On the Props: Education Instead of Incarceration

This November 6th, California voters will have the opportunity to make some important choices. One vital decision regards the future of education in the Golden State and another related issue concerns the high cost of the prison-industrial complex. According to the recent report “Winners and Losers: Corrections and Higher Education in California” by California Common Cause: “After adjusting for inflation, higher education in 2011 received 13% less State funding than it did in 1980. Corrections, on the other hand, expanded its share of the State’s General Fund by 436%.” These statistics mean that not only are we spending more money incarcerating our citizens than educating them in public higher education, but the general defunding of all levels of education has pushed more people into the criminal justice system.

This movement of state funds from schools to prisons is the direct result of two previous decisions by Californian voters; the first concerns Prop 13 and the loss of needed tax revenue for schools, and the other is the Three Strikes law that has rapidly increased the number of prisoners in this state. Luckily, there are three important ballot propositions that can start to reverse both of these trends.
Prop 30 will help to close the state budget deficit as it sends up to $9 billion a year to K-12 and higher education. Meanwhile, Prop 36 revises the Three Strike law and Prop 34 repeals the death penalty. In the case of Prop 36, the new law would stop the costly and odious practice of counting minor offenses as the third strike against offending individuals and thus would reduce the number of people receiving life sentences in California. Since it now costs more money to imprison people than to send them to college, by reducing the number of life sentences, we can free up money for higher education. Likewise, through the repeal of the death penalty, California can reduce the high cost of maintaining prisoners on death row.

It is important to stress that as our prisons have become full of people of color arrested for minor offenses and drug charges, the schools and colleges serving brown and black students have been underfunded and understaffed. These trends can only be turned around if Californian voters reverse their previous bad decisions.

What Jerry Brown is Really Thinking

The LA Times Blog has a long unedited, monologue by Governor Jerry Brown that gives a great deal of insight into this complicated figure. In terms of the University of California, one issue that is discussed is why he has not appointed three regents. Brown has the following to say on this important topic: “I haven’t appointed anyone to the regents yet. Well, who should I appoint? That’s a good question. What are they going to do? I’ve appointed some people to the Cal State and I’ve appointed some interesting people on the state board and I’m looking, but what impact does that make? If you want to make change, can the state board make an impact? Can the Cal State make an impact? Things are very conservative in how they run. Before when I used to go to the regents, I’d go armed and I was attacking. But it’s totally marginal. You can’t influence ... So now it takes more time, you’ve got to be more subtle, you need more allies. You need a long-term game plan.” In short, Brown seems to be saying that he has not appointed anyone since the board is so conservative or insulated from any influence, including the influence of the governor.

Brown adds that it is hard to make any choices because of the need to cater to so many interest groups means that the effects are always watered down: “I also know these boards are not affected by one or two people, so there’s no rush. There are a lot of people I know. Blum I know, the lady who’se the president, she was the president of one of the movie studios. They’ve got people there. But I’m looking for different … But I know that three appointments can’t make (a difference). It really takes ten. But by the time you get to ten, and you listen to this group and that group, and I gotta take care of that and you have diversity and this influence person – by the time you get your ten people, they’re so different that you have no impact anyway. So this idea that you can influence by your appointees, you have to take care of all your various constituencies and then you end up replicating what is. And that’s why things don’t change very much. . . If you want to do something that you know is good but is different, the last place you’re going to get it done is UC. The second to last place you’re going to get it done is Cal State. And the place more likely would be the community colleges, because they’re more flexible.”

Not only does the governor think that appointing three new regents might have no real effect, but he also wonders if ten new regents would change anything.
It should be clear that someone has to convince the governor about the importance of having regents who actually know about universities and higher education. However, Brown does not seem motivated to change things even though he realizes that there are many problems with the current higher ed system.

Part of Brown’s reluctance to appoint new UC regents can be traced to his post-ideological view of government: “you have one group that says the answer is to see government as the problem and block it and try to reduce it as much as you can. And the other says the problem is the accumulation of capital and the power of corporations and what we need to do is strenghthen the hand of government and make it more intrusive, more invasive and more impactful so as to achieve more well being. And that’s really the choice…” By tying the liberal view of government to the idea that government is perceived as being intrusive and invasive, Brown shows how many contemporary Democrats have bought into the conservative demonization of “big Government.”

Yet, Brown is also aware of how misinformed citizens are about the ways governments spend their money: “What makes the choice hard is there is this zone of government waste which I have seen polling suggest people think is 40 percnet. Well, 40 perent of a 90 billion general fund is 36 billion. So there is a 36 billion dollar bank of waste that the public wants us to spend before we cut universities, elderly, roads police, all other stuff. Because of that relatively widespread belief … people say why should I pay for a tax even though it is not on me or it is very little when we have this bank we can go to. Go spend the waste bank. And the problem is the waste bank is not available. It’s window is not open in a way that I can access.” From his pragmatic perspective, Governor Brown realizes that people think there is a huge pool of hidden or wasted resources, which the government can use if it wants to.

While Brown knows that the populace is misinformed, he does not appear to be willing to use his position to educate the people of California and let them know the truth about the state’s finances. Just as in the case of the University of California, this is where we need real, bold leadership to clarify the truth and to propose an effective alternative. At one point, in this interview, he does show a recognition about some of the problems facing the university, but he soon backs away by returning to the issue of governmental waste: “I think they can do it more efficiently at the university. I’ve got a whole book showing how the university is spending money it doesn’t have to. Certain kinds of research, sports, gardeners, a lot of things. But there isn’t a waste bank of 36 billion in California. Not even close.” This is a strange free association: the governor jumps from discussing how the university spends its money to the question of perceived government waste as if the two are the same thing. He appears to be saying that since rumors of government waste are wrong, then the analysis of how universities spend money on expensive side-projects must also be wrong.

In another discussion of university spending, Brown repeats his conflicted sense of spending and waste: “Does a chancellor need 350,000? 500,000? I don’t think you do. Well is that a waste? Well if you paying more than you need, it is a waste. But then they say the market is that and if we don’t pay it, we don’t get it.” While Brown clearly sees the problem with paying administrators excessive salaries, he also entertains the university’s claim that they can only attract and retain excellent people by offering them market value. What Brown does not ask here is why it is only star administrators who are deemed worthy of market-based salaries. Like so many contemporary Democrats, Brown has internalized both the free market rhetoric of the Right and the liberal discourse of a meritocracy where only the elites are entitled to a good wage.

In some ways, Brown is too aware of how some people view the government, and his concern for these views limits his political vision: “Everywhere you go human institutions have flaws. But here is the relevant point here: government is perceived as unique in the flaws that it has. And there is a certain hostility. Government has become the object people can look to as the source of our suffering and our problems and in that context it is hard to get people to say gee give more money to this entity you see as the cause of suffering or dysfunction.” While it is clear that the forty-year effort of the Republicans to demonize the government has been very effective, shouldn’t someone like Governor Brown work to counter this narrative?

It is clear that Brown is plagued by his acute awareness of how competing interests block any real change in politics: “There is no procedural quick fix…We don’t live in some immaculate world with no stain of interest. Everybody is interested. ..Everybody looks to see how the rules favor their interest. So there is no neutral grouping here. Not like constitutional convention of our founding fathers. We have a constitution. We have a legislature. We have tens of thousands of laws and practices. You can only make a few changes. Any change you make, if you go one way maybe trial lawyers like it. If you go one way, maybe insurance companies and doctors like it. There is no quick easy big fix. It is incremental. Step by step.” Perhaps this pragmatic approach is appropriate for “normal” times, but in our current crisis, we need something on the order of FDR’s New Deal to really make a difference.

In one of his most telling free associations, Brown discusses his central thinking about education: “One thing, well it’s not like, for example, lets take STAR tests. Steinberg doesn’t like it. Wants to reduce the STAR test. So in one way I like the STAR test because the kids gotta know arithmetic, they have to know how to write, they gotta know some English, they have to know science. So that’s somewhat mechanical. But on the other hand, every individual has different interests. I think it’s important that people go to school and they learn history, they learn philosophy, they learn music. They don’t get trained, but they get exposed to a much bigger world. So this is an issue: How much should be training, lockstep, standardization, fill in the blank and anyone who deviates from that is bad. There’s a bit of that coming out of Washington. On the other hand if you’re so lax and you just chit-chat in class, that’s bad too.” Once again, the governor is conflicted over the main competing narratives that surround education in the United States. While he is rightly critical of standardized tests and standardized teaching, he also wants to make sure that students learn the basics and that teachers do not spend their time simply free associating in class.

This conflicted view of education is matched with Brown’s awareness of how learning and teaching involve so much more than memorizing and testing: “I had a teacher, Mr. McCurdy he later joined the Jesuits. One of his questions on one of our exams was, I want you to write your impression of a green leaf. OK. I wrote something pretty banal. And I’ve been thinking every time I walk out here and I look at these green leaves, what’s my impression? Am I just dead? What can I feel? So he created a thought about imagination, impression, you can’t put that on a STAR test.” Here, Brown shows himself to be a deep and creative thinker who has profited from a creative and independent teacher.

Perhaps what we learn from this gubernatorial free association is that the governor is a non-ideological politician who is both open to competing discourses and crippled by his awareness. We also know from the way that students and unions pushed his tax initiative in a much more progressive direction that collective action can promote positive social change. It is clear that if we want something to change in this state, we will have to be the motivating force.

Regents Retreat

One of the most remarkable aspects of the recent regents’ discussion of the future of the university was the lack of discussion of the quality of instruction. While there was some statements that students are still happy with their education and the university is doing a good job at graduating students in a timely fashion, the quality of education was rarely brought up. Instead, the main focus was on how the UC can continue to do what it is doing by moving money around and engaging in some creative financing.

Some possible solutions suggested are to sell off parking and lease it back and reduce the university’s support for healthcare for its employees. There is also the idea to increase nonresident enrollments significantly and to charge different tuition rates for different degrees. The most creative and threatening suggestion was “Eliminate some or all State funding for a few campuses and socialize savings to others, resulting in no restrictions on tuition or nonresident enrollment for campuses with reduced State funding.” The final suggestion means total privatization for the elite campuses, while the other campuses are left to fight over diminished state funds. In reality, the current policies of letting campuses keep their tuition dollars and distributing state funds according to a formula that favors the campuses with medical students and doctoral students moves the UC in the direction of the privatization for the elite campuses and socialization for others model.

While the regents stressed the decreases in state funds, we have recently learned that UC payroll has gone up 29% in the last six years, so the loss of public support has been coupled with a major expansion of the university, especially in the medical area. In fact, there are now many more high-paid employees, but there are fewer faculty and more students. According to the retreat PowerPoint, the state now funds just 11% of the budget, but 97% of the faculty are supported by core funds. This would appear to mean that faculty now are only supported by state funds and tuition, which begs the question of where does all of the money generated from grants, endowments, medical services, and auxiliaries go?

Pension Politics

It looks like the legislature and the governor are close to a deal on pensions. While they have decided to exclude the University of California from the reforms, everyone inside and outside of the UC system should be concerned about the politics behind this move to rein in public pensions. First of all, one of the main motivations to make this deal now is that many Democrats feel that the best way to coax voters to support the governor’s tax initiative is to show citizens that the Dems are serious about controlling future governmental expenditures. Also, many Democrats in the legislature believe that they can win a super-majority in both houses, and so they are going after seats in swing districts.

However, there are several broad issues concerning this pension reform that we should consider. First of all, what does it say about unions and the Democratic party when they lead the way in reducing benefits for future workers. In the proposed new system, many workers will have a hard time waiting until 65-67 to retire, and the change in retirement age will reduce their retirement checks by a large amount (during a time when retiree healthcare costs will continue to increase). While it looks like the Dems are being responsible, who is protecting the most vulnerable workers? Another major problem is that the deal undermines collective bargaining and the ability of workers to trade wage increases for retirement security.

What the current discussion of pension reform fails to mention is that the major cause for the underfunding of pension plans is investment losses, and this reform puts all of the blame on the cost of benefits. What we need is real Wall Street reform, which would protect pension funds against huge losses. It also does not help that the Fed is keeping interest rates so low that pension funds have to move almost all of their money from bonds to stocks and other higher risk asset classes. Moreover, the recent Libor scandal shows that pension funds have lost significant value because banks have manipulated interest rates.

History may remember this period as a time when all of the major liberal institutions—unions, the Democratic party, and public employees—accomplished the goals of the conservative revolution. While it may seem that we are only trying to show the public that we are fair and rational, we are actually feeding the Romney-Ryan rhetoric that the only solutions to our problems is to cut the benefits of the next generation.

The state of UC

The stakes have gone up for Prop 30, the governor's tax initiative, which will cost the UC $375 million in state funding if it does not pass. In turn, the UC will discuss at the next regents meeting a plan to raise tuition by 20% in case the voters do not support the proposition. It should be clear to the citizens of California that a small tax increase will help protect higher education in California; however, the proposition is only polling at 52%.

A related issue is how the UC spends the money it does get from the state. As last year's state audit showed, state funds are distributed to the campuses on an unequal basis, and the result is that the smaller campuses without medical schools and law schools are poorly funded. Also, the campuses with the highest number of under-represented minority students receive the lowest funding.

In order to correct this problem of unequal funding, a task force has been working on increasing campus equality, but they have run up against several hurdles. First of all, UCOP refuses to provide an estimate of how much it costs to educate undergraduates versus graduates versus medical students. Instead, they have helped to develop a weighted system where each resident undergraduate and masters level student counts as 1, each doctoral student counts as 2.5 and each medical student counts as 5. The current level of state funding per campus is then divided by the student enrollment level for each of these student groups. Even when we take into account the fact that some campuses have more medical and doctoral students, there is still an uneven distribution of funds.

The major problem with this whole methodology is that it does not prevent some campuses from simply increasing their number of highly funded medical and doctoral students. Moreover, campuses are now able to keep their tuition dollars, and the same campuses with medical centers and/or high levels of doctoral students are also the ones with the highest number of out-of-state students. The end result will thus be that rich campuses will get richer, while the poor campuses will get poorer.

While the task force does recommend a slow process of increasing the funding of some of the campuses to keep up with the weighted average of UCLA per student funding, the task force failed to justify its calculation of the weighted averages. Since no one is even trying to estimate how much it actually costs to educate different types of students, it is unclear how the task force is making its calculations. While it is very possible that we will see a growing inequality of funding among the campuses, it is not clear that the campuses with more funding will increase their support for undergraduate education. For example, if a campus brings in more medical and doctoral students to increase their share of state funding, and these students cost much more to educate than the assumed weighted averages represent, then the wealthier campuses will have to continue the process of using undergraduate tuition to subsidize expensive graduate and professional program. Until UCOP decides to actually estimate the actual cost of education, all of the decision makers will be making important choices in the dark.

Student Loan Debt Collectors

According to a report from the National Consumer Law Center, “The U.S. Department of Education (the Department) relies on an increasing number of private contractors to collect the approximately $67 billion in defaulted federal student loan debt.” Moreover, not only is the government on the hook for an increasing number of student loan defaults, but it is paying outside collection agencies huge sums of money to collect these debts: “The Department paid contractors almost $1 billion in commissions in 2011.” Thus instead of providing free public higher education, the federal government is lending students huge amounts of money that they can never pay back, and the result is that the feds have to hire expensive private contractors to collect the cash.

One reason why the federal government spends so much on debt collectors is that these outside agencies receive bonuses for their aggressive handling of student debt: “using a metric called the Competitive Performance and Continuous Surveillance (CPCS) score. The percentage of dollars collected on federal student loan accounts determines the majority of a contractor’s CPCS score, with a maximum of 70 possible points. The second metric is Account Servicing Percentage which calculates the percent of federal student aid accounts awarded to the PCA that have activity as a result of the PCA’s efforts, either through litigation, an administrative resolution, or actual payments. The top performer for this metric will receive 20 points. Finally, PCAs may earn up to 10 points for their Administrative Resolution Percentage which tabulates how many federal student aid accounts the PCA referred back to the Department for a non‐cash administrative resolution (i.e. disability discharge, death of borrower, etc.).” In this system, outside agencies are given an incentive to harass students and force them to hand over all of their money to the collectors.

Furthermore, since these private agencies increase their earnings if they collect more from students, they do not pursue other forms of reconciliation, like writing down the principle or extending the payments. In fact, borrowers in default are subject to the government’s extraordinary collection powers that last a lifetime: “The collection agencies hold the keys to the borrower’s future because the government hires collection agencies not only to collect, but also to act as the front line “dispute resolution” entities for financially distressed borrowers.” In other words, the private collectors act as judge and jury, and they use the power of the national government to garnish wages and public benefits. This situation has gotten so bad that many people have had their social security checks garnished in order to pay back decades-old student loans. As a society, we have created a system of indentured student servitude as our tax dollars are used to pay profit-seeking loan collectors to further abuse former students.

Making matters worse, when people are late on their loan payments, they often are subjected to huge penalties that make it even harder for them to pay off their debt, which transforms them into prime targets for aggressive for-profit debt collectors. This problem will only worsen if Congress does not stop student loan interest rates from doubling next month.

How Higher Ed Tax Breaks Serve as Welfare for the Wealthy

As I wrote in a previous blog entry, we may be able to make all public higher ed free, if we just use all current available resources in a more efficient manner. One thing I discovered in my research is the way that tax breaks for higher ed have been used as a form of welfare for the wealthy. As shown in the study, “Moving On Up: How Tuition Tax Breaks Increasingly Favor the Upper-Middle Class,” what has been occurring is that help for poor students is being reduced as support for wealthier students is being increased: “From 1999 to 2009, the government spent $70 billion on tax breaks aimed at subsidizing higher education for families . . . about 13 percent, or $9.4 billion, of that total went to families making more than $100,000 a year. At the same time, only 11 percent went to the neediest families, those making less than $25,000. Families in the middle—those making between $25,000 and $99,999— received the lion’s share of the aid, taking in slightly more than three-quarters of the benefits.” While this research makes it sound like middle-class parents were getting most of the benefit of these tax breaks, we are later told that the movement of the funding has continued to shift to the wealthiest Americans: “nearly 83 percent of the higher education tax benefits distributed from 1999 to 2001 went to families earning less than $75,000 per year. No benefits went to those earning more than $100,000. By contrast, in the last three tax years alone, families making between $100,000 and $180,000 received nearly a quarter of the benefits. The share going to middle-income families sharply declined.” This tax system for higher education is a great example of how so many of our governmental policies end up subsidizing the wealthy as poor and middle-class citizens are left paying more and getting less.

If we made all public higher education free, not only could we do away with this unjust tax system, but we could also stop the movement of public funds to expensive private and for-profit universities and colleges. What people do not notice is that the use of financial aid and tax subsidies for individual students has resulted in a system where much of the governmental support for higher education ends up going to private institutions that cater to the super-rich or to low-achieving for-profit schools. In fact, during a 2012 Congressional investigation of for-profit colleges, it was discovered that up to a quarter of all federal Pell grant money is now going to these corporate schools that charge a high tuition and graduate very few students. What this investigation did not uncover, however, was the amount of state and federal tax breaks that go to support for-profit institutions.

While recent research has been done on how much the federal government has spent on tax deductions and credits for higher education, as far as I can tell, no one has examined how much states are spending on these tax breaks for colleges and universities. However, it is safe to estimate that the total subsidy by the states is at least the same as the total federal level of support ($40 billion) since many of the states have tax deductions that exceed the national tax breaks for tuition, and most states have tax-advantaged 529 college savings plans. For example, in New York state, the tuition tax credit goes up to $5,000 per year per student, and the tuition tax deduction is $10,000 for each eligible student. It is important to point out that tax deductions favor the wealthy since so many low-income families pay little if any federal income taxes.

One of the great secrets in higher education funding is the role played by 529 College Savings Plans: “In 2000 a total of $2.6 billion was invested in 529 plans. This grew to $14 billion in 2001 and more than $92 billion in mid-2006. The student aid resource Finaid.org projects that total investment in 529 plans will reach $175 billion to $250 billion by 2010, with a total of 10 million to 15 million accounts opened.” Not only do state governments lose billions of dollars in tax revenue each year due to these 529 plans, but the wealthy have figured out how to use these plans as all-purpose tax shelters. For example, if a couple puts $26,000 a year for each child into account, and then decides later to use the money to buy a yacht, only the investment gains will be assessed a 10% penalty and taxed as income. Also, contributions made to a 529 are removed from a family's estate, and 529 plan owners can name a successor to the account when they die, which enables the plans to shelter money for multiple generations.

One way that wealthy people use these accounts to avoid paying taxes is by giving each other gifts. In this structure, gift taxes can be avoided if contributions into the plans over a five-year period do not exceed $65,000 for single taxpayers and $130,000 for married couples. Clearly, it is only the wealthiest Americans who are able to profit from this type of plan. In fact, according to a recent Department of the Treasury report, "Currently there are effectively no limits on Section 529 account balances. Because 43 states offer plans open to residents in other states, a beneficiary can have accounts in as many as 44 states, each state with a limit exceeding $224,465." It is obvious that only wealthy people can afford to save and invest this type of money. Moreover, the same study of 529 plans details how the richest families are using these plans for tax shelters: "data from the 2007 Survey of Consumer Finance found that among households in the top five percent of income — average income, $548,000 per year — those with education savings plans held an average balance of $106,250. That’s more than triple the average for households in the 90th-95th percentile, more than ten times the balance for the 50th-75th percentile, etc. Second, among households in Kansas who took a state income tax deduction for 529 contributions, the average deduction for households making over $250,000 per year was $10,323. For those in the $100K-$250K range it was less than $5,000, for everyone else, less than $3,000.” As this federal government report indicates, 529 plans have now become an effective way to subsidize wealthy people; meanwhile, states are forced to cut their higher education budgets due to their lack of tax revenue.

If we took all of the state and federal money that is lost each year due to these tax credits, deductions, and shelters, we could make public higher education free for millions of Americans; however, the tax code is rigged to provide aid to wealthy people, and one side-effect of this system is that private universities are able to charge higher tuition because they know that the parents of many of the incoming students will only pay a fraction of the full price due to merit aid, institutional aid, and tax breaks. Furthermore, once the private universities increase their tuition, they raise the bar for everyone else, and this makes tuition increases at public universities appear to be more tolerable. Furthermore, since the top public universities compete with the top private universities for star faculty and administrators, the more the privates are able to increase their tuition, the more the public institutions have to pay their star faculty.

To contain the rising tuition at private universities and the subsidization of high-cost, low-value for-profit schools, the government needs to move away from the current emphasis on tax breaks and tax shelters, and this can be done in part by making all public higher education free. Instead of relying on a mix of financial aid, institutional aid, tax subsidies, and grants, direct funding for public institutions could give the government a way to control costs at both public and private universities and colleges. The federal government could also require states to maintain their funding for public institutions in return for increased federal support, and once we stabilize funding and make higher education free, then we can eliminate the need for so many students and institutions to go into debt.