Moody’s has rated the University of California’s bonds as aA1, and the university’s finances have been defined as stable. However, the high rating comes with the following warning: “The broadest pledge of revenues backing the University's various debt securities, General Revenues include tuition and other student generated fees, indirect cost recoveries, investment income and other revenues excluding state appropriations and gross revenues of the Medical Centers. The security features of the General Revenue Bonds is fairly weak, with no reserve fund, a rate covenant that requires revenues sufficient to pay debt service, the ability to issue senior debt, and the ability of the University to add and remove revenues as long as an event of default has not occurred. However, we expect the University to closely protect its market access and the strength of its broadest and highest rated security pledge.” According to this assessment, the UC can spend student fees, indirect costs from grants, and investment profits, but it cannot use state funds or revenues from the medical centers to back its debt. The raters also point out that the bonds do not have sufficient funds to service the debt, but they are confident that the university can protect its market access.
Part of the UC’s market access concerns the use of credit default swaps and other complicated financial derivatives: “The University has two swaps related to two series of variable rate bonds under its Medical Center Pooled Revenue Bond pledge, both of which are floating to fixed rate agreements. Only one of the swaps requires the University to post collateral under certain circumstances. The fair value of the agreements was negative $48 million at the end of FY2009.” While the UC is losing money on its swap, it is unclear how many other similar arrangements it is currently holding.
One of the main strengths of the UC’s finances continues to be its access to unrestricted funds that can be used for any purpose: “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 exceeding $10 billion.” As I have previously stressed, while the university likes to claim that it has limited access to unrestricted funds, it is clear that it can use close to $6 billion according to its own purposes. Moreover, the retiree healthcare liability now moves $2.4 billion from unrestricted funds to restricted funds, but the university is really only spending a tenth of that amount on retiree healthcare, and there is no sign that they are actually saving $2.4 billion in a separate account dedicated to the healthcare of retirees.
One concern that Moody’s signals is the high rate of debt the university has taken on: “Significant capital needs likely to result in rising borrowing levels; debt outstanding has grown from $8.3 billion in FY2006 to over $13.2 billion in FY2009 and including new borrowings since the end of the fiscal year, a 56% increase.” This debt requires a huge amount of funds to service, and it unclear why the university finds it necessary to borrow so much money. Furthermore, the more the UC borrows, the more it has to make its decisions based on what the bond raters tell them since a high bond rating results in a lower interest rate, which reduces the cost of borrowing money.
Like the IMF, the bond raters hint to the UC that a source of financial weakness is their reliance on the state and the high level of unionized labor: “high susceptibility to regulatory and government pay or changes, coupled with unique stresses on California healthcare, including unionized labor.” In this seemingly neutral economic assessment, we find a bias against state regulation, unions, healthcare, and state funding.
Moody’s also slips into their analysis the idea that the university should increase the number of students coming from outside of the state: “In-state demand is so strong that UC does little recruiting of freshman from out-of-state. Moody's views this as an untapped strategic asset because UC could easily increase its student demand further if it followed national recruiting practices similar to most peer universities.” Not only does Moody’s think that the university should accept more out-of-state students, but it should spend more money marketing and recruiting them.
It is interesting to note that while the bond raters indicate that the UC needs to wean itself off of the unstable support for instruction from the state, they believe the UC will continue to profit from the money it gets from the federal government to do research: “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.” According to this analysis, research grants brought in an $800 million profit last year, and this amount may go up due to the federal stimulus. Hidden in this analysis is the idea that state-funded instruction is unstable, but federally funded grants are a growth market. The reality of the situation is that we do not know if grants make or lose money, and they are an even more unstable source of funding than state support.
Another major threat to the financial health of the university that is highlighted by the bond raters is the pension and retiree healthcare liabilities. These future projections make it look like the university is currently running a deficit when it is still showing a healthy surplus: “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 deficits reflect $1.35 billion and $1.50 billion in expenses for retiree health benefits respectively in each year compared to less than $300 million of actual cash contributions to the plan. The University's retirement health and pension plans represent a significant and growing liability and expense of the System. We believe the University will need to take significant steps to either curtail the benefits or improve ongoing funding of the costs in order to sustain its long-term credit quality.” This complicated passage means that on paper it looks like the UC has a deficit, but that is because they are declaring a $2.85 billion pension and retiree healthcare liability, while they are actually only spending $300 million. Also, Moody’s is pushing the university to either curtail benefits and/or increase the funding for the pension and retiree healthcare, and if the university does not do this, the UC is threatened with a lower credit rating.
While it is necessary for the university to fund the cost of its pension and healthcare for retirees, the question is how much is needed and how does the projected liability affect current operations and the campaign to downsize benefits. Also, instead of simply reducing its profits by declaring a huge liability, shouldn’t the UC use some of its net revenue for future benefits?
Moody’s not only tells the UC, in subtle and not so subtle ways, how to spend its money, but it also pushes a risky mode of investment: “The long-term targets for the endowment pool would bring alternative assets (including hedge funds, real estate and private equity) to 35% of the total, with domestic and international equity accounting for another 45% of total assets.” While the move to increase investments in hedge funds, real estate, and private equity could result in a major reduction of endowment wealth, Moody’s often shows a preference for this type of investment strategy.
Not only do the bond raters want the UC to invest in volatile assets, but they also encourage the university to take on even more debt: “With expendable financial resources covering pro-forma debt by 0.8 times (resources as of end of FY2009 and debt as of current issue), and debt service consuming 4.1% of operating expenses, we believe the University retains additional debt capacity at the current rating level.” Like a pusher telling a junkie that he should increase his dosage, Moody’s neutral report appears to promote the very things that helped to cause the global fiscal meltdown: high debt, easy credit, and creative accounting.
Tuesday, April 27, 2010
Monday, April 19, 2010
On The Use and Abuse of Graduate Students in the Humanities
In a recent New York Times article, “The Long Haul Degree,” Patricia Cohen outlines many of the hard realities facing graduate students in Humanities programs at American research universities. She begins by pointing to the huge amount of time it takes doctoral students to complete their degrees: “Medical students receive an M.D. in four. But for graduate students in the humanities, it takes, on average, more than nine years to complete a degree.” Not only does it take these students a very long time to complete their studies, but Cohen adds that, “they could spend another nine years, or more, looking for a tenure-track teaching job at a college or university — without ever finding one.”
This is what we call the job crisis in the humanities: it takes students along time to get their degrees, and when they do earn their doctorates, the reward is often unemployment or underemployment. Some of the causes for this sorry state are discussed by Cohen: “Doctoral students are expected not only to master a wide swath of material to pass general and oral exams, but to produce a nearly book-length dissertation of original research that, depending on the subject, may ultimately sit on a shelf as undisturbed as the Epsom salts at the back of the medicine chest. These students must earn their keep by patching together a mix of grants and wages for helping to teach undergraduate courses — a job that eats into research time.” In other words, students are not only supposed to produce original work, but they also have to support their studies by teaching undergrad courses.
One of the results of the system that forces grad students to spend most of their time instructing undergraduates is that many doctoral students never actually complete their degrees, and the ones who do finish often end up with large loans and no job prospects: “About half who enter a humanities doctoral program drop out along the way. The average student receiving a Ph.D. today is 35 years old, $23,000 in debt and facing a historically bad job market. Adjunct jobs — with year-to-year contracts, no benefits and no security — may be the only option.”
One thing that Cohen does not examine is the fact that because so many grad students are teaching undergraduate courses, there is not reason to hire professors with doctorates to teach undergrad classes. In other terms, grad students unknowingly produce their own future unemployment.
One would think that universities would realize that the current system exploits grad students and trains them for jobs that don’t exist, but instead of reducing the number of doctoral students and increasing the number of professors with PhDs, universities are continuing to hire people off of the tenure track as they accept more graduate students into their doctoral programs.
Making matters worse is the fact that the high-enrollment classes taught in humanities programs are often staffed by part-time faculty and graduate students, and so while the number of students in these courses continues to increase, the large number of enrollees does not result in a need to hire more professors: “At the same time, the practice of hiring off-tenure teachers is growing. According to a new survey of humanities departments by the American Academy of Arts and Sciences, half of the faculty members in English and foreign languages — more than any other department — are not on a tenure track. Part of the reason for the large number is that freshman composition classes, which are often required, are taught by those departments, and adjuncts.” Since non-tenured faculty and grad students are teaching the required courses with the highest student demand, it is clear that the same universities that are training doctoral students are engaging in hiring practices designed to reduce the need to hire people with doctorates.
As absurd as it seems, the institutions that are in charge of credentialing new Ph.Ds argue on a daily basis that these degrees are not needed. Since universities continue to place in the classroom people without degrees, expertise, or experience, they send a clear message to students, administrators, and stakeholders that one of the central products of a research university, doctoral degrees, is worthless.
It is also important to stress that it costs at least four times more to educate a graduate student than an undergraduate student because grad students are taught in small classes staffed by the highest-paid professors. Moreover, the use of grad students to teach the small sections attached to large lecture classes actually inflates the cost of undergraduate instruction. In short, grad students are very costly to universities, and yet, these institutions continue to fight for more graduate students. We must ask why universities appear to be working against the best interests of their students and their own bottom-line.
One answer that Cohen provides for the continued desire to recruit more grad students in the humanities is that these students allow professors to concentrate on their favorite areas of research: “If enrollment drops too low, there may not be enough students to justify courses in specialized areas.” According to this logic, if humanities programs reduce their number of doctoral students, there will not be enough students for the graduate faculty to teach. For example, if you do not continue to bring in more doctoral students interested in studying Chaucer, the Chaucer specialist will have nothing to do.
Of course, the Chaucer specialist could teach an undergrad writing course or general literature course, but then the professor would not be concentrating on his or her area of research. Universities thus have to accept people into their graduate programs in order to give the research professors students to teach.
Cohen argues that the other major reason for universities desiring to bring in more graduate students in fields that provide a clear path to underemployment is that doctoral students bring prestige: “Doctoral programs bring prestige to a university and help retain faculty members who want to mentor the next generation of scholars. They also provide the staff for courses offered to first- and second-year undergraduates — a task many tenured faculty members resist.” It turns out that the education of graduate students has virtually nothing to do with the students or their education; instead, departments want to increase their prestige by accepting students with high GRE scores and stellar past academic records. Furthermore, professors need the grad students to teach the undergrad courses the professors do not want to teach.
It should be clear at this point that this system is totally messed up, but how can we fix this complicated problem? One possible solution is to restrict the number of courses graduate students can teach, while we fund students out of grants. This regulation might not only improve the quality of undergraduate instruction, but it also could help to provide jobs for students once they earn their doctorates.
Another way of saving money and improving the quality of instruction is to accept more undergraduates and reduce the number of new graduate students. Since it costs so much more to educate grad students compared to undergrads, it makes sense to reverse this current tendency of replacing undergrad enrollments with graduate enrollments.
To make these graduate programs more accountable and transparent, they should be ranked on how many of their students complete their degrees and how long it takes to earn their doctorates. Ranking agencies and guide books should also look at how many doctoral students get jobs in their chosen field and how much debt that have when they graduate.
This is what we call the job crisis in the humanities: it takes students along time to get their degrees, and when they do earn their doctorates, the reward is often unemployment or underemployment. Some of the causes for this sorry state are discussed by Cohen: “Doctoral students are expected not only to master a wide swath of material to pass general and oral exams, but to produce a nearly book-length dissertation of original research that, depending on the subject, may ultimately sit on a shelf as undisturbed as the Epsom salts at the back of the medicine chest. These students must earn their keep by patching together a mix of grants and wages for helping to teach undergraduate courses — a job that eats into research time.” In other words, students are not only supposed to produce original work, but they also have to support their studies by teaching undergrad courses.
One of the results of the system that forces grad students to spend most of their time instructing undergraduates is that many doctoral students never actually complete their degrees, and the ones who do finish often end up with large loans and no job prospects: “About half who enter a humanities doctoral program drop out along the way. The average student receiving a Ph.D. today is 35 years old, $23,000 in debt and facing a historically bad job market. Adjunct jobs — with year-to-year contracts, no benefits and no security — may be the only option.”
One thing that Cohen does not examine is the fact that because so many grad students are teaching undergraduate courses, there is not reason to hire professors with doctorates to teach undergrad classes. In other terms, grad students unknowingly produce their own future unemployment.
One would think that universities would realize that the current system exploits grad students and trains them for jobs that don’t exist, but instead of reducing the number of doctoral students and increasing the number of professors with PhDs, universities are continuing to hire people off of the tenure track as they accept more graduate students into their doctoral programs.
Making matters worse is the fact that the high-enrollment classes taught in humanities programs are often staffed by part-time faculty and graduate students, and so while the number of students in these courses continues to increase, the large number of enrollees does not result in a need to hire more professors: “At the same time, the practice of hiring off-tenure teachers is growing. According to a new survey of humanities departments by the American Academy of Arts and Sciences, half of the faculty members in English and foreign languages — more than any other department — are not on a tenure track. Part of the reason for the large number is that freshman composition classes, which are often required, are taught by those departments, and adjuncts.” Since non-tenured faculty and grad students are teaching the required courses with the highest student demand, it is clear that the same universities that are training doctoral students are engaging in hiring practices designed to reduce the need to hire people with doctorates.
As absurd as it seems, the institutions that are in charge of credentialing new Ph.Ds argue on a daily basis that these degrees are not needed. Since universities continue to place in the classroom people without degrees, expertise, or experience, they send a clear message to students, administrators, and stakeholders that one of the central products of a research university, doctoral degrees, is worthless.
It is also important to stress that it costs at least four times more to educate a graduate student than an undergraduate student because grad students are taught in small classes staffed by the highest-paid professors. Moreover, the use of grad students to teach the small sections attached to large lecture classes actually inflates the cost of undergraduate instruction. In short, grad students are very costly to universities, and yet, these institutions continue to fight for more graduate students. We must ask why universities appear to be working against the best interests of their students and their own bottom-line.
One answer that Cohen provides for the continued desire to recruit more grad students in the humanities is that these students allow professors to concentrate on their favorite areas of research: “If enrollment drops too low, there may not be enough students to justify courses in specialized areas.” According to this logic, if humanities programs reduce their number of doctoral students, there will not be enough students for the graduate faculty to teach. For example, if you do not continue to bring in more doctoral students interested in studying Chaucer, the Chaucer specialist will have nothing to do.
Of course, the Chaucer specialist could teach an undergrad writing course or general literature course, but then the professor would not be concentrating on his or her area of research. Universities thus have to accept people into their graduate programs in order to give the research professors students to teach.
Cohen argues that the other major reason for universities desiring to bring in more graduate students in fields that provide a clear path to underemployment is that doctoral students bring prestige: “Doctoral programs bring prestige to a university and help retain faculty members who want to mentor the next generation of scholars. They also provide the staff for courses offered to first- and second-year undergraduates — a task many tenured faculty members resist.” It turns out that the education of graduate students has virtually nothing to do with the students or their education; instead, departments want to increase their prestige by accepting students with high GRE scores and stellar past academic records. Furthermore, professors need the grad students to teach the undergrad courses the professors do not want to teach.
It should be clear at this point that this system is totally messed up, but how can we fix this complicated problem? One possible solution is to restrict the number of courses graduate students can teach, while we fund students out of grants. This regulation might not only improve the quality of undergraduate instruction, but it also could help to provide jobs for students once they earn their doctorates.
Another way of saving money and improving the quality of instruction is to accept more undergraduates and reduce the number of new graduate students. Since it costs so much more to educate grad students compared to undergrads, it makes sense to reverse this current tendency of replacing undergrad enrollments with graduate enrollments.
To make these graduate programs more accountable and transparent, they should be ranked on how many of their students complete their degrees and how long it takes to earn their doctorates. Ranking agencies and guide books should also look at how many doctoral students get jobs in their chosen field and how much debt that have when they graduate.
Tuesday, April 13, 2010
Why UC has Huge Legal Bills
While the University of California is a huge system, and many things can go wrong and right, there does appear to be an anti-employee culture that is evident in the large legal bills that the UC funds each month. Not only does the UC system has its own army of lawyers, but it also contracts out a great deal of legal work, and during these times of fiscal “crisis,” we must look at how the university spends its money.
In the minutes to the January 2010 Regents Meeting, you find the following listings of NEW LITIGATION AND ARBITRATION PROCEEDINGS for the two-moth period of 10/13/09 – 12/14/09:
Nature of Dispute Alleged by Plaintiff Employment Cases
Discrimination (sexual orientation), harassment, and retaliation
Discrimination (age), wrongful termination, and retaliation, withholding of wages
Retaliation, violation of due process and negligence
Breach of contract
Discrimination (sex), harassment, retaliation and constructive termination
Wrongful termination in violation of public policy
Violations of whistleblower protection act, Labor Code, and due process rights
Retaliation
Discrimination (age), wrongful termination, retaliation
Wrongful termination, whistleblower, health and safety violation
Professional Liability Cases
Medical malpractice, loss of consortium
Wrongful death, medical negligence, elder abuse
Medical malpractice, wrongful death Medical malpractice
Medical negligence Medical malpractice
Medical malpractice, general negligence, intentional tort, and loss of consortium
Medical malpractice
Medical negligence and loss of consortium Professional and general negligence
Negligence and battery
Personal injury, medical malpractice
Medical negligence, lack of informed consent
Professional and medical negligence
Medical malpractice
Personal injury, general negligence
Medical malpractice, negligent hiring supervision and retention
Medical malpractice and loss of consortium
Other Cases
Dangerous property liability, negligence
Violation of due process under Fifth and Fourteenth Amendments
Class action for alleged disclosure of confidential medical information
Negligence, violations of statute and right to privacy, battery, emotional distress
Breach of agreement, unjust enrichment, and recovery of money paid (lawsuit filed on behalf of the Regents against Angelika Dimoka and Paul Pavlou)
Breach of contract, conversion, money had and received
Public Employment Relations Board (“PERB”) Unfair Practices Alleged by Charging Party
University engaged in bad faith bargaining regarding temporary layoffs. Santa Cruz Office of Labor Relations indicates the issues have been resolved and the temporary layoffs rescinded, and dismissal is pending.
University retaliated against a Clerical and Allied Services Bargaining Unit employee for exercising her Weingarten Rights and failed to provide notice of placement of the employee on investigatory leave.
University enacted unilateral changes to the binding terms of its agreement with the union and engaged in direct dealing with represented employees prior to the adoption
of the Regents’ furlough/salary reduction plan.
University engaged in bad faith bargaining - union to enter into the furlough program agreement. University failed to give union notice prior to laying off represented employee and also failed to discuss layoff alternatives.
University engaged in direct dealing with represented employees prior to its adoption of the Regents’ furlough/salary reduction plan. Also, the University unilaterally and in bad
faith imposed unilateral changes that constituted a retaliatory rolling lockout and failed as required by the terms of its contract with the union, to mitigate or explore alternatives to the Plan prior to implementation.
University unilaterally changed its contract with the union by assigning unit work performed by an Administrative Analyst III in the clerical services unit to an employee
outside the unit. The University also retaliated against the same employee for performing union duties and attempted to interfere with the employee’s union rights through coercion of other union members.
University laid off a Computer Resource Specialist I in the technical services unit, in direct retaliation for his participation in protected union activities and altered the
status quo of the contract by attempting to reorganize the Information Technology Department without negotiating the changes prior to implementation.
University failed and refused to bargain specific aspects of the Regents’ furlough/salary reduction plan.
University violated the status quo by not providing notice or bargaining the involuntary
transfer of an administrative assistant to a newly-created position and retaliated against the employee for exercising his union rights.
UCB Supervisor refused to remove references to a senior museum scientist’s use of union
representation in a resolved grievance from the employee’s performance evaluation.
In the minutes to the January 2010 Regents Meeting, you find the following listings of NEW LITIGATION AND ARBITRATION PROCEEDINGS for the two-moth period of 10/13/09 – 12/14/09:
Nature of Dispute Alleged by Plaintiff Employment Cases
Discrimination (sexual orientation), harassment, and retaliation
Discrimination (age), wrongful termination, and retaliation, withholding of wages
Retaliation, violation of due process and negligence
Breach of contract
Discrimination (sex), harassment, retaliation and constructive termination
Wrongful termination in violation of public policy
Violations of whistleblower protection act, Labor Code, and due process rights
Retaliation
Discrimination (age), wrongful termination, retaliation
Wrongful termination, whistleblower, health and safety violation
Professional Liability Cases
Medical malpractice, loss of consortium
Wrongful death, medical negligence, elder abuse
Medical malpractice, wrongful death Medical malpractice
Medical negligence Medical malpractice
Medical malpractice, general negligence, intentional tort, and loss of consortium
Medical malpractice
Medical negligence and loss of consortium Professional and general negligence
Negligence and battery
Personal injury, medical malpractice
Medical negligence, lack of informed consent
Professional and medical negligence
Medical malpractice
Personal injury, general negligence
Medical malpractice, negligent hiring supervision and retention
Medical malpractice and loss of consortium
Other Cases
Dangerous property liability, negligence
Violation of due process under Fifth and Fourteenth Amendments
Class action for alleged disclosure of confidential medical information
Negligence, violations of statute and right to privacy, battery, emotional distress
Breach of agreement, unjust enrichment, and recovery of money paid (lawsuit filed on behalf of the Regents against Angelika Dimoka and Paul Pavlou)
Breach of contract, conversion, money had and received
Public Employment Relations Board (“PERB”) Unfair Practices Alleged by Charging Party
University engaged in bad faith bargaining regarding temporary layoffs. Santa Cruz Office of Labor Relations indicates the issues have been resolved and the temporary layoffs rescinded, and dismissal is pending.
University retaliated against a Clerical and Allied Services Bargaining Unit employee for exercising her Weingarten Rights and failed to provide notice of placement of the employee on investigatory leave.
University enacted unilateral changes to the binding terms of its agreement with the union and engaged in direct dealing with represented employees prior to the adoption
of the Regents’ furlough/salary reduction plan.
University engaged in bad faith bargaining - union to enter into the furlough program agreement. University failed to give union notice prior to laying off represented employee and also failed to discuss layoff alternatives.
University engaged in direct dealing with represented employees prior to its adoption of the Regents’ furlough/salary reduction plan. Also, the University unilaterally and in bad
faith imposed unilateral changes that constituted a retaliatory rolling lockout and failed as required by the terms of its contract with the union, to mitigate or explore alternatives to the Plan prior to implementation.
University unilaterally changed its contract with the union by assigning unit work performed by an Administrative Analyst III in the clerical services unit to an employee
outside the unit. The University also retaliated against the same employee for performing union duties and attempted to interfere with the employee’s union rights through coercion of other union members.
University laid off a Computer Resource Specialist I in the technical services unit, in direct retaliation for his participation in protected union activities and altered the
status quo of the contract by attempting to reorganize the Information Technology Department without negotiating the changes prior to implementation.
University failed and refused to bargain specific aspects of the Regents’ furlough/salary reduction plan.
University violated the status quo by not providing notice or bargaining the involuntary
transfer of an administrative assistant to a newly-created position and retaliated against the employee for exercising his union rights.
UCB Supervisor refused to remove references to a senior museum scientist’s use of union
representation in a resolved grievance from the employee’s performance evaluation.
Friday, April 9, 2010
Reasons Why UC Faculty Should Not Buy into the Pension Scare
The main reason why UC faculty and employees should question the current claims concerning the underfunding of the pension plan and retiree healthcare is that these accounting predictions are based on a whole series of economic guesses. In order to determine the future funding and liability of the plan, the accountants have to look into the future and estimate how well the UC’s investments will do, who is going to retire, what salaries will look like down the road, the number of employees getting benefits, and the cost of healthcare premiums, among other major variables. In the recent past, the actuaries have been wrong on predicting most of these variables, and so while we should restart contributions, we should not be scared into accepting a high level of employee contributions, and we should stop the process of changing the benefits for present and future employees.
Currently, UC has over $35 billion in the pension plan, and last year, it paid out $1.5 billion. It was a huge mistake to stop contributions in 1990, and so it is good to go with the current policy of 4% from the employer and 2% from the employee; however, it is unclear if we need to contribute much more, and dire predictions based on projected liabilities do not help anyone. What we should be arguing for is shared governance over the investments.
In response to the recent study done by a couple of Stanford grad students about CalPERS, CalSTIRS, and UCRP, CalPERS has made the following observations: 1) even with the recent stock losses, over the long haul, the plans have all averaged higher than the 7.5% rate of return, and the Stanford model uses a very low rate of 4.4%; 2) all of the future predictions are tainted by the current low interest rate that is sure to go up, which would help increase income from the bonds that are in UCRP; 3) most pension plans remain healthy by being funded at 80%; UCRP is still at 95%.
As Dean Baker has written, people are simply exaggerating the bad health of the Californian pension plans in order call for their abolition. In this context, it is strange than no one in the UC is calling for the capping of special executive pension payouts. Did you know that if Yudof stays for at least 4 years, he is guaranteed a yearly pension of over $250,000. Capping pension payouts at some level, like $125,000, as many other plans do, would save a ton of money.
In an article for the Huffington Post, I show that a new accounting rule from 2004 might have been a Republican ploy to bust unions, pensions, and public institutions by having them declare on their books, all of their future healthcare liability. The UC faculty and staff should not buy into this conservative attempt to undermine our interests.
Currently, UC has over $35 billion in the pension plan, and last year, it paid out $1.5 billion. It was a huge mistake to stop contributions in 1990, and so it is good to go with the current policy of 4% from the employer and 2% from the employee; however, it is unclear if we need to contribute much more, and dire predictions based on projected liabilities do not help anyone. What we should be arguing for is shared governance over the investments.
In response to the recent study done by a couple of Stanford grad students about CalPERS, CalSTIRS, and UCRP, CalPERS has made the following observations: 1) even with the recent stock losses, over the long haul, the plans have all averaged higher than the 7.5% rate of return, and the Stanford model uses a very low rate of 4.4%; 2) all of the future predictions are tainted by the current low interest rate that is sure to go up, which would help increase income from the bonds that are in UCRP; 3) most pension plans remain healthy by being funded at 80%; UCRP is still at 95%.
As Dean Baker has written, people are simply exaggerating the bad health of the Californian pension plans in order call for their abolition. In this context, it is strange than no one in the UC is calling for the capping of special executive pension payouts. Did you know that if Yudof stays for at least 4 years, he is guaranteed a yearly pension of over $250,000. Capping pension payouts at some level, like $125,000, as many other plans do, would save a ton of money.
In an article for the Huffington Post, I show that a new accounting rule from 2004 might have been a Republican ploy to bust unions, pensions, and public institutions by having them declare on their books, all of their future healthcare liability. The UC faculty and staff should not buy into this conservative attempt to undermine our interests.
Monday, April 5, 2010
Warning: Tricky Accounting is Threatening Our Benefits
The UC system has embarked in the process of downsizing retiree benefits, and it looks like their manipulative campaign is working. Last week, The Council of UC Faculty Associations made the following statement: "UCRP is badly underfunded in terms of its liability for future benefits that employees began accruing after June 30, 2008. Moreover, the unfunded future liabilities are increasing very rapidly. In 2009, UCOP and TFIR estimated that if contributions were not immediately restarted, the percentage of funded liabilities would fall to 61% and the dollar amount of the unfunded liability would increase to $18 billion by 2013 – 3 years from now!" This focus on unfunded liability for the pension plan is in part a scare tactic to force the older faculty to push for higher employee contributions and may help the administration gut the plan for new hires.
Like the Commission on the Future of the University, the faculty association is buying all of the administration’s questionable accounting moves. First of all, as I discussed in relation to the Executive Summary of the Commission’s initial recommendations, due to an accounting change from 2006, the UC has been forced to declare as a liability on its books all of the future costs for pension and retiree healthcare. This means that while the UC is still funding the healthcare for retirees on a “pay as you go” basis, they are declaring a multi-billion dollar liability. Thus last year, as they spent $279 million on healthcare for retirees, they declared a $1.5 billion liability, which helped them to claim a budget deficit as they moved funds from unrestricted to restricted accounts. Once again, it is important to stress, the UC did not actually spend $1.5 billion, it only moved the money on its books. The UC currently has over $6 billion of retiree healthcare liability on its book, which means that the university looks a lot poorer than it actually is.
The council’s claim that the UC faces an $18 billion liability echoes the Commission’s claim that an $18 billion liability will threaten the basic mission of the university: “The funding gap is exacerbated by a significant unfunded post-retirement benefit liability, which is currently $1.9 billion and expected to reach $18 billion by 2013. Similarly, the University’s unfunded post-retirement healthcare liability is projected to grow from $13 billion today to $18 billion by 2013 . . . Because the PEB Task Force is scheduled to finalize recommendations by this summer, we do not address PEB issues in this report, but recognize that more than any financial challenge facing the University, the cost of providing these benefits has the potential to overwhelm our ability to continue our tripartite mission of teaching, research, and public service.” In other words, the crisis in the university is being driven by the university’s commitment to pension and retiree healthcare.
Moreover, the Council has also accepted the administration’s argument that the underfunding of the pension plan has nothing to do with the bad management of the UC’s investments: “Although the 2007-09 stock market crash was responsible for some of this unfunded liability, most of it results from the fact that no employee or employer contributions have been made for nearly 20 years. While the recent rise in the financial markets has eased the problem, the gap is still enormous.” The truth is that the UC’s pension investment record went from being one of the best to being one of the worst after the management of the funds was outsourced in 2000. Moreover, in the middle of the global financial meltdown, UC increased its holdings in real estate and mortgage-backed securities, and these moves may have been motivated by several regents who have strong investments in real estate and securities. It is irresponsible for the council to not call for direct employee oversight over the UC’s pension investments.
Since our university is full of famous economists and accountants, it should be possible for someone to challenge the university’s accounting mechanisms. If we do not question their assumptions, we will all see our benefits and compensation go down, as the core mission is threatened. While it is necessary to protect our pension plan and healthcare for retirees, we need to know the truth about the UC’s finances.
Like the Commission on the Future of the University, the faculty association is buying all of the administration’s questionable accounting moves. First of all, as I discussed in relation to the Executive Summary of the Commission’s initial recommendations, due to an accounting change from 2006, the UC has been forced to declare as a liability on its books all of the future costs for pension and retiree healthcare. This means that while the UC is still funding the healthcare for retirees on a “pay as you go” basis, they are declaring a multi-billion dollar liability. Thus last year, as they spent $279 million on healthcare for retirees, they declared a $1.5 billion liability, which helped them to claim a budget deficit as they moved funds from unrestricted to restricted accounts. Once again, it is important to stress, the UC did not actually spend $1.5 billion, it only moved the money on its books. The UC currently has over $6 billion of retiree healthcare liability on its book, which means that the university looks a lot poorer than it actually is.
The council’s claim that the UC faces an $18 billion liability echoes the Commission’s claim that an $18 billion liability will threaten the basic mission of the university: “The funding gap is exacerbated by a significant unfunded post-retirement benefit liability, which is currently $1.9 billion and expected to reach $18 billion by 2013. Similarly, the University’s unfunded post-retirement healthcare liability is projected to grow from $13 billion today to $18 billion by 2013 . . . Because the PEB Task Force is scheduled to finalize recommendations by this summer, we do not address PEB issues in this report, but recognize that more than any financial challenge facing the University, the cost of providing these benefits has the potential to overwhelm our ability to continue our tripartite mission of teaching, research, and public service.” In other words, the crisis in the university is being driven by the university’s commitment to pension and retiree healthcare.
Moreover, the Council has also accepted the administration’s argument that the underfunding of the pension plan has nothing to do with the bad management of the UC’s investments: “Although the 2007-09 stock market crash was responsible for some of this unfunded liability, most of it results from the fact that no employee or employer contributions have been made for nearly 20 years. While the recent rise in the financial markets has eased the problem, the gap is still enormous.” The truth is that the UC’s pension investment record went from being one of the best to being one of the worst after the management of the funds was outsourced in 2000. Moreover, in the middle of the global financial meltdown, UC increased its holdings in real estate and mortgage-backed securities, and these moves may have been motivated by several regents who have strong investments in real estate and securities. It is irresponsible for the council to not call for direct employee oversight over the UC’s pension investments.
Since our university is full of famous economists and accountants, it should be possible for someone to challenge the university’s accounting mechanisms. If we do not question their assumptions, we will all see our benefits and compensation go down, as the core mission is threatened. While it is necessary to protect our pension plan and healthcare for retirees, we need to know the truth about the UC’s finances.
Wednesday, March 31, 2010
Let’s have an Alternative Commission on the Future of the University
Since many faculty, students, and workers are very unhappy with the recent recommendations coming out of the Gould Commission on the Future of the University, it may be a good idea to hold our own alternative commission in order to stress the key goals of access, affordability and quality for the University of California. This alternative vision would show how we can increase enrollments, decrease fees, and improve the quality of instruction, research, and service. As an opening gesture, I will articulate some of the principles of this public agenda.
1) Provide more opportunity, not less opportunity for Californian students.
Since the university has increased its reliance on relatively inexpensive non-tenured faculty, while the sizes of classes has been expanded, the cost of educating undergraduate students in the UC system has gone down dramatically in the past twenty years. Moreover, the faculty-to-student ratio has gone up, and as I have previously shown, the campuses turn a profit on each student they enroll. We can therefore improve access and affordability by enrolling more students and lowering or freezing student fees.
2) Pursue cost savings by reducing the number of administrators
The Commission is already considering this need to reduce administrative costs, but this may be a slow and difficult process. A simpler strategy would be just to require each administrative unit to reduce its budget by 5-10% each year. After all, many academic programs regularly get this type of budgetary mandate, and so a generalized cut could motivate effective administrative cost savings.
3) Stop exploiting graduate students
Not only do graduate students cost four times more than undergrads to educate, but a recent study of UC doctoral students showed that only half of the students who start PhD programs actually get degrees within a ten year period . Moreover, only half of the students who do earn their doctorates and pursue academic jobs get tenure-track positions, and out of this group, less than third get positions at research universities. This means that most grad students are being trained for jobs that do not exist, and these grad students are really being used as cheap academic labor. Furthermore, one reason why so many grad students cannot get jobs when they graduate is that there are so many grad students teaching undergraduate courses before they get their doctoral degrees. If we fully fund grad students through grants, we can restrict the number of PhD students and limit how much they are forced teach. This strategy would help the academic labor market and allow doctoral students to graduate in a more timely fashion.
4) Increase the number of small, interactive classes
If you want to know what universities consider to be effective teaching, just look at what they say about their Honors Programs. They all stress how students are taught in small, interactive classes by expert faculty members. The UC could improve the quality of undergraduate instruction by having more seminars, but for some reason, the administration believes that it is much cheaper to have large lecture classes; however, I have shown that large lecture classes are often more expensive than small seminars due to the cost of having several small sections taught by graduate students accompanying the large lecture.
5) Allow Research Professors Not to Teach
Already many research professors use external grants to buy themselves out of their teaching duties each year, yet the university clings to the idea that everyone should teach and do research. Instead of forcing ineffective or unmotivated professors into the classroom, professors should have the option of being evaluated and promoted solely based on their research.
6) Provide Job Security for Instructors
The recent move to layoff hundreds of non-tenured lecturers shows that the university needs to provide permanent funding for instructors who have a proven record of excellent teaching. By creating a class of instructional professors, the university’s commitment to undergraduate education can be fortified. In fact, the university could simply agree to transform continue appointment lecturers into Lecturers with Security of Employment.
7) Resist the move to Summer Instruction
Most of the UC campuses use the quarter system, which means that classes only meet for ten weeks, while in most universities using the semester system, classes last at least fifteen weeks. In other words, in the quarter system, students have a third less time to study any particular subject, and faculty are pushed to rush through important subject matter. If more classes are moved to the summer, and these courses only meet for six weeks, it will become even more difficult to teach students in an effective and comprehensive manner. Instead of forcing students to pay extra to take required courses in the summer, the campuses should hold more classes at night and other under-utilized times.
8) Stop the Push for Online Instruction
While it is important to use new technologies in the classroom, most online programs result in higher costs and lower retention rates. If the university wants to be respected for its quality of instruction, it cannot make students take classes online just to save money. The faculty and students should resist this move and demand more effective instruction not less.
9) Make Sure Research Pays for itself
The Commission recognizes that many external research grants lose money and that the university should bargain for higher indirect cost rates. This recognition is an important step in making sure that research funded by external grants do not lose money. Another step would be to undertake a comprehensive study of how much research at the university actually costs and who subsidizes costly research programs.
10) Stop Using External Money Managers to handle UC’s Investments
Until 2000, the UC handled its own investments out of the treasurer’s office, and this not only saved money, but it helped to produce much stronger investment returns. Outside money managers charge huge fees, and they often bet against each other, while they undermine the ability of the university to maintain a diverse portfolio. Instead of threatening to constantly increase employee and employer pension contributions, the system should first look at its own internal investment practices. There also needs to be a strong effort to place faculty and workers on the pension board to make sure that the regents do not push the university to invest in the private interests of the individual regents.
11) Push the State to Support the University at a Higher Level
While the commission realizes the need to get more funding from the state, they fail to support any specific policies to make this happen. It is clear that some type of revenue has to be raised, and it is necessary to repeal the requirement that all taxes and budgets have to be passed by two-thirds of the state legislature. The university should also support AB 656 to tax oil extraction and use the funds for higher education.
Please post your comments, so we can begin discussing our vision of the future of the university.
1) Provide more opportunity, not less opportunity for Californian students.
Since the university has increased its reliance on relatively inexpensive non-tenured faculty, while the sizes of classes has been expanded, the cost of educating undergraduate students in the UC system has gone down dramatically in the past twenty years. Moreover, the faculty-to-student ratio has gone up, and as I have previously shown, the campuses turn a profit on each student they enroll. We can therefore improve access and affordability by enrolling more students and lowering or freezing student fees.
2) Pursue cost savings by reducing the number of administrators
The Commission is already considering this need to reduce administrative costs, but this may be a slow and difficult process. A simpler strategy would be just to require each administrative unit to reduce its budget by 5-10% each year. After all, many academic programs regularly get this type of budgetary mandate, and so a generalized cut could motivate effective administrative cost savings.
3) Stop exploiting graduate students
Not only do graduate students cost four times more than undergrads to educate, but a recent study of UC doctoral students showed that only half of the students who start PhD programs actually get degrees within a ten year period . Moreover, only half of the students who do earn their doctorates and pursue academic jobs get tenure-track positions, and out of this group, less than third get positions at research universities. This means that most grad students are being trained for jobs that do not exist, and these grad students are really being used as cheap academic labor. Furthermore, one reason why so many grad students cannot get jobs when they graduate is that there are so many grad students teaching undergraduate courses before they get their doctoral degrees. If we fully fund grad students through grants, we can restrict the number of PhD students and limit how much they are forced teach. This strategy would help the academic labor market and allow doctoral students to graduate in a more timely fashion.
4) Increase the number of small, interactive classes
If you want to know what universities consider to be effective teaching, just look at what they say about their Honors Programs. They all stress how students are taught in small, interactive classes by expert faculty members. The UC could improve the quality of undergraduate instruction by having more seminars, but for some reason, the administration believes that it is much cheaper to have large lecture classes; however, I have shown that large lecture classes are often more expensive than small seminars due to the cost of having several small sections taught by graduate students accompanying the large lecture.
5) Allow Research Professors Not to Teach
Already many research professors use external grants to buy themselves out of their teaching duties each year, yet the university clings to the idea that everyone should teach and do research. Instead of forcing ineffective or unmotivated professors into the classroom, professors should have the option of being evaluated and promoted solely based on their research.
6) Provide Job Security for Instructors
The recent move to layoff hundreds of non-tenured lecturers shows that the university needs to provide permanent funding for instructors who have a proven record of excellent teaching. By creating a class of instructional professors, the university’s commitment to undergraduate education can be fortified. In fact, the university could simply agree to transform continue appointment lecturers into Lecturers with Security of Employment.
7) Resist the move to Summer Instruction
Most of the UC campuses use the quarter system, which means that classes only meet for ten weeks, while in most universities using the semester system, classes last at least fifteen weeks. In other words, in the quarter system, students have a third less time to study any particular subject, and faculty are pushed to rush through important subject matter. If more classes are moved to the summer, and these courses only meet for six weeks, it will become even more difficult to teach students in an effective and comprehensive manner. Instead of forcing students to pay extra to take required courses in the summer, the campuses should hold more classes at night and other under-utilized times.
8) Stop the Push for Online Instruction
While it is important to use new technologies in the classroom, most online programs result in higher costs and lower retention rates. If the university wants to be respected for its quality of instruction, it cannot make students take classes online just to save money. The faculty and students should resist this move and demand more effective instruction not less.
9) Make Sure Research Pays for itself
The Commission recognizes that many external research grants lose money and that the university should bargain for higher indirect cost rates. This recognition is an important step in making sure that research funded by external grants do not lose money. Another step would be to undertake a comprehensive study of how much research at the university actually costs and who subsidizes costly research programs.
10) Stop Using External Money Managers to handle UC’s Investments
Until 2000, the UC handled its own investments out of the treasurer’s office, and this not only saved money, but it helped to produce much stronger investment returns. Outside money managers charge huge fees, and they often bet against each other, while they undermine the ability of the university to maintain a diverse portfolio. Instead of threatening to constantly increase employee and employer pension contributions, the system should first look at its own internal investment practices. There also needs to be a strong effort to place faculty and workers on the pension board to make sure that the regents do not push the university to invest in the private interests of the individual regents.
11) Push the State to Support the University at a Higher Level
While the commission realizes the need to get more funding from the state, they fail to support any specific policies to make this happen. It is clear that some type of revenue has to be raised, and it is necessary to repeal the requirement that all taxes and budgets have to be passed by two-thirds of the state legislature. The university should also support AB 656 to tax oil extraction and use the funds for higher education.
Please post your comments, so we can begin discussing our vision of the future of the university.
Monday, March 22, 2010
The Future of the University: Funding Options for a Permanent Crisis
The Commission on the Future of the University’s Funding Strategies working group of has put together a document listing their initial proposals, and near the start of their report, we find the following ominous claim: “The funding gap is exacerbated by a significant unfunded post-retirement benefit liability, which is currently $1.9 billion and expected to reach $18 billion by 2013. Similarly, the University’s unfunded post-retirement healthcare liability is projected to grow from $13 billion today to $18 billion by 2013 . . . Because the PEB Task Force is scheduled to finalize recommendations by this summer, we do not address PEB issues in this report, but recognize that more than any financial challenge facing the University, the cost of providing these benefits has the potential to overwhelm our ability to continue our tripartite mission of teaching, research, and public service.” While these statistics are presented as neutral facts, they are in reality very complicated assumptions that require a deeper analysis. On face value, it looks like the UC faces an enormous fiscal crisis that will not go away, and so the future of the university entails a permanent budget crisis. However, we must understand that the pension and retiree healthcare liabilities are mostly accounting mechanisms that were developed under the George W. Bush administration as an attempt to undermine unions and pension plans.
According to new accounting requirements, institutions have to declare on their books all of the future payments that they will have to make to their retirees. In other words, in 2010, we have to calculate what would happen if everyone in the UC system retired today, yet, we do not have to actually put money into an account to fund this huge liability; rather, we have to make sure that in our audited financial statements, we declare the huge liability and subtract it from our total revenue.
In the case of the UC system, this accounting requirement has allowed the system to move billions of dollars from the unrestricted to the restricted category; in other words, UC has a way of declaring that it has no money to spend on things like instruction or employee salaries because it has shifted money from a usable pile to a non-usable pile. But, and this is a huge but, the UC has actually moved very little money; what they have done is just changed where the money is listed in their financial statements. For some strange reason, no one in the financial working group knows about this accounting move, or at least no one is admitting that they know it, and instead, they are using the post-retirement liability to call for a change in retirement benefits, while they declare a permanent fiscal crisis for the UC system.
I am not arguing that the UC should not fund the pension plan or the healthcare of retirees; what I am arguing is that the university should not use a new accounting requirement to manipulate the budget. After all, the UC has for the last two years declared a several billion dollar liability, while they have only shifted a couple of hundred million in to the retiree accounts. Moreover, this working group does not comment on any of the UC's questionable investment strategies that have resulted in billions of dollars of losses.
Another set of assumptions that this working group has accepted concerns the level of state funding and the amount of money the UC needs from the state: “The University of California Office of the President currently estimates that UC’s core funding from state funds, student fees, and other sources has fallen $1.2 billion below UC’s current needs. At current levels of state support, this funding gap is estimated to grow to $3.5 billion by the 2015-16 fiscal year. . . ” What this statement of fiscal decline does not show is how the UC has calculated what they need from the state or what they will get from the state in the future. While it is important to push for more state funding, it is difficult to ask the legislature to back the UC’s funding requests when the university is always using questionable numbers and trumped up statistics. For instance, the following statement is simply false: “State funding per student has declined by 54% since 1990-91.” As I have pointed out on several occasions, state funding per student has gone up since 1990; what the UC should say is that state funding has not kept up with inflation, but they would have to define the inflation rate and why the costs of a UC education have gone up; unfortunately, they never do this, and so they upset the legislatures who have fought for increased UC funding in the past.
Even with these major accounting issues, the report does make a few important recommendations that should be followed. One vital suggestion is to reduce the cost of administration related to the core mission: “Costs not directly related to research and teaching (herein called administrative costs) are estimated to be as large as 25-30% of that which is funded by UC core funds. While recent actions have been made to reduce these costs, they remain substantial.” The working group points to several recent efforts to decrease the cost of staff and administration to accomplish the goal of saving money: “When the University of Texas System enacted a shared-services model to improve administrative efficiencies, $250 million in value was added to system operations. The “Carolina Counts” program at UNC, focused on operational efficiencies, expects to deliver $90 - $160 million dollars of ongoing operational savings within five years. Most recently, UC Berkeley expects to generate tens of millions of dollars in annual savings as a result of administrative improvements suggested by external consultants Bain & Co. There is no reason to expect that similar results, scaled to the UC system, could not be delivered as well through the pursuit of an administrative efficiency framework.” We should applaud this effort to lower the administrative costs of the university.
Another very positive recommendation concerns the questions of research grants losing money: “For a variety of historical reasons and local campus practices, indirect costs charged to non-federally funded research projects – those funded by the State of California, foundations, gifts, and corporations – do not fully recover the costs of research conducted for these agencies. Hence, the university subsidizes this research with core funds. This can be rationalized in times of ample budget in fulfilling one of our primary missions – research. It cannot be rationalized in times of insufficient core budget to fulfill one of our other primary missions – teaching.” Here we find a clear recognition that funds that are supposed to be dedicated to instruction are being used to subsidize grants that do not come with enough indirect funding: “Preliminary estimates are that current policies and practices of recovering indirect costs on non- federally funded research throughout the University of California are currently leading to the use of core-funds to subsidize this research in the range of more than $300 million per year.” In order to rectify this situation, the working group suggests that “Preliminary estimates are that we are 5-10 percentage points behind our comparator institutions in ICR rates, and recover 75% of facilities and administrative costs attributable to federally- funded research. Increasing ICR rates by just 5% across UC could generate more than $150 million per year.” By increasing our indirect cost recovery for federal and state funds, the UC could turn a research deficit into a research surplus.
Another set of recommendations concerns student fees, and the movement here is towards privatization. Not only do they want to replace the term “student fees” with “tuition, but they call for a continual increase in the sticker price: “Notwithstanding recent major increases in student fees, the University of California remains a significant value within the marketplace of leading universities. At least in the short run, there is significant room to increase tuition levels without significant negative impacts on projected enrollment or access for students from low-income families.” From a purely free market perspective, the UC could get away with major increases in student fees; however, this proposal does not look at the effect on middle-class students and first-generation students who do not understand how financial aid works. This recommendation also fails to realize that a pre-planned, multi-year set of tuition increases will only make it easier for the state to cut its funding for the UC system.
The final recommendation is perhaps the most dangerous and likely the most attractive to some faculty and administrators. This suggestion is to allow professors to be partially compensated through non-state funds: “There are already examples in the UC system of faculty salaries being covered in part by fees (professional schools), or by a combination of income from clinical practice and research (medical school). There have been a number of suggestions of ways to extend similar or derivative practices to other faculty: Compensation plans similar to the medical schools for faculty in the biological sciences; the use of non-core funding (e.g., contract and grant money, or other external sources of revenue) to pay some portion of the off-scale component of faculty salaries, where feasible; More extensive use of contract and grant funds to support some fraction of faculty salary during their regular nine-month appointment.” At first glance, these look like great ideas, but they would function to undermine the humanities and the social sciences that do not receive large sums of money from external grants, patents, or services. This type of compensation system would also turn public employees into privatized entrepreneurs.
It is surprising that none of these commission members even considered increasing enrollments and holding fees at the present level. It is also alarming that this financial committee did not address the university’s questionable investment practices and secret compensation deals. By repeating the university’s standard budget propaganda, the commission reveals that its main function is to support the administration’s desire to privatize the world’s greatest public university system.
According to new accounting requirements, institutions have to declare on their books all of the future payments that they will have to make to their retirees. In other words, in 2010, we have to calculate what would happen if everyone in the UC system retired today, yet, we do not have to actually put money into an account to fund this huge liability; rather, we have to make sure that in our audited financial statements, we declare the huge liability and subtract it from our total revenue.
In the case of the UC system, this accounting requirement has allowed the system to move billions of dollars from the unrestricted to the restricted category; in other words, UC has a way of declaring that it has no money to spend on things like instruction or employee salaries because it has shifted money from a usable pile to a non-usable pile. But, and this is a huge but, the UC has actually moved very little money; what they have done is just changed where the money is listed in their financial statements. For some strange reason, no one in the financial working group knows about this accounting move, or at least no one is admitting that they know it, and instead, they are using the post-retirement liability to call for a change in retirement benefits, while they declare a permanent fiscal crisis for the UC system.
I am not arguing that the UC should not fund the pension plan or the healthcare of retirees; what I am arguing is that the university should not use a new accounting requirement to manipulate the budget. After all, the UC has for the last two years declared a several billion dollar liability, while they have only shifted a couple of hundred million in to the retiree accounts. Moreover, this working group does not comment on any of the UC's questionable investment strategies that have resulted in billions of dollars of losses.
Another set of assumptions that this working group has accepted concerns the level of state funding and the amount of money the UC needs from the state: “The University of California Office of the President currently estimates that UC’s core funding from state funds, student fees, and other sources has fallen $1.2 billion below UC’s current needs. At current levels of state support, this funding gap is estimated to grow to $3.5 billion by the 2015-16 fiscal year. . . ” What this statement of fiscal decline does not show is how the UC has calculated what they need from the state or what they will get from the state in the future. While it is important to push for more state funding, it is difficult to ask the legislature to back the UC’s funding requests when the university is always using questionable numbers and trumped up statistics. For instance, the following statement is simply false: “State funding per student has declined by 54% since 1990-91.” As I have pointed out on several occasions, state funding per student has gone up since 1990; what the UC should say is that state funding has not kept up with inflation, but they would have to define the inflation rate and why the costs of a UC education have gone up; unfortunately, they never do this, and so they upset the legislatures who have fought for increased UC funding in the past.
Even with these major accounting issues, the report does make a few important recommendations that should be followed. One vital suggestion is to reduce the cost of administration related to the core mission: “Costs not directly related to research and teaching (herein called administrative costs) are estimated to be as large as 25-30% of that which is funded by UC core funds. While recent actions have been made to reduce these costs, they remain substantial.” The working group points to several recent efforts to decrease the cost of staff and administration to accomplish the goal of saving money: “When the University of Texas System enacted a shared-services model to improve administrative efficiencies, $250 million in value was added to system operations. The “Carolina Counts” program at UNC, focused on operational efficiencies, expects to deliver $90 - $160 million dollars of ongoing operational savings within five years. Most recently, UC Berkeley expects to generate tens of millions of dollars in annual savings as a result of administrative improvements suggested by external consultants Bain & Co. There is no reason to expect that similar results, scaled to the UC system, could not be delivered as well through the pursuit of an administrative efficiency framework.” We should applaud this effort to lower the administrative costs of the university.
Another very positive recommendation concerns the questions of research grants losing money: “For a variety of historical reasons and local campus practices, indirect costs charged to non-federally funded research projects – those funded by the State of California, foundations, gifts, and corporations – do not fully recover the costs of research conducted for these agencies. Hence, the university subsidizes this research with core funds. This can be rationalized in times of ample budget in fulfilling one of our primary missions – research. It cannot be rationalized in times of insufficient core budget to fulfill one of our other primary missions – teaching.” Here we find a clear recognition that funds that are supposed to be dedicated to instruction are being used to subsidize grants that do not come with enough indirect funding: “Preliminary estimates are that current policies and practices of recovering indirect costs on non- federally funded research throughout the University of California are currently leading to the use of core-funds to subsidize this research in the range of more than $300 million per year.” In order to rectify this situation, the working group suggests that “Preliminary estimates are that we are 5-10 percentage points behind our comparator institutions in ICR rates, and recover 75% of facilities and administrative costs attributable to federally- funded research. Increasing ICR rates by just 5% across UC could generate more than $150 million per year.” By increasing our indirect cost recovery for federal and state funds, the UC could turn a research deficit into a research surplus.
Another set of recommendations concerns student fees, and the movement here is towards privatization. Not only do they want to replace the term “student fees” with “tuition, but they call for a continual increase in the sticker price: “Notwithstanding recent major increases in student fees, the University of California remains a significant value within the marketplace of leading universities. At least in the short run, there is significant room to increase tuition levels without significant negative impacts on projected enrollment or access for students from low-income families.” From a purely free market perspective, the UC could get away with major increases in student fees; however, this proposal does not look at the effect on middle-class students and first-generation students who do not understand how financial aid works. This recommendation also fails to realize that a pre-planned, multi-year set of tuition increases will only make it easier for the state to cut its funding for the UC system.
The final recommendation is perhaps the most dangerous and likely the most attractive to some faculty and administrators. This suggestion is to allow professors to be partially compensated through non-state funds: “There are already examples in the UC system of faculty salaries being covered in part by fees (professional schools), or by a combination of income from clinical practice and research (medical school). There have been a number of suggestions of ways to extend similar or derivative practices to other faculty: Compensation plans similar to the medical schools for faculty in the biological sciences; the use of non-core funding (e.g., contract and grant money, or other external sources of revenue) to pay some portion of the off-scale component of faculty salaries, where feasible; More extensive use of contract and grant funds to support some fraction of faculty salary during their regular nine-month appointment.” At first glance, these look like great ideas, but they would function to undermine the humanities and the social sciences that do not receive large sums of money from external grants, patents, or services. This type of compensation system would also turn public employees into privatized entrepreneurs.
It is surprising that none of these commission members even considered increasing enrollments and holding fees at the present level. It is also alarming that this financial committee did not address the university’s questionable investment practices and secret compensation deals. By repeating the university’s standard budget propaganda, the commission reveals that its main function is to support the administration’s desire to privatize the world’s greatest public university system.
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