grown twice as fast as non-management employees. In fact, $1.6 billion in cash compensation went to management in 2009. Thus, adjusting UC’s system-wide management ratio from 7:1 to 10:1 would save over $530 million annually. Also, in addition to cash compensation, UC’s senior managers are compensated through a number of supplemental health, welfare, and retirement benefits. Many of the senior managers who receive these benefits are paid through state funds, causing this benefit to include state funding.

2. Eliminating the Senior Management Supplemental Benefit Program would result in $2.5 million in savings annually. UC puts 5% of about 200 highly paid executives’ annual pay into retirement savings accounts. These funds are available to executives after they retire, in addition to UC’s standard retirement benefits. The cost of this supplemental benefit is about $2.5 million per year. One UC Task Force recommended that this program be eliminated and that “other compensation solutions should be developed and adopted” for senior managers.

3. Eliminating the 415(m) Restoration Plan would save $20 million each year after 2020. This plan mostly benefits long-service, high-income faculty and senior managers by supplementing their annual retirement income with additional income beyond the $195,000 pension limit established by the Internal Revenue Code.

These reductions would be very popular with the public and the legislature, and they could force the administration to change its priorities.

Thursday, January 13, 2011

A Plan to Reduce the UC Budget

Since Gov. Brown is saying that he wants to meet with union and student leaders to discuss how to reduce the UC budget, I have put together a comprehensive proposal to save vital services, while absorbing the latest round of budget cuts:

1. Reduce senior management group by 20%. Just as academic programs are often reduced by a certain percentage, the Office of the President should get the same type of reduction. This process will force the administration to decide who is valuable in their own ranks, and it could save $20 million. If the same process is extended to the campuses, it could save $200 million.

2. Institute a UC tax on all auxiliaries of 10% to go to the general fund; this will bring in $1 billion each year. (Some of this money could be used to fund the pension plan)

3. Reduce the number of grants that do not bring in at least 50% in indirect cost recoveries. The total savings here should be $200 million. The university also plans to bring in another $300 million by renegotiating the federal and state indirect cost rate to match its competitors.

4. Cap administrative salaries, raises, and supplemental retirement perks. This will reduce future costs and help motivate some overpaid administrators to leave. (cost: priceless).

5. Prevent athletic subsidies and force campuses to reduce new construction projects related to athletics. This could save $100 million a year.

While we still need to push for more state funding, these proposals are based on the recognition that the profit centers of the university need to share their extra funds, and we also need a forced reduction of administrative costs.

Monday, January 10, 2011

Brown Asks UC Students and Unions to Help Cut the UC Budget by $500 Million

The new California governor, Jerry Brown, has just announced a reduction of the UC and CSU budgets by $500 million each for 2011-12, and this time, the cuts will not be replaced by any federal recovery money. While the UC system will probably still show a net increase in revenue, the state cuts will most likely result in another round of layoffs, fee increases, and other austerity measures.

However, there is a big new wrinkle in this process: Brown is asking students and union representatives to help make reductions to the UC budget. Here is the relevant passage from his budget proposal: “A decrease of $500 million in 2011‐12 to reflect necessary funding reductions to help resolve the budget deficit. These reductions are intended to minimize fee and enrollment impacts on students by targeting actions that lower the costs of instruction and administration. The Administration will work with the Office of the President and the Regents, as well as stakeholders (including representatives of students and employees), to determine the specific mix of measures that can best accomplish these objectives.” In other words, for the first time, a governor will try to control the UC budget and attempt to cut unneeded expenses like administrative salaries and athletic subsidies.

Part of this new process was brought on by the attempt of 36 of the highest paid administrators to receive a higher pension. Brown, who has never been a big fan of UC elitism, is going to try to circumvent the university’s autonomous status by tying general funds to specific budget reductions. These moves will also coincide with the state audit of the UC budget, and so we should expect a very defensive posture coming from the Regents and the Office of the President. All stakeholders should start to position themselves to influence this process in a positive way.

Tuesday, January 4, 2011

The Terminator’s Parting Shot: A New UC Regent

In one of his last official acts, Gov Schwarzenegger has appointed David Crane to be the next UC regent. While Crane’s appointment has to be confirmed by the state senate, the senate has usually supported regents with a pro forma vote; however, this time things may be different. Although Crane is a Democrat, he has been one of Schwarzenegger’s biggest allies, and he has helped to lead the Terminator’s fight against public pensions and public employee unions. Moreover, Crane’s various investments show that he may have a strong conflict of interest in relation to the university’s own investment portfolio.

As a former Board member of CalSTRS, Crane argued that pensions often hide their true risk by predicting overly rosy investment returns. Crane has also called pensions “non-market” deals, and he has advocated for a new accounting measure that would make pension system’s declare a much higher liability by reducing their expected investment returns. In other words, he wants pensions to publicize a higher liability so governmental officials will have an easy time pushing for pension reform.

It should also be noted that Crane’s link to Schwarzenegger goes back to a very shady deal. According to Capital Weekly, while Crane was at the investment firm Babock & Brown, “Babcock brokered the governor's controversial jet-lease deal with Singapore Airlines, allowing the governor to defer paying taxes on millions in income.” In this nexus of high finance and corporate cronyism, we find the start of a strong relationship.

Once The Terminator was in office, he brought in Crane to help lead the governor’s economic team, and Crane returned Arnold’s earlier favor by engaging in his own questionable deals. According to the L.A. Times, “Babcock & Brown, the financial services firm where Crane worked for a quarter of a century, hired a Sacramento lobbyist last year to influence the governor's office on so-called public-private partnerships, records show. Since joining the governor's team in 2004, Crane has received hundreds of thousands of dollars of income from deals he made while at Babcock, a firm founded in San Francisco and based in Australia, according to financial disclosure reports.” In other words, Crane is a perfect candidate to be a regent because he has already established his credentials of abusing power and using a public institution to enrich himself.

Crane has also been a leader in privatizing public institutions through public-private construction deals. According to Calitics,
“Crane is claiming that he cannot possibly benefit financially from any future deals, but one wonders whether, even if Crane is telling the truth, it really matters. The network of friends and former business associates to which Crane's advice could directly or indirectly steer business is vast. This is how government-by-profit-taking typically works, rewarding friends and punishing enemies. Whether or not Crane gets his profit now, as an economic adviser, or later, when he returns to Babcock & Brown or some other destination, is in many ways besides the point, just a clever way to avoid violating the letter of the law.” Yes, like so many other regents that have come before him, Crane is set up to profit from his appointment as regent.

Luckily, there is already a movement coming out of a UCSB faculty group to block Crane’s appointment, and as the year progresses, we hope to organize the first senate rejection of a UC regent. It is time to end the attack on pensions, public employees, unions, and our state’s institutions, and opposing Crane’s nomination would be a first step in the stand against free market fundamentalism or what is otherwise know as crony capitalism.