California has the largest economy of any state in America with a gross product of just over 1.9 trillion dollars. However, next year, Californians are going to spend less than $85 billion on the state budget, and there is still a $12 billion deficit. These statistics mean that the total state budget is less than 5% of the state economy, and the deficit is less than 1%, yet California is considered to be a high-spending, high-taxing state. Nothing could be further than the truth; rather, California is a very wealthy state where many wealthy individuals and corporations pay little if any taxes.
Rich State, Poor Government
The cause of the state deficit is then clearly not the pensions and benefits of unionized workers. While on paper, the California has a relatively high corporate tax rate, very few large corporations pay anything near the official rate. Due to many tax breaks and loopholes, some of the richest corporations in California pay little or no state taxes. Likewise, many of the richest people in the world live in California, but most only pay a small fraction of the already low state income tax rate. And of course, due to Proposition 13 and the fact that the value of homes are not reassessed, people living in multi-million-dollar homes are often paying only a few thousand dollars in property taxes each year.
What is so shocking is that even with this low tax burden, the one and only plank of the Californian Republican party is a strict stance against any tax increases. In fact, each year, due to the need for tax changes to pass by a two-thirds vote in the state legislature, the Republican minority forces the Democrats to come up with more tax breaks for wealthy individuals and businesses. The end result is that the wealthiest state has one of the poorest governments, and this means that as large multi-national corporations flourish, the vast majority of Californians are forced to pay for the increased costs of education, healthcare, and housing. For instance, each time, the state cuts the University of California’s budget, the world’s greatest public university system simply turns around and increases the tuition for the students.
A Progressive Tax for California
Luckily, all is not doom and gloom in California, and there is a possible solution that could provide a positive example for other states. Since it appears that Governor Jerry Brown will not be able to get any Republicans to agree to his plan to put tax extensions on the ballot in June, he has to change his strategy. His Plan B is to try to get tax initiatives on the ballot for a November election, and to do this, he will most likely need to work with outside groups to collect signatures for a ballot proposition. Since organized labor is the only progressive group large enough to fund a signature collecting campaign, the governor will be forced to work with unions to come up with new tax solutions. This turn of events may mean that out of a fiscal crisis, a real progressive choice could be made.
The unions should only agree to support Governor Brown, if he endorses the following tax solutions:
1. Allow a simple majority of votes in the legislature to pass any new taxes.
2. Increase the top tax rate from 9.3% to 11%. This change would bring in more than $5 billion per year in state revenues, allowing the state to provide desperately needed education, health, and safety services to its population.
3. Close corporate tax loopholes, which according to the California Tax Reform Association would raise an estimated $6 billion per year or more.
4. Tax oil extraction at 9.9% and dedicate the revenue of $1.2 Billion to support higher education.
These four progressive solutions would balance the California budget without resorting to drastic cuts in needed services. Moreover, by fighting for progressive tax solutions, unions could show that they are still a vital force in our political system.
Of course some politicians will state that polls do not support these initiatives, but we need to work together to show the public that these policies are fair and productive. Instead of simply defending against the Right’s assault on unions, public employees, and needed social services, we should promote a positive vision for California and the rest of the nation.
Wednesday, March 30, 2011
Monday, March 21, 2011
A Letter to the Regents
Here is a letter that I plan to send to the members of the UC Board of Regents:
While I am happy that I have been appointed to the Investment Advisory Group, I am concerned that the Regents are making important budgetary decisions based on inaccurate information. After meeting with Governor Brown and the Department of Finance in an effort to increase the state's support for the University of California, it became clear that one of the biggest areas of misunderstanding concerns state support for the UC system. The Office of the President continues to tell the Regents that since 1990, state support has been reduced by over 50%, and the state only gives $7,230 per student. These numbers are highly misleading: for the 2011-12 year, the UC is budgeted to receive $2.5 billion from the state, and there are currently under 200,000 resident undergraduate and graduate students (UC now has over 23,00 nonresident and international students). In other words, the UC is receiving $13,000 from the state for each resident student, but UCOP applies an inflation adjustment to decrease the real amount by 40%; moreover, the UC does not apply the same inflation adjustment to student fees or general funds. The end result of this misinformation is that it looks like we can simply stop relying on state funding. It also should be pointed out that the state supports UC with over $500 million in Cal Grants.
Another related issue is the marginal cost of instruction for each additional student. While the state has recently stopped using this calculation, salary and class size data shows that the direct instructional cost for each student is under $8,000 (this calculation includes the salaries and benefits for all employees currently teaching undergraduate students and the parts of professor’s salaries supporting departmental research). Since currently, UC receives close to $23,000 from tuition and state funds per student (after subtracting financial aid), undergraduates bring in a huge surplus ($15,000 per student) that is used to pay for administration, research, and other related and unrelated university activities. One of the results of this budgetary reality is that it makes no sense to consider reducing undergraduate enrollments; moreover, the only real financial solution is for the campuses to increase undergraduate admissions.
It is also important to stress that the “core budget” only concerns about 29% of the total UC budget, but core funds are asked to support all aspects of the university. For instance, faculty and staff supported by core funds perform the vast majority of the research supported by external grants. Moreover, many of the employees in the medical centers are at least in part state-funded, and state funds have financed the buildings for auxiliaries and services, and these “self-sustaining” units rely on the system’s bond ratings, central administration, shared benefits, and debt capacity. In other words, there is no such thing as a self-sustaining unit, and these profit-making sectors should be asked to share their revenue with the “state-funded” units.
The bottom line is that the UC’s total revenue continues to increase, and what is needed is a more effective system for sharing funds. While it is often said that a grant for laser research cannot fund the salary of an English professor, it turns out that inexpensive English classes do help to fund expensive scientific research. Moreover, state-funded professors regularly use external grants to buy themselves out of their teaching duties, and so there is no fixed border between the state-funded instructional budget and the grant-funded research budget. Furthermore, the UC is now investing its research money, operating cash, and general funds through STIP and TRIP, which means that there is a whole pot of money being generated out of the co-mingling of funds.
If the Regents are relying on faulty and inaccurate information, there is no way you can make effective decisions. To improve this situation, the Regents should fight for more state support and ask UCOP to report on actual enrollment numbers for resident students, the direct cost of undergraduate instruction, and the actual state support per undergraduate resident student. Please let me know if you would like to discuss this information in more detail. Sincerely, Bob Samuels, President, UC-AFT
While I am happy that I have been appointed to the Investment Advisory Group, I am concerned that the Regents are making important budgetary decisions based on inaccurate information. After meeting with Governor Brown and the Department of Finance in an effort to increase the state's support for the University of California, it became clear that one of the biggest areas of misunderstanding concerns state support for the UC system. The Office of the President continues to tell the Regents that since 1990, state support has been reduced by over 50%, and the state only gives $7,230 per student. These numbers are highly misleading: for the 2011-12 year, the UC is budgeted to receive $2.5 billion from the state, and there are currently under 200,000 resident undergraduate and graduate students (UC now has over 23,00 nonresident and international students). In other words, the UC is receiving $13,000 from the state for each resident student, but UCOP applies an inflation adjustment to decrease the real amount by 40%; moreover, the UC does not apply the same inflation adjustment to student fees or general funds. The end result of this misinformation is that it looks like we can simply stop relying on state funding. It also should be pointed out that the state supports UC with over $500 million in Cal Grants.
Another related issue is the marginal cost of instruction for each additional student. While the state has recently stopped using this calculation, salary and class size data shows that the direct instructional cost for each student is under $8,000 (this calculation includes the salaries and benefits for all employees currently teaching undergraduate students and the parts of professor’s salaries supporting departmental research). Since currently, UC receives close to $23,000 from tuition and state funds per student (after subtracting financial aid), undergraduates bring in a huge surplus ($15,000 per student) that is used to pay for administration, research, and other related and unrelated university activities. One of the results of this budgetary reality is that it makes no sense to consider reducing undergraduate enrollments; moreover, the only real financial solution is for the campuses to increase undergraduate admissions.
It is also important to stress that the “core budget” only concerns about 29% of the total UC budget, but core funds are asked to support all aspects of the university. For instance, faculty and staff supported by core funds perform the vast majority of the research supported by external grants. Moreover, many of the employees in the medical centers are at least in part state-funded, and state funds have financed the buildings for auxiliaries and services, and these “self-sustaining” units rely on the system’s bond ratings, central administration, shared benefits, and debt capacity. In other words, there is no such thing as a self-sustaining unit, and these profit-making sectors should be asked to share their revenue with the “state-funded” units.
The bottom line is that the UC’s total revenue continues to increase, and what is needed is a more effective system for sharing funds. While it is often said that a grant for laser research cannot fund the salary of an English professor, it turns out that inexpensive English classes do help to fund expensive scientific research. Moreover, state-funded professors regularly use external grants to buy themselves out of their teaching duties, and so there is no fixed border between the state-funded instructional budget and the grant-funded research budget. Furthermore, the UC is now investing its research money, operating cash, and general funds through STIP and TRIP, which means that there is a whole pot of money being generated out of the co-mingling of funds.
If the Regents are relying on faulty and inaccurate information, there is no way you can make effective decisions. To improve this situation, the Regents should fight for more state support and ask UCOP to report on actual enrollment numbers for resident students, the direct cost of undergraduate instruction, and the actual state support per undergraduate resident student. Please let me know if you would like to discuss this information in more detail. Sincerely, Bob Samuels, President, UC-AFT
Thursday, March 10, 2011
UC and the State: Sacramento Update
During the last couple of weeks, I have spent a lot time in the state capital with three goals in mind: reduce the budget cuts for the UC system, block the confirmation of the new regent David Crane, and clarify the state’s obligation to the UC pension plan. After a long talk with Governor Brown, I thought that all of these goals were achievable, but currently, due to the budget stalemate, my optimism has been reduced.
On the positive side, I met with Senator Steinberg’s staff, and I told them that the governor does not support Crane, and it appears that Steinberg also does not want him confirmed. There are then three possibilities: the governor can withdraw the appointment now, Steinberg can call for a confirmation hearing, or we could just wait for a year, do nothing, and have the appointment expire. I think we all agreed that a hearing would be the best path, but no one wants to do anything until after a budget deal is made.
In terms of the pension, the governor has agreed to set up a meeting with union representatives, people from Office of the President, and the governor’s labor people to discuss UCRS. While Brown did not commit to the state contributing to the plan now, he did say he would approach the subject with an open mind. However, we also discussed the possibility of a Republican-sponsored proposition going on the ballot that would limit the yearly pension payout to the social security wage rate, which is currently $106,000. It was unclear if this initiative would apply to UC employees, but my fear is that if the UC gets money from the state for the pension, it would have to play by the state’s rules.
On the final topic of the budget cuts, no one wanted to add any language or make any changes that would stall the very fragile budget negotiations. While many people agreed that the state should protect the core mission of the UC, it looks like the language in the budget will be vague and open to interpretation. Still, I was told by the governor’s finance team that if a budget passes next week, they will start working on the next budget, and we might be able to add some stronger protections then.
You can read my Huffington Post article on Pensions, Unions, and the Media here.
On the positive side, I met with Senator Steinberg’s staff, and I told them that the governor does not support Crane, and it appears that Steinberg also does not want him confirmed. There are then three possibilities: the governor can withdraw the appointment now, Steinberg can call for a confirmation hearing, or we could just wait for a year, do nothing, and have the appointment expire. I think we all agreed that a hearing would be the best path, but no one wants to do anything until after a budget deal is made.
In terms of the pension, the governor has agreed to set up a meeting with union representatives, people from Office of the President, and the governor’s labor people to discuss UCRS. While Brown did not commit to the state contributing to the plan now, he did say he would approach the subject with an open mind. However, we also discussed the possibility of a Republican-sponsored proposition going on the ballot that would limit the yearly pension payout to the social security wage rate, which is currently $106,000. It was unclear if this initiative would apply to UC employees, but my fear is that if the UC gets money from the state for the pension, it would have to play by the state’s rules.
On the final topic of the budget cuts, no one wanted to add any language or make any changes that would stall the very fragile budget negotiations. While many people agreed that the state should protect the core mission of the UC, it looks like the language in the budget will be vague and open to interpretation. Still, I was told by the governor’s finance team that if a budget passes next week, they will start working on the next budget, and we might be able to add some stronger protections then.
You can read my Huffington Post article on Pensions, Unions, and the Media here.
Tuesday, March 1, 2011
Understanding the UC Budget Part II
In a response to AFSCME’s suggestions of how to reduce the University of California’s spending, UCOP has written a detailed discussion of the way the UC budget really works. This explanation is instructive because it trots out the usual half-truths, but with many “facts” that are easy to refute.
The Office of the President's first major claim is that reducing funding for athletics or special retirement packages for senior managers will not help the budget situation because state funds do not support either of these expenses. The first part of this argument rests on the idea that self-sustaining units like collegiate sports pay for themselves. However, we know what several of the campuses regularly subsidize their athletic programs; in fact, the Berkeley faculty senate voted last year to stop the practice of shifting millions of dollars a year to the athletic department to cover the internal deficit. We also know that all self-sustaining units use UC buildings that have been built out of state funds and are financed through the shared UC bond rating. Once again, the problem is that the self-sustaining units want everyone else to pay for their losses, while they keep their profits.
In terms of special retirement deals for administrators, we learned from the state audit of UC executive pay that compensation for management comes from multiple sources, including state funds and student fees, and so it is hard to believe that state funds are not supporting special retirement perks. Actually, UCOP does affirm that “management positions are funded out of numerous sources and on average only 28 percent of the savings come from state General Funds.” In other words, close to a third of executive compensation is paid by state general funds.
As I have recently pointed out, all of these budget statistics are suspect because the UC pools its money in several areas. For instance, in a recent Regents investment meeting, we find the following discussion of how the UC invests its operating cash and grant funds on a regular basis: “Mr. Anderson noted that some of the funds would include federal grants and contracts; for example, if the National Science Foundation were to give $500,000 at the beginning of the year to be expended over the course of the year. He cautioned that, in his example, the National Science Foundation would not be pleased if three percent of their grant were lost. Mr. Anderson asked who would be responsible should investment losses occur. Mr. Taylor responded that the campuses would be responsible for any losses.” Here we not only learn that money from grants is regularly pooled with other funds in investment accounts, but more importantly, if losses occur, the campuses have to use their general funds to cover the grants. Moreover, what this discussion does not say is who gets to keep the profits from the investments.
It appears that the general philosophy of the campus is that the self-sustaining units retain their profits, but the general fund has to bail out anyone who loses money. This structure may help to explain Charles Schwartz’s recent investigation into how billions of dollars coming from the state and student tuition for instruction appear to be unaccounted for in UC’s own budget documents.
Like the rest of the country, the poor and the almost poor have to subsidize the wealthy when profits are privatized and risks are socialized. In the case of the UC, the rich medical centers and housing, parking, and dining services declare that because they are non-profit, any of their excess revenue goes back into their own enterprise, or as UCOP explains, there are no reserves because money has to be saved in case “cost estimates are not achieved.”
At the end of the letter, UCOP explains that no state funds go to support the supplemental retirement plans for senior managers, but then he adds that the cost of these programs are subsidized by an “assessment” to each campus. In other words, state funds go to the campuses, and then the campuses are taxed to pay for the special perks to the highest-paid employees, so while state funds are not supposed to pay for supplemental retirement, campuses use state funds to pay for their share of executive compensation.
The only solid rule of the UC budget is that there are no solid rules, and if the rich want to get richer, they will surely find a way.
The Office of the President's first major claim is that reducing funding for athletics or special retirement packages for senior managers will not help the budget situation because state funds do not support either of these expenses. The first part of this argument rests on the idea that self-sustaining units like collegiate sports pay for themselves. However, we know what several of the campuses regularly subsidize their athletic programs; in fact, the Berkeley faculty senate voted last year to stop the practice of shifting millions of dollars a year to the athletic department to cover the internal deficit. We also know that all self-sustaining units use UC buildings that have been built out of state funds and are financed through the shared UC bond rating. Once again, the problem is that the self-sustaining units want everyone else to pay for their losses, while they keep their profits.
In terms of special retirement deals for administrators, we learned from the state audit of UC executive pay that compensation for management comes from multiple sources, including state funds and student fees, and so it is hard to believe that state funds are not supporting special retirement perks. Actually, UCOP does affirm that “management positions are funded out of numerous sources and on average only 28 percent of the savings come from state General Funds.” In other words, close to a third of executive compensation is paid by state general funds.
As I have recently pointed out, all of these budget statistics are suspect because the UC pools its money in several areas. For instance, in a recent Regents investment meeting, we find the following discussion of how the UC invests its operating cash and grant funds on a regular basis: “Mr. Anderson noted that some of the funds would include federal grants and contracts; for example, if the National Science Foundation were to give $500,000 at the beginning of the year to be expended over the course of the year. He cautioned that, in his example, the National Science Foundation would not be pleased if three percent of their grant were lost. Mr. Anderson asked who would be responsible should investment losses occur. Mr. Taylor responded that the campuses would be responsible for any losses.” Here we not only learn that money from grants is regularly pooled with other funds in investment accounts, but more importantly, if losses occur, the campuses have to use their general funds to cover the grants. Moreover, what this discussion does not say is who gets to keep the profits from the investments.
It appears that the general philosophy of the campus is that the self-sustaining units retain their profits, but the general fund has to bail out anyone who loses money. This structure may help to explain Charles Schwartz’s recent investigation into how billions of dollars coming from the state and student tuition for instruction appear to be unaccounted for in UC’s own budget documents.
Like the rest of the country, the poor and the almost poor have to subsidize the wealthy when profits are privatized and risks are socialized. In the case of the UC, the rich medical centers and housing, parking, and dining services declare that because they are non-profit, any of their excess revenue goes back into their own enterprise, or as UCOP explains, there are no reserves because money has to be saved in case “cost estimates are not achieved.”
At the end of the letter, UCOP explains that no state funds go to support the supplemental retirement plans for senior managers, but then he adds that the cost of these programs are subsidized by an “assessment” to each campus. In other words, state funds go to the campuses, and then the campuses are taxed to pay for the special perks to the highest-paid employees, so while state funds are not supposed to pay for supplemental retirement, campuses use state funds to pay for their share of executive compensation.
The only solid rule of the UC budget is that there are no solid rules, and if the rich want to get richer, they will surely find a way.
Tuesday, February 22, 2011
A UC-AFT Report from Wisconsin
Sandy Baringer, the UC-AFT staffer for Riverside has gone to Wisconsin to support the protests against union bashing and public employees. Here is her report from the frontlines:
“I'm reporting from the teachers' computer lounge at Madison Area Technical College, one block from the Wisconsin Capitol building, where thousands of teachers and public workers are rallying peacefully in the streets, in February in a cold climate, for 6 days going on 7: excuse the caps; I am being emphatic here.
First thing. NO ONE is trying to block the people's access to their Capitol - unlike the Orange County District Attorney attempting to indict UCI students for FELONY CRIMINAL CONSPIRACY for occupying one of their university buildings, and unlike certain UC administrators who direct their campus law enforcement personnel to block student access to university buildings. There are bedrolls around the rotunda, camping chairs, shared food, music, people with laptops. Law enforcement crowd control is very respectul and professional: one door is the designated entrance, and other doors are exit-only, which keeps the population inside with the parameters of fire safety. Signs are allowed inside, but no sticks. A very creative and invigorating collection of signs are taped to the inside walls around the rotunda. Many windows in the Capitol have large signs posted supporting the protest. The Tea Partiers seem to have disappeared. There was snow yesterday, and children of protesters are using posters to sled down the north side of the Capitol lawn. There was a 1 1/2 hour speaker lineup at noon, utilizing a very excellent outdoor sound system under a tarp, plugged into the Capitol building electrical outlets. There will be a lineup of a half dozen musicians with acoustic guitars at the 5pm rally, headlined by Tom Morello, formerly of Rage Against the Machine.
Second thing. Even though it is THIRTY DEGREES OUTSIDE NOT COUNTING WIND CHILL, there are still THOUSANDS of people here. I cannot estimate its size because it is larger than any UC rally I have ever attended, including the UCLA rally in November 2009, even though the ENTIRE STATE of Wisconsin has a population of approximately 5.7 million people (Los Angeles County has 9.5 million).
Third thing. These protesters are not all college students. Approximately a third to a half of them have gray hair. Judging from the union affiliations on the signs people are holding, approximately half of them are teachers, and they are not afraid to holler and act undignified. MARCH 2 is coming up a week from this Wednesday - that's 9 days from now. I hope our faculty will be outside where they can be SEEN and HEARD.”
“I'm reporting from the teachers' computer lounge at Madison Area Technical College, one block from the Wisconsin Capitol building, where thousands of teachers and public workers are rallying peacefully in the streets, in February in a cold climate, for 6 days going on 7: excuse the caps; I am being emphatic here.
First thing. NO ONE is trying to block the people's access to their Capitol - unlike the Orange County District Attorney attempting to indict UCI students for FELONY CRIMINAL CONSPIRACY for occupying one of their university buildings, and unlike certain UC administrators who direct their campus law enforcement personnel to block student access to university buildings. There are bedrolls around the rotunda, camping chairs, shared food, music, people with laptops. Law enforcement crowd control is very respectul and professional: one door is the designated entrance, and other doors are exit-only, which keeps the population inside with the parameters of fire safety. Signs are allowed inside, but no sticks. A very creative and invigorating collection of signs are taped to the inside walls around the rotunda. Many windows in the Capitol have large signs posted supporting the protest. The Tea Partiers seem to have disappeared. There was snow yesterday, and children of protesters are using posters to sled down the north side of the Capitol lawn. There was a 1 1/2 hour speaker lineup at noon, utilizing a very excellent outdoor sound system under a tarp, plugged into the Capitol building electrical outlets. There will be a lineup of a half dozen musicians with acoustic guitars at the 5pm rally, headlined by Tom Morello, formerly of Rage Against the Machine.
Second thing. Even though it is THIRTY DEGREES OUTSIDE NOT COUNTING WIND CHILL, there are still THOUSANDS of people here. I cannot estimate its size because it is larger than any UC rally I have ever attended, including the UCLA rally in November 2009, even though the ENTIRE STATE of Wisconsin has a population of approximately 5.7 million people (Los Angeles County has 9.5 million).
Third thing. These protesters are not all college students. Approximately a third to a half of them have gray hair. Judging from the union affiliations on the signs people are holding, approximately half of them are teachers, and they are not afraid to holler and act undignified. MARCH 2 is coming up a week from this Wednesday - that's 9 days from now. I hope our faculty will be outside where they can be SEEN and HEARD.”
Tuesday, February 15, 2011
Understanding the History and Structure of the UC Budget
Virtually every representation of the UC budget is either misguided or misinformed because people do not understand the history and structure of this complicated funding system. The first thing to stress is that as the state has reduced its commitment to the university, the system has sought multiple sources of revenue, which, in turn, have expanded the missions of the campuses. On a most basic level, the reduction of state funding has resulted in an increase in tuition and a growing emphasis on externally funded research and auxiliaries like housing, dining, parking, extension, summer, and medical services. Thus, when the administration states that student fees are now threatening to surpass state funding, one can read this as either indicating a loss of state funding or as an increase in non-state funding, like tuition.
One of the central problems with this system is that it is impossible to have any type of budget transparency because money moves in and out of different systems. For instance, the state pays the salary of a research professor, but then the professor gets a grant that buys him out of his teaching duties. At this point, the external research budget becomes co-mingled with the state-funded instructional budget, and so the clear line between state-funded and non-state-funded positions breaks down.
It is also important to stress that no one can say if research grants make or lose money because each grant is supposed to pay indirect costs to support administration, equipment, staff, facilities, libraries, and maintenance. While President Yudof likes to say that a grant to research laser technologies cannot fund a professor in the English department, what he does not say is that money from the English department and the laser grant do get mixed together to pay his salary. In other words, administrators are paid out of multiple sources, and this means that it is impossible to trace all of the money or to see if a particular grant is paying its fair share. Furthermore, while we know that some other schools do charge a higher indirect cost for grants, we do not know where this money goes and how it is spent.
What we do know is that money coming in from students and the state to support instruction and departmental research far exceeds the amount of money the campuses spend on these activities. Therefore, undergraduates are subsidizing something, but, it is hard to say exactly what. For example, we have recently discovered that most NCAA athletic departments in the country lose money, and UC Berkeley has been using general funds to subsidize its athletic program for years. We also know that parking on some campuses brings in much more money than it spends (see here for proof). However, all of these profits are hard to trace because UC is a non-profit institution that has to hide its extra revenue.
As I have pointed out in the past, the main way that the UC conceals its unrestricted funds is by declaring a multi-billion dollar retiree healthcare liability, while only paying a couple of hundred million dollars a year to cover these costs. Yet, UC is doing nothing wrong here because it is required by law to declare this liability; however, it does hide money by not telling its employees the real reason why its unrestricted funds are so low.
The UC also pools much of its operating cash and funds from diverse sources in order to invest the money together to receive higher rates of return. These pooled assets allow the university to get better bond ratings and thus lower interest rates for borrowing. Once again, while this structure may make fiscal sense, it creates budgetary opacity.
This short budget primer tells us certain important facts: 1) no one knows where the money is going or how it is being spent; 2) if someone tells you that they know how the university spends its money, they are misrepresenting the facts; 3) since money flows in and out of the different revenue streams, there is no such thing as a self-sustaining unit; 4) some parts of the system are covertly subsidizing other parts; and 5), it is untrue to state that a decrease in state funds means that state-funded positions have to be reduced. Everything in the budget is determined by priorities, and it our role to change these priorities.
One of the central problems with this system is that it is impossible to have any type of budget transparency because money moves in and out of different systems. For instance, the state pays the salary of a research professor, but then the professor gets a grant that buys him out of his teaching duties. At this point, the external research budget becomes co-mingled with the state-funded instructional budget, and so the clear line between state-funded and non-state-funded positions breaks down.
It is also important to stress that no one can say if research grants make or lose money because each grant is supposed to pay indirect costs to support administration, equipment, staff, facilities, libraries, and maintenance. While President Yudof likes to say that a grant to research laser technologies cannot fund a professor in the English department, what he does not say is that money from the English department and the laser grant do get mixed together to pay his salary. In other words, administrators are paid out of multiple sources, and this means that it is impossible to trace all of the money or to see if a particular grant is paying its fair share. Furthermore, while we know that some other schools do charge a higher indirect cost for grants, we do not know where this money goes and how it is spent.
What we do know is that money coming in from students and the state to support instruction and departmental research far exceeds the amount of money the campuses spend on these activities. Therefore, undergraduates are subsidizing something, but, it is hard to say exactly what. For example, we have recently discovered that most NCAA athletic departments in the country lose money, and UC Berkeley has been using general funds to subsidize its athletic program for years. We also know that parking on some campuses brings in much more money than it spends (see here for proof). However, all of these profits are hard to trace because UC is a non-profit institution that has to hide its extra revenue.
As I have pointed out in the past, the main way that the UC conceals its unrestricted funds is by declaring a multi-billion dollar retiree healthcare liability, while only paying a couple of hundred million dollars a year to cover these costs. Yet, UC is doing nothing wrong here because it is required by law to declare this liability; however, it does hide money by not telling its employees the real reason why its unrestricted funds are so low.
The UC also pools much of its operating cash and funds from diverse sources in order to invest the money together to receive higher rates of return. These pooled assets allow the university to get better bond ratings and thus lower interest rates for borrowing. Once again, while this structure may make fiscal sense, it creates budgetary opacity.
This short budget primer tells us certain important facts: 1) no one knows where the money is going or how it is being spent; 2) if someone tells you that they know how the university spends its money, they are misrepresenting the facts; 3) since money flows in and out of the different revenue streams, there is no such thing as a self-sustaining unit; 4) some parts of the system are covertly subsidizing other parts; and 5), it is untrue to state that a decrease in state funds means that state-funded positions have to be reduced. Everything in the budget is determined by priorities, and it our role to change these priorities.
Thursday, February 3, 2011
A Growth Model for the UC
While a recent Los Angeles Times editorial argued that the solution to the University of California’s budget problems is to reduce enrollments, this suggestion would not only limit access when it is most needed, but it would also hurt the funding of the entire system. Currently, undergraduate tuition is the only stable source of funding for the UC system, and the revenue generated by in-state and nonresident students subsidizes research, administration, and most other UC activities. In fact, the university receives on average $23,000 from each undergraduate student (this includes state and student revenue) but only spends $8,000 on direct instructional costs. In other words, the university will generate more income if it enrolls more students.
By increasing the number of international students and maintaining the level of resident enrollees, the UC could bring in hundreds of millions of dollars, while it supports the goals of access, affordability, and excellence. This growth model would require hiring more assistant professors and lecturers, and for people who worry about undermining the research mission, it should be stressed that the more income generated by tuition, the more we can support research.
Some have argued that the system does not have enough classrooms or facilities, but this is a false excuse. If the universities expand their hours of operations and have more evening courses, more students can be accommodated. Also, housing and dining are self-supporting and often produce profits so they can handle an influx of students, and let’s not forget that there are plenty of empty houses and buildings around our campuses.
A key to this growth model would be a better balance between teaching and research, and this could be accomplished in two cost efficient ways. The first step is to avoid the costly move to online education and to provide more opportunities for faculty members to teach undergraduate courses in their areas of specialization. The UCLA English Department has already moved in this direction. Another move would be to replace large courses with smaller seminars that allow for more student-faculty interaction. While this change looks like it would cost more money, it is often cheaper to have smaller classes due to the added cost of sections attached to large lecture classes.
If the UC can increase its instructional quality, while bringing in more revenue, it can become a national leader in how to save our research universities. All of the other options on the table call for a massive reduction of enrollments, layoffs, decreased opportunity, and financial self-destruction. We can have improved access, affordability, and quality, if we make undergraduate education an essential priority.
By increasing the number of international students and maintaining the level of resident enrollees, the UC could bring in hundreds of millions of dollars, while it supports the goals of access, affordability, and excellence. This growth model would require hiring more assistant professors and lecturers, and for people who worry about undermining the research mission, it should be stressed that the more income generated by tuition, the more we can support research.
Some have argued that the system does not have enough classrooms or facilities, but this is a false excuse. If the universities expand their hours of operations and have more evening courses, more students can be accommodated. Also, housing and dining are self-supporting and often produce profits so they can handle an influx of students, and let’s not forget that there are plenty of empty houses and buildings around our campuses.
A key to this growth model would be a better balance between teaching and research, and this could be accomplished in two cost efficient ways. The first step is to avoid the costly move to online education and to provide more opportunities for faculty members to teach undergraduate courses in their areas of specialization. The UCLA English Department has already moved in this direction. Another move would be to replace large courses with smaller seminars that allow for more student-faculty interaction. While this change looks like it would cost more money, it is often cheaper to have smaller classes due to the added cost of sections attached to large lecture classes.
If the UC can increase its instructional quality, while bringing in more revenue, it can become a national leader in how to save our research universities. All of the other options on the table call for a massive reduction of enrollments, layoffs, decreased opportunity, and financial self-destruction. We can have improved access, affordability, and quality, if we make undergraduate education an essential priority.
Subscribe to:
Posts (Atom)