A Report from Congress and the White House

I spent September 22nd and 23rd in D.C., and I got a full dose of a city under attack from the Right and high humidity. On Thursday evening, we had a meeting with Congressional members from California, and I was able to speak to Nancy Pelosi. She stressed how things are so bad that Republicans are trying to make the Democrats come up with budget reductions to cover the costs of disaster relief. Likewise, at the White House, all of the President’s top advisors emphasized how difficult the other side is acting and how hard it is to get anything done.

I asked one of the architects of the President’s jobs bill, what the administration can do for recent college students and graduates who are facing the triple whammy of skyrocketing tuition costs, giant student loans, and poor employment prospects. I also questioned why the jobs bill did not simply propose a government works program that would directly hire millions of people. The President’s economic advisor responded that the jobs bill is the best they can accomplish with the Republicans in control of the House. He also said that he agrees with my assessment concerning the sorry plight of college students, but they wanted to put together a package that was responsible and achievable. I added that since the Republicans will block everything except for the tax cuts, why didn’t the President propose something clear and bold, and then let it get shot down. [We were told by White House officials not to directly quote anything from our meetings]

I posed similar questions to David Plouffe, the President’s main political advisor, and Bill Daley, the President’s Chief of Staff. Both of them stressed that the President is being responsible, and he is proposing things that the Republicans have supported in the past, and so if they reject them now, they are just being cynical. Several of the President’s senior advisors pointed out how the jobs bill will fund community college infrastructure and also help the states so they do not layoff more teachers. In response to one of my questions about the decreased funding for higher education, White House officials emphasized how hard the President and the Democrats in Congress had to fight to protect Pell grants.

I walked away thinking that the administration is underestimating the horrific nature of our employment situation. After all, as I told several top advisors, there are close to 25 million people who are unemployed or underemployed, and we were told that the jobs bill may create 1.5 to 2 million jobs. In one of my more aggressive moments, I asked how can we support the President, if we do not know what Democrats stand for anymore. After all, the President’s recent jobs bill and deficit reduction program rely on the classic right-wing themes of cutting taxes, reducing the deficit, and reforming entitlement programs. The President’s main political advisor got rather testy when I made this claim, and he went on to list everything the President has done. I really think they do not get it, and they refuse to present a clear and consistent set of progressive policies.

Several people in the audience thanked me for my questions and for holding the administration’s feet to the fire. I was later told by people working for the President that my questions were heard, and I should stay in touch. Later, during a meeting with the Department of Labor, I stressed how universities are using the current economic downturn to outsource work, casualize labor, and ignore basic labor laws. I was told that the Republicans are doing everything they can to tie the hands of this administration, and we must continue to highlight the positive things the President has done.

I actually do think that the President has done some very positive things, but we are in a crisis, and we need bold, clear action. While talking to members of Congress and White House Staff, I proposed a government works program that would hire 10 million people and would not rely on tax cuts, subsidies, or corporate hiring. I argued that the administration needs to show that government can work, and the only way we are going to reduce unemployment to the 3-4% range is if the government simply hires people. I suggested that the administration use TARP funds and money from mortgage fraud suits to fund a jobs program without the help of the Congress. I was told that this can’t be done, but they will look into some of my other suggestions.

To discuss how we can push the country in a more progressive direction, I am organizing a meeting in November at UCLA. For more information, you can read my article on an alternative jobs bill and the need to rethink our current political stalemate. Please let me know what you think.

UC-AFT Going to the White House

I have been invited to attend a day-long meeting at the White House on September 23rd as a community leader, and while the main topic will be jobs and education, I have been asked to provide a list of important discussion points concerning my community, which I am defining as public universities. So here is a first draft of what I hope to discuss:

1. President Obama should stress that his stimulus plan saved thousands of university jobs and helped to control tuition increases, and now without the ARRA money, tuition is skyrocketing, classes are being cut, and students are taking on tremendous debt.

2. The ARRA money also helped to fund important research that is now being curtailed. While universities are the engines of economic growth and technological innovation, they are now facing reduced federal grants and decreases in graduate student funding. We hope the President will consider using TARP funds to support green technology and research at our universities.

3. When states are forced to pay for increased healthcare costs and unemployment benefits during a time of decreased state revenue (taxes), the one thing they know they can cut is higher education, and it is middle-class parents who end up paying for increased tuition costs. Federal money should be used to protect public universities from decreased state funding.

4. In order to save money, universities have moved to a system where the vast majority of the faculty are temporary and part-time with no possibility for tenure or a living wage. To reverse this situation, the President should require any university or college receiving federal funding to hire the majority of new faculty members on a full-time status.

5. Like other American institutions, universities are bearing the burden of excessive healthcare costs. The President should consider freezing health insurance premiums for the next two years.

6. The President needs to make a strong statement about the positive contributions teachers, librarians, staff, and professors make to our society. While many Republicans are demonizing teachers, public employees, and unions, we need a leader who stands up for our nation’s educators.

7. Public universities are still the main paths to the middle-class, and they must be protected and supported. To help rally his base for the next election, President Obama should produce a comprehensive plan to protect the middle class, and this plan needs to address the loss of funding for public universities. Instead of giving subsidies and tax breaks to oil companies, federal funds should be redirected towards new energy research at our public universities.

8. The President should act through executive order to monitor financial aid that goes to for-profit colleges. These schools often place students in debt without providing effective instruction.

9. Due to the reduction of state support for public universities and the resulting increases in tuition, students are taking on massive student loans, which is creating another asset bubble. The President should act to subsidize student loans and extend the payment schedules.

If you have any suggestions, please comment below.

UC Might Increase Tuition 81% Over the Next Four Years

When the Regents meet September 14th, they will discuss a multiyear funding proposal that will likely result in a series of large tuition increases over the next few years. The heart of the plan is found here: “Components of a multi-year plan would include the assumptions about efficiencies and revenue- generating strategies, and a proposal that, under the optimal scenario, would call for eight percent annual increases each in State funds and in tuition and fees through 2015-16. If the State is unable to meet its share of this cost, student fees would be raised further to make up the State’s deficit. Thus, if the State provides only four percent increases each year, student tuition and fees would increase by 12 percent annually. If the State provides no increase, student tuition and fees would increase by 16 percent annually. Incorporating this principle into a multi-year plan will make clear to all stakeholders that a failure to invest in the University will directly increase the amount students and their families pay to attend.” According to this structure, if the state does not increase funding over the next four years, tuition will go up 16% each year for a cumulative total of 81%.

Of course, the state could increase its funding, and this would mean a smaller increase for students, but if recent history is any indicator, the state is more likely to decrease funding, and this possibility is not addressed directly in the formula mentioned above. What the new plan does argue is that a four-year strategy would force the state to think twice before it reduces funding for the UC system: “Establishing the direct relationship between State funding and required tuition increases into a multi-year plan will make clear to all stakeholders – the Governor and Legislature, students and parents, and other interested citizens – that a failure to invest in the University will cause an increase in the amount students and their families pay to attend.” So far the state has not been very concerned about tuition increases, and so the real result of this plan could be that the state will just take for granted huge tuition increases. After all, students keep enrolling, and the university has shown that it will cover any state reductions by forcing students and parents to pay more.

The State Response to the State Audit and the Future of UC Funding

I have met recently with several legislators, the Legislative Analyst, a member of the state auditor’s team, and people from the Brown administration to discuss the audit of the UC system. All of these stakeholders stated that the audit requires follow up, and in fact, the UC is required to report in sixty days, six months, and one year on how they are responding to the auditor’s recommendations. In order to ensure that UC does indeed respond in an effective manner, a legislative hearing is being considered for early next year.

The two main issues that the state is looking at is how does the UC spend state funds and how much does it cost to educate each additional undergraduate, graduate, and professional student. While the UC’s response to the audit was that the process was a waste of taxpayers’ money, and nothing important was found, several legislators do think that the UC needs much more transparency in its budget. The biggest concerns include the high cost of medical education and the unequal distribution of funds to the campuses.

Of course, the UC can now say that it is making the system more transparent by allowing the campuses to keep all of the revenue they generate, but there is still the question of state funds, which I have shown accounts for most of the inequality of funding among the campuses. This issue of state funding will be discussed at a Regents meeting at the end of the year after the committee on “rebenching” finishes its analysis.

As I have stressed, the big tension is between keeping any new funding model “revenue neutral” or moving to a more equitable system. In order to accomplish either of these tasks, the UC still has to open up and reveal how it has been distributing state funds to the campuses and what it plans to do in the future. It turns out that the state audit is also looking at these same issues, and so it is possible that the two processes, internal and external, will work together. Yet, it is clear that the wealthier campuses will fight to keep their high levels of funding, and in order to maintain the status quo, the push will be to keep the spending of state funds nontransparent.

Already, we find an indication that the medical centers are being privileged by the Office of the President. In a July letter to President Yudof from the Academic Council, we find the following: “Council advises that the full $650 million reduction in State funds in the 2011-2012 budget year be allocated among the campuses under the methodology applicable to State fund reductions developed in the Funding Streams Proposal of December 21, 2010.” As the letter continues, it clarifies that, “The allocation of budget reductions was based in part on a principle that the proportionate allocations to campuses reflect each campus’s relative ability to offset reductions by raising nonresident tuition (NRT) and Professional Degree Supplemental Tuition (PDST).” The idea here is that the campuses that have increased their revenue by increasing the number of high-paying nonresident undergraduates and professional students should receive a higher budget reduction.

It turns out that UCOP did not follow this method, and the Academic Council was not notified by this change: “we were surprised to learn only last Friday, July 22, that allocations were likely to be based on the proportions derived from the Funding Streams Proposal provisions for allocating augmentations rather than reductions.” In other words, when it was distributing cuts to the campuses, UCOP did not take into account the different abilities of the campuses to generate their own income to make up for any reductions. Thus, the poorer campuses will get poorer, and the wealthier campuses will get wealthier.

The Academic Council hints that a major driving force behind UCOP’s decision to protect the wealthier campuses is the high cost of medical education: “The San Francisco situation is far more complex. A new business model to support medical education in a time of diminished state funding is urgently needed. I note, however, that the relative scarcity of tuition income at UCSF means that UCSF’s share of the $500 million cut is a substantially smaller fraction of UCSF’s total state support. The relative scarcity of tuition at UCSF cannot also be used to justify shielding UCSF from the effect of the $150 million cut.” The Academic Council makes an important argument here, which is that the UC cannot continue to disadvantage the other campuses in order to use state funds to subsidize medical education at UCSF.

Everyone in the UC system should be concerned about how UCOP and the regents decide to distribute state funds. Since the campuses will be able to keep their own revenue, there is an incentive for the wealthier campuses to increase their wealth by increasing their number of nonresident students and decreasing their number of Californian students. Moreover, the medical centers will continue to use their enormous resources to fight for more funding, while the smaller campuses will suffer from a lack of new revenue. All of these trends will force continual tuition increases for undergraduates at a time when undergraduate budgets are being downsized. Let us hope that the state audit pushes the UC system to find a more equitable balance.

The Market and You

Since we are now all invested in the stock market, even if it is indirectly, it is important to understand certain key aspects of how Wall Street functions today. One aspect is that while many people are invested through pensions and 401k plans, few people understand how the market works, and many do not have any control over their own investments. Moreover, although the media often says things like, “the market went down today on news of the debt deal,” the market is not a single entity speaking with a single voice; however, dominant players in the markets often follow each other, and the result is that large movements can occur based purely on a herd mentality.

Some people are now asking why the markets have gone up the last couple of years, while the economy appears to be doing very badly. One reason for this disconnect between the real economy and the financial economy is that the Federal Reserve has sought to strengthen the banks by essentially allowing them to borrow money for free. The idea behind this policy is that during the fiscal meltdown of 2008-9, the banks stopped lending money, and there was a real credit crunch that cut off the flow of cash to major corporations and financial institutions. The Fed also felt that if they gave money to the banks, and the banks lent money to corporations, the companies would start hiring people and stimulate the economy. However, it is now clear that companies and banks are sitting on trillions of dollars, and they have shown that they would rather make money through financial transactions than through producing new jobs.

Another reason why Wall Street has gone up while Main Street has gone down is that Wall Street rewards companies for shedding jobs because this increases the profit margin. There is thus an inherent push for companies to cut their labor costs and increase compensation for people at the top, and many banks and corporations have used their profits and debt to buy their own stocks and increase bonuses for their top earners.

Another powerful player in the markets are the private equity firms that often use borrowed money to take over companies (leveraged buyouts) and make these corporations more profitable by laying off workers and selling parts of the companies. These takeovers often go bad because the bought company has to take on so much debt, while it reduces its productivity. Moreover, Mitt Romney, who is now running for president, made much of his money through his private equity firm, Bain Capital, and so it is possible that our next leader will pursue the leveraged buyout model on a national level.

While many people in our federal government now feel that the key to a healthy economy is to put more money in the hands of the banks and large corporations, it is clear that our multinational companies and financial institutions have no incentive to invest in job creation. In the past, corporations knew that they needed to produce well-paying jobs in America so that there would be enough people with cash to buy their products, but now in the global economy, multinational corporations often look around the world for consumers. There is thus little incentive for companies to hire more workers or provide a good wage for Americans.

The only solution is a national job policy or industrial plan that would push companies to use their savings to increase employment. However, the only way to do this would be massive subsidies, tax breaks, trade tariffs, or penalties for exporting jobs. Of course, the other solution is to have the national government feed money into new industries like green technology. Yet, not only is the Congress blocking this type of program, but the move against government spending means that more jobs will be lost through the reduction of federal and state budgets.

Adding to this employment problem is the growing power of the bond raters and bond buyers who believe that the key to economic health is reduced taxes and a reduction of governmental spending. These financial players are not interested in job growth or stagnant wages; in fact, bond raters often reward companies that fire workers or eliminate benefits.

Only a strong national leader can reverse this course, but it appears that the president and Congress have bought into the idea that we must follow the demands of the markets and the raters. It is clear that we must organize against these forces to rebalance the economy and take back our jobs from the financial raiders.

UC Crushed by Debt Deal

The University of California will certainly be a big loser in the debt deal recently signed by President Obama. In fact, what most commentators have missed is that in the first round of budget cuts triggered by the debt deal, graduate students will be forced to pay more for their loans, and they will also have to pay earlier.

While the first round of cuts protected Pell grants and federal research grants, the next round will most likely cut deeply into both of these programs. Moreover, as George Skelton shows, future and present cuts to Medicaid will force states to shift more funds away from state-supported programs as they seek to pay for escalating healthcare costs. In other words, when the federal government cuts social programs, the states have to make up for the losses, and the result is that discretionary programs like higher education are reduced.

If we combine the future federal cuts to Pell grants and research grants with the increased burden on states to fund social welfare programs, we are left with a significant decline in funds for university research and graduate education. Ironically, these cuts to the UC system are occurring during a time when the Academic Council is asking President Yudof to accept more graduate students and discontinue the tuition derived from nonresident graduate students. Part of this new funding model asks the state to increase its support for UC research and expensive graduate programs during a time of diminishing state funds.

Next week, I will dissect the Academic Council plan, but for now, I just want to stress that the only real solution is for the Senate faculty to realize that UC should move to a model where it only accepts graduate students it can fully fund. While this would reduce the number of graduate students, it would increase the quality, and it would counter-act the increased costs of student loans and the loss of research grant money. Furthermore, it is important to stress that UC is one of the biggest producers of PhDs in the world, and there is a growing number of unemployed and under-employed people with PhDs. Although the UC argues that more graduate students are needed in order to staff large undergraduate courses, it is clear that one of the reasons why our PhD students cannot get jobs after they earn their degrees is that there are so many graduate students teaching undergraduate courses. Moreover, by staffing courses with people lacking PhDs, the message is sent out to administrators that anyone can teach undergraduate courses, and so there is no need to hire new professors.

My argument here is not to denigrate or downgrade graduate education; rather, I am arguing that we have to protect graduate students who are often forced to live in poverty as they await a chance to compete in the academic job lottery.

The Big Audit Question

While the UC administration has tried to portray the state audit as a wasteful use of taxpayer dollars that came up with nothing important, the university will not be able to just walk away from some of the auditor’s finding. In fact, UC is required to report on their compliance with the audit’s recommendations, and one of the biggest issues still remains how the system redistributes tuition dollars and state funds to the campus. As the audit explains, “Because the Office of the President does not provide all money in the general funds and tuition budget to the campuses on a per-student basis (for example, it provides funding for specific research and public service programs to individual campuses), we understand that differences likely will exist. However, we would also expect that the university would be able to identify the reasons for any differences in the per-student base budgets provided to the campuses. The Office of the President stated that variation in base budgets is the cumulative result of decades of budget decisions by the regents and past presidents to achieve the university’s mission of teaching, research, and public service, and that quantifying the impact of these decisions would require an extraordinary amount of analysis by budget staff. The Office of the President believes that such an analysis would not be a good use of limited administrative resources.” Perhaps it would be difficult to document the history behind the redistribution of funds, but it should not be hard to simply explain the current method.

After all, the UC now claims that it will allow the campuses to keep all of the funds they generate on their own, and what they are working on is how to distribute state funds. Yet, in my analysis of several documents generated by the Academic Council and various Senate committees, I have discovered that a battle is being fought between the wealthy and the poorer campuses, and there are many loopholes to the redistribution of state funds and tuition dollars. Even though the campuses will keep their tuition revenue, the new system is supposed to be “revenue neutral,” which means that the current system of covert redistribution will remain.

As the audit indicates, the wealthier campuses are resisting any move to fund the campuses on an equal basis: “The Office of the President further stated that it is a goal of the university that all campuses achieve the level of excellence in teaching, research, and public service achieved by the Berkeley and Los Angeles campuses, although each in its own unique areas, and that while other campuses receive a lower amount of funding per student due to the factors discussed previously, without a significant increase in investment from the State, it would be problematic to equalize funding. It further stated that the university does not wish to jeopardize the achievements of the Berkeley and Los Angeles campuses by shifting funds away to other campuses in an effort to provide an equal amount of the general funds and tuition budget per student.” I quote this passage at length because it reveals the current battle being waged among the different campuses. After all, the UC has always been divided internally between the quest to allow some campuses to be superstars and the countering desire to make sure all campuses flourish. Obviously, the UC cannot have it both ways, and so the tradition is to muddle through and keep everything hidden and non-transparent.

Funding Streams
If we now turn to UCOP’s new policy on funding streams, we learn that, “Beginning in 2011-12, all campus-generated funds will be retained or returned to the source campus. Current policies and practices that distribute a share of fee funds, indirect cost recovery funds, patent revenues, Short-Term Investment Pool earnings, and application fee revenues to the systemwide budget and/or other campuses will be eliminated. Implementation of this principle will require “un-pooling” of General Funds revenues, which will be conducted in a manner that is largely revenue-neutral to campuses upon implementation.” Once again, it is hard to imagine how the new policy will allow the campuses to keep all of their funds, while it remains “largely revenue-neutral.” Perhaps the idea is that the wealthy campuses will make up for any losses by increasing their number of high paying nonresident students and professional students.

The new UCOP policy also indicates that some type of redistribution will still occur through financial aid: “Funding of the undergraduate University Student Aid Program (USAP) will be handled separately and will be an exception to the overarching principle. Each year, campuses will be directed to allocate a specified share of fee revenues to USAP. As needed, campuses may be assessed a specific amount for redistribution to other campuses in order to achieve the Education Financing Model goal of equal loan/work levels across the system.” Thus to pay for the financial aid on the campuses with a high level of aid-eligible students, the campuses with a lower percentage of lower-income students will have to transfer funds to the low-income campuses. It is hard to predict what kind of perverse incentives this new system will produce.

It is important to stress that while UCOP objected to the auditor’s implication that the current system subsidizes wealthier campuses by taking funds away from the campuses with more under-represented students, the new policy report does justify the practice of cross-subsidization: “The high tuition charged to nonresident undergraduates may help fund fellowships for graduate students. Student fee revenue derived from lower-cost disciplines may subsidize instructional equipment purchases in other areas. Student fees for general campus instruction may subsidize the health sciences, while indirect cost recovery on health science research provides a complementary subsidy for general campus activities.” Of course it would be impossible to eliminate the tradition of cross-subsidization, but the question remains whether the university can actually account for who is sending money to whom.

In one of the most clarifying passages, UCOP actually admits that subsidization is occurring between campuses: “When student fees were modest, this consequence was not a major concern. Over the last decade, with student fees rising to levels approaching the level of per-student support from the State, concern has been expressed about the fairness and appropriateness of using student fees derived at one campus to fund increases in faculty salaries and other costs at another campus.” As I have been arguing now for a few years, this type of covert subsidization is the central problem: undergraduate students are subsidizing research faculty on other campuses and parents, students, and taxpayers were never told about this practice.

UCOP can now claim that it is changing this covert funding system, but there are so many loopholes in their new policy that I fear very little will change. Not only has the system failed to determine how to distribute state funds, but it looks like it will be allowing campuses to set their own revenue and enrollment targets: “While these adjustments are intended to be revenue-­‐neutral upon implementation, campuses will experience budget increases if revenues rise. Likewise, campuses will be responsible for addressing budget shortfalls if revenues decline.” This final sentence begs the question of what does a campus do if it cannot attract more high-paying nonresident students or professional students.

Ultimately, it appears that very little will change, and the highest-ranked campuses will continue to receive more funding, while the poor campuses will become poorer. This sounds a lot like America writ large.