Friday, December 31, 2010

UC Execs Reveal True Values

The recent revelation that 36 UC execs have called on President Yudof to “do the right thing” and allow their pensions to go beyond the IRS income limit shows in bright strokes how the university has taken on the logic of a Wall Street firm. Not only does the upper management seek to reduce labor costs by lowering benefits, reducing salaries, busting unions, and eliminating positions, but there is an insatiable hunger to transfer wealth and power to the top. Moreover, many of the people who signed the letter asking for increased pensions are directly responsible for the management of the UC’s investments, which lost over $23 billion in 2008-09. Like Wall Street investors, the people who helped steer the economy into a ditch now want record-breaking compensation deals.

On one level, I actually feel for President Yudof, who allowed these high earners to escape from their furloughs only to have them turn on him. In fact, it is important to stress that one reason why we have not seen the needed faster ramp-up of the employer contributions to the pension plan is that the medical centers, with their billions in net profit, have argued that they cannot afford to contribute the needed amount. The leaders of the “self-sustaining units” feel that the only way they can stay highly ranked is if they offer huge compensation packages to their star administrators and researchers. Like the self-promoting, self-compensating Dean of the UCLA Anderson Business School, these top earners are pushing to further privatize the UC so that they can generate new compensation schemes.

Of course all of this is occurring during a time when the new governor is threatening to reduce the UC budget, and the university is bracing for the results of a state audit that will surely spread gas on the fire. The only responsible thing for the UC administration to do is to show that it will spend state funds and student fees in a fair and effective manner. By freezing student fees, increasing instructional budgets, and reducing the size and costs of administration, the UC system will be in a much better position to protect state funding and its public image.

Tuesday, December 21, 2010

Rating the Raters: The LA Times Tries to Defend the UC System

In its December 17th Editorial on the UC system, the LA Times unintentionally highlighted in one paragraph much of what is wrong with our higher education system: “Colleges and universities across the nation, prompted by ubiquitous rankings based on factors that often have nothing to do with the quality of education, have been engaging in an academic arms race for top managers and star professors, who command big salaries. It's a race that has gone to extremes, and California could indeed choose to drop out of it. But it would do so at a tremendous cost.” In other words, a ranking system, which has little to do with educational quality, is driving the priorities and practices of universities, but since everyone is conforming to this misguided system, the University of California must do the same. Moreover, ranking guides like the U.S. News & World Report Annual College Guide motivate schools to pour money into high-ranking star professors and administrators.

What this editorial does not say is why schools need to compete in the star system in order to achieve the highest rankings. One possible response is that a large part of a school’s rating relies on its perceived reputation by other comparable institutions, and these schools often base their assessment on how a university pays its stars. However, a better explanation is that since universities and colleges are not ranked according to any real assessment of educational quality, there is no incentive for these institutions to put money into instruction, and so they push funds into expensive research and administration.

As I argue in my forthcoming book The Tuition Trap: Why Costs Go Up and Quality Goes Down at American Universities, the lack of any shared assessment criteria in higher ed simply allows schools to spend money on anything they want to pursue, and this usually means that schools use tuition dollars and state funds to support high compensation packages for its stars. After all, since universities are able to get away with substandard education, they can use money intended for educational activities to promote non-educational priorities.

The problem then is that a lack of educational quality control results in increased costs and a further diminishment of quality, and in a system of incremental budgeting, schools will simply spend as much money as they can get. It is also important to stress that since the only thing that controls the spending habits of schools is a lack of funds, universities spend a great sum of money trying to raise dollars from multiple revenue streams. The only solution to this problem is for schools to be ranked in part according to how well they teach their students, but this would require some type of shared assessment, and so far, schools have resisted any standardized testing.

While universities should not be ranked on how well their students do on standardized tests, there does have to be some shared way of judging the quality of instruction. After all, universities and colleges spend a great deal of time assessing students and faculty, and so they need to share and compare this data. However, until some other source replaces the U.S. News & World Report’s ranking system as the central method parents and students use to compare schools, there will be no way of motivating schools to concentrate on educational quality, and without a concentration on quality, there can be no way of bringing down costs. As paradoxical as it sounds, the best way to contain cost creep is to have high standards and a transparent way of judging quality.

Tuesday, December 14, 2010

Regents Rubber Stamp Fake Future

At a special meeting on December 13th, the UC regents voted to endorse the Commission on the Future’s final report and the new pension plan. Before the actual vote on the Commission’s report, there was a long discussion of what they were actually being asked to vote on. Some of the regents weren’t sure if they were voting to endorse the whole report, part of the report, or none of the report. Part of the confusion stems from the fact that the final report doesn’t actually make any specific changes; rather, the report discusses general principles with mostly vague goals. Basically, the report argues that the UC system needs to educate more students with less money from the state; the major way the university plans to do more with less is by increasing the number of high-paying out-of-state students and transfer students, while finding ways to speed all students through the system, perhaps with the use of online courses or reduced course requirements.

As I pointed out in my public comments, the proposed solutions make neither fiscal nor educational sense. For instance, we find the following statement in the final report: “admittedly, the education of upper-division students is more expensive because of smaller classes and necessary specialization and facilities . . . From an aggregate perspective, however, transfer students require only two years of UC resources in order to graduate with a UC bachelor’s degree. . . Serving transfer students increases the number of degrees the UC can confer with any given level of instructional resources.” According to this contradictory logic, upper-upper division courses are more expensive, and therefore the way to save money is to increase the number of expensive classes and reduce the number of inexpensive ones.

This failure to grasp basic math and accounting is continued in the discussion of why they should increase the number of graduate students in relation to undergraduate students: “the education of graduate students is more expensive than undergraduate students, both in instructional costs and student financial support. Therefore, under current and baseline fiscal projections, funding for graduate enrollment growth would require that campuses reduce undergraduate enrollment — an unacceptable result in light of our access mission and commitment to the master Plan enrollment goals.” After clearly stating that graduate education is more expensive than undergraduate education, and that the increase in graduate students would result in an unacceptable decrease in undergraduates, we find the following argument: “Recognizing UC’s role in the master Plan as the state’s primary research and doctoral-granting institution, the commission recommends that the University increase the proportion of graduate enrollments from 22 percent of total enrollments to 26 percent by 2020-21, with individual targets set by each campus.” So the master plan tells us to have more undergraduate students, but the matser plan also tells us to have more doctoral students, so the solution is to do both even though the university cannot afford either.

As I have argued, the university simply refuses to admit that undergraduates are now subsidizing everything else in the UC system, and the only solution the university finds to any problem is to increase student tuition and to cheapen the quality of undergraduate education by turning to online classes, reduced requirements, summer courses, and fast degrees. In the Commission’s words, “the master Plan prescribes a ratio of 60:40 in upper division to lower division undergraduate students in order to have ample upper division spaces for community college transfer students (Uc’s ratio in 2009-10 was 66:34 due to freshmen entering with advanced placement and other college credit). Given these expected capital facility costs, UC will either need to find significant new revenues to supplement limited state funding or it will need to pursue alternatives to bricks-and-mortar classrooms and labs.” In the hands of this collection of amateur educationalists, the master plan is simply a rhetorical weapon to whip out to score points when needed. Not only does the final report lack vision, but it starts with all of the wrong premises.

In a moment of frustration, President Yudof declared that if someone else has a different plan, he would love to see it. But a coalition of unions has presented multiple plans to Yudof, and they have been simply ignored. One thing is clear, the regents will not be able to maintain the fiscal health and educational quality of the university if they cannot do simple math, and if they spend the majority of the time blaming the state for all of the UC’s problems, nothing will ever change.

Finally, on the pension front, several unions argued during public comment that retiree healthcare should be based on pay bands like all other current healthcare premiums. While this proposal was rejected by the regents, they did respond to a last minute plea by the highest-paid employees to re-consider waiving the IRS limit on pensions. In an incredible act of hubris, during the meeting, they re-wrote the final pension proposal, and it was unclear if the regents even knew which proposal was under consideration.

Wednesday, December 8, 2010

UCLA Embraces Growth, but there is a Catch

In an Inside Higher Ed article, I argued that the way out of the current financial problems facing American universities is to increase undergraduate enrollments. I made this argument because not only do we need more college graduates to fuel our economy, but high university enrollments decrease the ranks of the unemployed and help to train people for the new economy. Moreover, I have shown how undergraduate students generate huge profits for universities, and this revenue can be used to support research, graduate education, and community service. I have also exposed how research grants and endowment gifts often end up costing universities more money than these unstable external sources of funding collect. Finally, I have stresses how the profit-making units usually refuse to share their revenue and often survive through hidden subsidies.

Given this stress on the need to increase undergraduate enrollments, I should applaud UCLA’s decision to bring in an additional 2,500 nonresident undergraduate students in the next few years; however, the campus’ plan poses several problems. The first issue is that while the school expects to rake in $55 million in new tuition revenue, it does not have any stated plans to spend more funds on instruction and student services. In fact, senior administrators have argued that since the undergraduate College already has an $80 million deficit, all of the additional income will be used to help balance the budget. In other words, there will be more students, but no additional resources, and this comes during a time when the size of the teaching faculty has already been reduced.

Another complicating factor is that UCLA intends to concentrate on bringing in new students from China and India because these students pay full tuition and receive no financial aid. Once again, we have to ask how these students will succeed if the campus does not increase the number of ESL classes and other needed student services. Also, there still remains the sticky problem of how will students be able to graduate in a timely fashion if UCLA brings in many more students but has fewer classes and fewer teachers. It appears that these potential international students are seen as a source of needed income, but steps are not being taken to make sure they receive a high quality educational experience. In the next few months, we will be pushing the administration to make sure that added revenue from student tuition finds its way into the classroom.

Monday, November 29, 2010

UCLA’s Neoliberal Path

Neoliberalism is centered on the belief that free markets can regulate themselves, and so it is unnecessary to have large government programs and the taxes needed to support public education, universal healthcare, and environmental standards. Moreover, neoliberal institutions like the IMF and the World Bank believe that the best way to help a developing country is to impose austerity measures and replace the public sector with private businesses. In the case of universities, the neoliberal formula involves weaning oneself from public finances by increasing tuition, cutting unprofitable programs, and increasing the number of “self-sustaining” units. Of course, this strategy often fails in the end because it turns out that the privatized self-sustaining areas rely on public subsidies in order to remain solvent.

To see this neoliberal agenda in action, we can look at the recently announced plan to restructure UCLA. As Chancellor Gene Block has argued, the only way that the campus can overcome unstable state funding is if it reduces academic costs, increases nonresident enrollment, secures more philanthropic donations, offers more self-supporting degree programs, and expands intellectual property. Looking at each one of these five elements, we will see that not only do they represent the privatization of a public institution, but they are all destined to contribute to a reduction of financial health for the institution.

Restructuring Majors
In the case of reducing academic costs, the strategy relies on lowering the number of requirements in each major. Two of the results of this tactic called “challenge 45” is that the size of upper-division courses has increased and students have been forced to scramble to find courses outside of their majors in order to graduate on time. Moreover, one strategy to help reduce the demand for high enrollment classes is a new expanded summer program that motivates students to pay extra for classes they need. It is important to note that these summer classes are squeezed into a time period that is half the length of a regular quarter session and a third of the time of a semester course. In short, students are being told to pay more for less.

Not only are students having to pay extra to attend during the summer, but the university is also considering allowing students the option of taking an “e-section” of a high-demand course. According to a Daily Bruin article, “The students will receive lecture instruction online via Bruincast and attend a live discussion once a week.” Once again, students will be asked to accept an inferior mode of education in order to move through the system in an efficient manner, and there appears to be little attempt here to monitor the value of the educational experience or the role of faculty in determining how courses are delivered.

While the goal of these instructional changes is clearly to save money, the people putting this together admit that they have no idea how much funds these new programs will save. According to Robert Cox, manager for institutional research in the UCLA Office of Analysis and Information Management: “Everyone can agree that there are ways in which these things can lead to savings, but no one has put a ticket on it to show how much you can save . . . At the policy level, you can see where the policy would tend to take the result, but figuring out how it can fill the hole in the budget, you can’t do it; the issues are too complex.” This analysis does not make one feel very confident about the ability of UCLA to predict and manage its own budget.

Globalizing Enrollments
If we now look at the second part of the UCLA plan, the increase in nonresident students, we do see a source for revenue, but once again, this strategy does not address several academic and financial issues. For instance, someone has to ask how much money is UCLA spending on trying to recruit international students. While the cost is never discussed, we have learned from a Daily Bruin article that one way that the campus plans to double its nonresident student population is by changing the way it markets itself to the outside world, and the goals for this program are quite ambitious: “Boosting the nonresident population to about 5,000 will mean adding about 10,000 more seats to classes. It will mean more students seeking appointments in the Ashe Center at the height of flu season, more students in need of counseling or psychological services and more students in need of on-campus housing.” While I have argued that public universities like UCLA should expand enrollments in order to reduce the need for tuition increases, I have also argued that schools have to hire more faculty members and make sure that the new funds are directed towards undergraduates; however, so far at UCLA, we have seen a reduction of people teaching undergraduate courses, and so it is unclear who will teach the additional students.

In fact, UCLA now only has three lecturers who teach English as a Second Language (ESL), and yet, we are expected to accommodate a growing number of international students who need language help in order to succeed in their courses. Ironically, the ESL lecturers are currently supposed to be self-sustaining because they need to raise money through summer courses in order to support the classes they teach during the year. This unsustainable situation is yet another example of how the myth of self-sustaining units never really holds true.

Hoping on Gifts
While UCLA attempts to reduce instructional costs and increase the number of international students at the same time, it also wants to increase its endowment by having UCLA students call former students and ask for increased giving. It should be pointed out that UCLA is already the most successful public university in the country when it comes to private giving, and it thus unclear how it will be able to increase its revenue during these difficult financial times. Also, 95% of the UCLA gifts can only be used for very specific purposes, like endowed chairs and new buildings, and so they rarely contribute to the general fund of the campus. In fact, many gifts end up losing money because they do not pay for the full cost of the programs they seed and support.

While the people in charge of the endowment campaign stress that they want to convince alumni to give more because of the great value of a UCLA education, many of the current proposals to reshape the university threaten to undermine both its quality and reputation. For example, the move to enhance the number of self-sustaining units includes a major expansion in extension programs, which are often taught by non-UCLA faculty and cater to non-UCLA students. Moreover, these programs are being pitched as ways of training students to fulfill present corporate needs: “Programs would be offered according to what employers want in new hires, among other factors.” Perhaps these extension programs will bring in some more funds, but we have to ask if the university wants to define itself by what some outside company thinks it currently needs.

Privatizing the Public
Of course, UCLA is already leading the way to privatization by catering to the Anderson Business School's desire to leave behind state funding and move to a self-sufficient funding model. Although, the UCLA faculty senate has voted against this move, it is clear that the leaders of the business school are going ahead with their plans, and it appears that Chancellor Block supports this change, which will not only require increasing tuition to over $55,000 but could also result in the general UCLA campus losing needed state funding. It is also unclear what the school will do when pension costs increases dramatically in the near future.

Intellectual Property Values
Perhaps the university is hoping that cashing in on intellectual property rights will help UCLA to resolve the difficult task of increasing revenue while decreasing costs, yet, it should be stressed that it has been very difficult for schools to profit from their inventions and knowledge production. It turns out that it is very costly to do research, and many research projects never go to market. In other words, universities keep on looking outside of the classroom to find a source of income, but the fact of the matter is that education is not only what schools are supposed to do, but it is also what they do best and most cost-efficiently. This is not to say that universities should not continue to pursue ground-breaking research, but they should realize where their money comes from and how much it costs to fund expensive labs with high-tech equipment and an army of bureaucrats, lawyers, office managers, and graduate students. Currently, undergraduate students subsidize virtually everything universities do, and it is time for schools to recognize this by making sure that vital undergraduate programs are supported.

Monday, November 22, 2010

The Regents Take a Strong Stance Against Free Speech and Shared Governance

Before the UC Regents voted on another fee increase, several of them voiced their concern for the future. One Regent bemoaned the role of shared governance in blocking some of President Yudof’s efforts to save money. After arguing that the committee structure on the campuses should be “zero funded” and scrapped, Regent Island affirmed that the faculty are holding up cost-saving measures like moving classes online. He stated that due to the faculty’s resistance to change, the online initiative would be so watered-down that it would fail to generate significant revenue.

After this discouraging attack on shared governance, I received word that a police officer pulled a gun on a crowd of protesters. After reviewing the video, I asked during public comment for a full investigation of this incident, which came very close to being a new Kent State tragedy. As I have discussed with campus police in the past, they need to do a better job at preparing for protests and making sure that they only use force as a last resort. Posting a single officer at a sensitive point makes no sense and ends up putting police and the protesters at risk. Moreover, the use of a single row of bicycle racks to hold off hundreds of angry people is a poor defense and opens the door for unneeded police over-reaction.

The general hostile climate against free speech was extended inside and outside of the Regents meeting. Before the start of the meeting on Wednesday, I was told that only people on a special list would be able to enter into the meeting. When I pointed out to a campus police officer that this goes against California’s open meeting law, I was told to back off. In order to make sure that anyone from the public could line up to enter the meeting, I had to contact a staff person from the Board of Regents office who informed the officers to let the public enter the meeting.

While I do feel that the police were often put in harm’s way due to bad planning, there is no excuse for detaining and arresting people for chalking messages, and the police should not be able to simply tear down the signs of protesters. Furthermore, the use of pepper spray at the meeting appeared to be indiscriminate and counter-productive. In general, some police officers displayed a hostile and defensive attitude towards the protesters and the general public.

Since no actions have been taken to discipline the campus police who used tasers on students last year at UCLA, I believe that it necessary for us to investigate filing suit against the university for creating an environment that is hostile to free speech. If we do not counter the aggressive actions of the campus police, we will lose our ability to defend the public nature of our university.

Monday, November 15, 2010

The UC's Path to Financial Suicide

Due to three actions taken by the Regents, the University of California is headed towards a total financial meltdown. These three actions are the nearly twenty-year contribution “holiday” for the pension plan, the outsourcing of the management of the investment funds, and the pending decision to support President Yudof’s pension solution. While many people have been involved in these moves, the Regents are responsible for the fiscal health of the system.

The Problem
The Post-Employment Task Force and President Yudof have both endorsed a funding plan for the pension that will require the university to eventually spend at least $1.7 billion a year on pension costs alone. This level of employer contributions dwarfs any cut the UC system has received from the state. We must remember that when the state cut the UC budget by $670 million in 2008-10, the university turned to layoffs, furloughs, huge fee increases, enrollment reductions, and a whole host of cost cutting measures that shook the university at its foundation. Imagine if the university has to spend close to $2 billion several years in a row.

The fact that no one has questioned this path to financial suicide just means that either no one understands how the university is financed or no one wants to deal with the real problem. Instead, we get Yudof's pension proposal for saving money in thirty years by changing the retirement age for new hires. This impotent gesture may placate the bond raters and some Republican legislators, but it does not address the central problem, which is that we need to move to fully funding the normal cost of the pension program now.

The Union Coalition Criticism of the New Pension Tier
The Union Coalition (UCUC) is protesting Yudof’s plan since: 1) the new tier will hurt many staff and manual workers who will not be able to work until 65; 2) the new tier and current contribution rates have to be accepted by the unions, but the university for the most part has ignored the input of the unions representing close to half of all UC employees; 3) the new tier does not help to deal with the current problems facing UCRP; 4) the ratio of employer-to-employee contributions for the new tier is much higher than any past ratio (the ratio in the 1980s averaged 5:1, and the new ratio is almost 1:1); 5) the large pension contributions combined with the shifting of costs for retiree healthcare puts most employee groups below market value; and 6) there is no stated plan to address the decrease in total compensation.

While the unions are willing to work with the university to help fund the pension in a more effective manner, the university has refused to include the unions in the decision-making process. In fact, when the union coalition asked President Yudof to allow us to make a presentation about our concerns during the official discussion of his pension proposals at the November 18th Regents meeting, we were told that the Regents cannot have every outside group take up the time of the meetings, and so we can have our one minute during public comment time. Our response is that we represent close to half of the employees, and we are not just some outside group. Furthermore, at the start of public comments, we are always told that the Regents will not be responding to any questions posed by the speakers; this is a great example of fake democracy in action.

An Impossible Funding Plan

Instead of acknowledging and correcting all of the mistakes that the Regents have made in relation to UCRP, President Yudof gives this summary of why the pension plan is in trouble: “Costs are increasing, UC and its employees are facing increasing contribution levels, and the state has not resumed its funding to be applied to the University's pension fund.” There is no mention here of losing $16 billion in investments or the Regents’ decision to suspend contributions for 20 years; instead the blame is placed squarely on cost increases and the failure of the state to support the university. When Yudof does get to the plan to fund UCRP, this is what we are told: “Under the current Plan, total contributions to UCRP are on track to increase to above 30 percent of covered compensation in 10 years, by fiscal year (FY) 2020 . . . University contributions are assumed to be 7 percent in Plan Years beginning FY 2011 and 10 percent in FY 2012, with a two percent increase annually thereafter.” In plain English, this means that if employee contributions peek at 8% of their salary in 2013, and the university pays 12% of covered compensation in 2013, the employer contribution will move to 22% by 2018 (after 2012, the employer contribution rate increases 2% each year). However, it is highly unlikely that the university will be able to require all grants, medical services, and core functions to pay 22% of salary in 2018, and so we are left asking, why didn’t the university simply bite the bullet and move immediately by requiring the employees to pay 5% and the employers 12% to fund the full normal cost and therefore reduce the need to pay so much in the future. Moreover, if the university intends to borrow money from itself to pay down the liability, it could do this right away if it fully funded the normal cost with higher contribution rates.

The reason why the university did not want to move to full funding of the normal cost right off the bat is that it knew that it could not get the medical centers and the research grants to pay their full share, and it was afraid of letting the state off the hook for its part. However, by not putting in 12% from all sources now, it will have to put in at least 22% later. Meanwhile, the grants and the medical services are not paying their fair share, and the administration is alienating the unions who represent close to half of all of the employees in the pension plan. Instead of working with the unions to move to full funding, the administration has removed most represented employees from the process and has pushed for a new pension tier that is supposed to save $8.4 billion over a 25-year period, which turns out to be $336 million a year. However, the university has also promised faculty and unrepresented staff that these savings will go to pay for salary increases to cover increased employee contributions and benefit reductions. In other words, the new tier will save nothing and do nothing to solve the immediate problem.

The way that Yudof’s proposal attempts to address the current funding of UCRP is through borrowing and debt restructuring: “Based on the suggestions of the Finance Team, the President recommends that The Regents delegate authority to the President to fully fund the UCRP ARC as quickly as practical by paying UCRP “modified” ARC (Normal Cost plus interest only on the UAAL) from 2011 until 2018 and using other University resources to make up the gap between Normal Cost and modified ARC, including borrowing from the Short Term Investment Pool (STIP) and restructuring of University debt using STIP interest.” This policy is full of loopholes because it calls to fully fund the normal cost “as quickly as practical,” which is legalese for “whenever we want to do it.” Furthermore, the idea of funding UCRP by “using other University resources” means that the President will be given the power to raid any part of the university including student fees and departmental budgets.

Why We All Should be Concerned
If you are not worried about the university having to come up with 22% of covered compensation to fund UCRP, imagine if your department or program would have to take a 22% reduction in its budget every year. Just as departments are assessed a 3% tax to fund retiree healthcare, it is likely that each department will be taxed 20% for UCRP each year. In fact, UCLA has already moved to a decentralized budget system that forces individual departments to pay for all benefit costs.

The only solution is to bring all of the stakeholders to the table, including the unions, and figure out a rational and doable plan to fund the pension and maintain the university without increasing student fees at a high rate or closing down departments or even campuses. By ramping up employee and employer contributions now and eliminating any new tier, the university can put itself on a more stable financial ground, but it will take the agreement of all parties. Furthermore, the Regents have to be held accountable for their failure to protect the financial interests of the university.

Wednesday, November 3, 2010

UC-AFT Election Analysis

The most positive aspect of the 2010 election is that Meg Whitman did not win and proposition 25 passed, which means that a simple majority of the state legislature can now pass a budget. In the past, we have had a good relationship with Jerry Brown, and he will most likely support higher education in a more robust way.

Another great win was Das Williams for state assembly out of Santa Barbara. Das has been a big supporter of the students and the faculty at UCSB. In fact, UC-AFT was an early promoter of his candidacy, and we hope to work with him closely in shaping his educational policies.

On the national front, things look pretty bad, and we should expect a period of profound infighting and a budgetary stalemate. It looks like the country is following California’s recent past because the minority party will be able to block all legislation and call for tax cuts and the de-funding of public programs. In terms of higher education, we should expect a move to cut student loans and grants. It is also likely that the House will try to reduce the funding of health and science research. President Obama will either compromise and adopt a conservative agenda, or he will promote a more progressive agenda and let the Republicans vote down popular programs. Let’s hope he picks the latter.

Monday, October 25, 2010

A Response to the Commission on the Future’s Final Recommendations

Since the regents are supposed to be discussing the Commission on the Future’s recommendations at their November 16-18 meeting, it is important to look at their final report. Following the trend of most recent UC documents, the Commission begins by claiming a dire fiscal crisis: “state funding has not kept pace with inflation and enrollment growth, particularly over the last decade. Since 1990-91, average inflation-adjusted state support for educating UC students declined 54 percent. Student fee increases have addressed only about two-fifths (40%) of this decrease. Other actions to reduce costs have resulted in reduction in staff and instructional offerings, faculty and staff salary lags and reductions in funding for instructional equipment, library materials, and facilities maintenance.” As I have argued before, these statistics are misleading because they neglect to add that since 1990, UC has reduced its instructional costs by increasing the size of classes and relying on inexpensive non-tenured faculty to teach the majority of the courses. Moreover, while the report claims that UC now only gets $7,570 per student from the state, the real figure is closer to $10,000, and on some campuses, the amount goes up to $18,000. In fact, according to the Commission’s own numbers, in 2009-10, there were 214,000 resident students, and since the university got over $2.5 billion in funding from the state, the average student subsidy was $11,687.

Processing Students at a Faster Rate

Since the university claims that it is not getting enough money from the state, and it cannot support increased enrollments, the only thing that can be done is to do more with less. In fact, many of the commission’s recommendations are shaped by this logic, which is itself based on a false understanding of how the university actually spends its money. For example, Recommendation 1, Adopt Strategies for Reducing Time to Degree, argues that the university can save money by pushing undergraduate students through the system at a faster rate: “Implementing formal programs that encourage and facilitate a shorter time to degree, such as “packaged” options for three-year degrees with pathways that make full use of advanced placement credits and summer terms. Such pathways could include joint bachelor’s/master’s degree programs.” While three-year degrees would lower the quality of a UC degree, they would do nothing to improve the fiscal health of the system.

Not only does the Commission want to decrease the time it takes to get a degree, but it also wants to increase the number of transfer students and reduce the number of traditional freshman enrollments. Recommendation 4: Reaffirm the University’s Commitment to Achieving Master Plan Targets for Freshman and Transfer Students looks a good idea on the surface, but it does not take into account the economic realities of accepting more transfer students. By calling for a 60:40 ratio between upper- and lower-division students, the university will cut into its profit margin generated by large enrollment, low-cost, lower-division courses.

Due to the way courses are currently structured in the UC system, lower-division undergraduate courses produce a profit, while upper-division classes break even, and graduate education loses money. This economic analysis is not meant to undermine graduate education, but it is essential for us to recognize that we need to honestly see where money comes in and where it goes. Once we know how we gain and spend money, we can determine how to support the programs we want to protect. In fact, the final report does at one point recognize this funding structure, “Admittedly, the education of upper-division students is more expensive because of smaller classes and necessary specialization and facilities. As implemented, the resource consequences must be monitored. From an aggregate perspective, however, transfer students require only two years of UC resources in order to graduate with a UC bachelor’s degree. Serving transfer students increases the number of degrees the UC can confer with any given level of instructional resources.” While the first part of this argument acknowledges the financial need for more lower-division courses, the final part ignores this financial reality and simply returns to the desire to increase degrees by increasing transfer enrollments.

In fact, by calling for a 60:40 ratio between upper- and lower-division students, the university will commit economic suicide. Not only are upper-division students more expensive, but transfer students limit the ability of the university to accept out-of-state students who pay a high tuition without financial aid.

The Online Solution
Another result of the commission’s failure to grasp that undergraduate students subsidize the rest of the university is their call for online classes. The very title of Recommendation 5, “Continue Timely Exploration of Fully Online Instruction for Undergraduates, as well as for Self-Supporting Programs and in University Extension” makes one think that self-supporting programs actually provide needed dollars to the general fund. Moreover, the commission makes the following dubious claim: “Within the general realm of our current on-campus programs, and in the near-to- mid term, increased online instruction may . . . reduce course impaction, reduce scheduling conflicts, and increase summer session enrollments by enabling students to earn credits without being on campus, thus reducing students’ average time to degree.” What this analysis does not state is that online courses are likely to cost more money, decrease the quality of UC courses, require more faculty work, and draw funding away from the core mission.

While there are some words of caution in the Commission’s discussion of online courses, the final report calls for a major extension of digital education: “The Commission believes that the Pilot Project currently being coordinated by the Office of the President, with the endorsement and participation of the Senate, may clarify the desirability of substantially increasing the use of fully online instruction for degree credit, beginning with lower division and UC Extension courses.” Once again, the problem is that if the UC farms out its lower-division courses, departments might lose one of their central sources for funding.

External Grants and Endowments Lose Money

One positive part of the final report is the acknowledgement that external research grants cost the university several hundred million dollars a year: “Externally funded research in the University of California is supposed to be conducted under the accounting principle of total cost recovery, including indirect costs. The indirect costs are intended to recover the facilities and administrative costs attributable to research. However, Indirect Cost Recovery (ICR) rates on federally funded research at UC campuses do not fully recover the costs of research, falling 5-10 percentage points behind some of our comparator institutions and on average 25 percent short of full recovery. For a variety of historical reasons and local campus practices, UC also does not fully recover the costs of research for non-federally funded research projects – those projects funded by the State of California, foundations, gifts, and corporations.” It turns out that while most people think external grants and endowment gifts bring money to universities, these external funds can actually cost schools large sums because they fail to cover the indirect costs associated with buildings, benefits, labs, staff, administration, and equipment.

The Costly Problem of Graduate Education
If we acknowledge that external funding can actually hurt the financial health of an institution, we realize that the only real source of income for the university is undergraduate tuition and related state funding. Yet, Recommendation 12 calls for, “Increase Graduate Student Enrollment to Meet Long Range Planning Goals and Research Mission Prescribed in the Master Plan.” Although the UC system needs to continue to support graduate education, it is unclear how this can be accomplished. For example, the Commission recommends a shift in the ratio between graduate and undergraduate enrollments: “To be excellent in national and global terms, however, the proportion of graduate enrollments relative to undergraduate enrollment must be adequate to support the research and instructional mission.” It is unclear whether this statement means that the university needs graduate students to teach undergraduates, or the university needs to increase graduate students to retain its prestige and to support the research mission.

What is clear is that a change in the ratio of graduate-to-undergraduate students would require either an abandonment of the Master Plan or a new funding model: “The education of graduate students is more expensive than undergraduate students, both in instructional costs and student financial support. Therefore, under current and the baseline fiscal projections, funding for graduate enrollment growth would require that campuses reduce undergraduate enrollment—an unacceptable result in light of our access mission and commitment to the Master Plan enrollment goals.” Given this awareness of the high cost of graduate education, it becomes hard to rationalize the following recommendation of the Commission: “Recognizing UC’s role in the Master Plan as the state’s primary research and doctoral-granting institution, the Commission recommends that the University increase the proportion of graduate enrollments from 22 percent of total enrollments to 26 percent by 2020-21, with individual targets set by each campus.” From a strictly budgetary perspective, it makes no sense to replace the profit-generating undergraduate students with costly graduate programs. In fact, due to the often low levels of support for graduate students in the UC system, it would be much more cost effective and fair if the university reduced the number of graduate students and increased their funding.

The Failure to Grasp the Budget as a Whole
It should be clear at this point that the Commission’s recommendations do not fit together and suffer from an integrated understanding of how money flows in the UC system. In fact, even the good suggestion of reducing administrative costs is undermined by the methods for achieving the savings. While recommendation 14 calls for the system to, “Expedite Implementation of UC’s Initiative on System-Wide Administrative Reforms, with the Goal of $500 Million in Annual,” the way the reductions are being resented represent a major increase in power for the Office of the President. In fact, after a period of reducing the UCOP budget by farming positions out to the campus, we are now witnessing a major increase in UCOP positions.

Since no one is looking at how the different parts of the university budget interact, many of the proposed ways of saving money will actually cost the university funds in the long run. For example, the call to derive $250 million from self-supporting programs, like extension, fails to recognize how these programs often turn a profit by not paying their fair share for buildings, administration, staff, benefits, and maintenance. In other words, self-sustaining units are not actually self-sustaining, and they rely on using UC facilities and faculty even though they claim to be separate and private. Moreover, as the report posits, most of the profits of these self-sustaining units come from one source: “Current UC self-supporting programs generate about $100 million annually, about $25 million per year above program costs. However, most of that revenue comes from the high- cost, self-supporting executive MBA programs. To date, most other self-supporting programs are relatively small and generate modest amounts above programs costs.” Unless, we want to shut down most of the privatized programs and increase the production of executive MBAs, we will need to find another source for revenue.

Even Private Gifts Lose Money

Another proposed area for future revenue is private fundraising, but as recommendation 16 notes, the way these funds are donated often restricts their use and prevents them from contributing to the common good: “The University’s history of fundraising, however, is marked by a high level of restriction on the funds raised. Approximately 95 percent of UC’s overall endowment payout is restricted, contrasted with 80 percent for most public institutions and 55 percent for private institutions. Only two percent of all gift support in recent years is unrestricted, even less for endowment. To put this in context, of the $1.3 billion in funds raised in FY 2008-09, just over $25 million could be characterized as unrestricted.” Not only are most of these endowment funds dedicated to specific projects, but they often fail to cover the full costs of the programs and positions they support. Furthermore, the university spends huge sums of money trying to raise more endowment funds.

When All Else Fails, Raise Tuition
The final recommendation calls for exploring differential tuition by campus, and it is clear from the Commission’s final report that they see this as a very attractive proposition: “Although tuition cannot singlehandedly solve UC’s budgetary challenges, it is a key component of any funding strategy and one of the only revenue sources that UC can effect to replace other funding shortfalls. There still exists substantial headroom on each campus for across-the-board tuition increases without impacting enrollments.” In other words, campuses can raise tuition and still attract high enrollments, and so each campus should be able to set their own price. Of course, this recommendation completely negates the previous defense of the Master Plan and the very essence of a public university.

The Real Recommendations
At the end of this mixed bag of recommendations, the Commission adds a curious section under the heading of “Contingency Recommendations”: “In addition to the recommendations endorsed, the Commission also deliberated several ideas that are worthy of additional study but need not be advanced at this time. Should the fiscal crisis deepen and state and other funding sources continue to decline to a point where the University can no longer sustain its longstanding commitment to academic quality and increasing access, The Regents, President, Chancellors, and Academic Senate may need to consider some or all of the following contingency measures.” By starting with the rhetoric of crisis, the Commission opens the door to a whole host of problematic suggestions: “Curtail student enrollment, potentially falling short of achieving the Master Plan ratios recommended by the Commission (see Recommendation 4) and restricting access at both the undergraduate (freshmen and transfers) and graduate levels: Re-examine UC’s financial aid strategies, also recommended by the Commission (see Recommendation 6), including reducing the portion of new undergraduate tuition revenue that is set aside (currently 33%) to fund financial aid for needy students; Raise or eliminate the systemwide limit on the proportion of nonresident undergraduate students admitted and enrolled (the Commission recommends a 10 percent systemwide cap in Recommendation 7): Substantially increase tuition and fees, including charging differential tuition by campus (see Recommendation 17), as part of a broad based program to sustain the University; Downsize the University’s faculty and staff workforce, including limiting the replacement of faculty lost due to retirements, terminations, and other separations. This recommendation came to the Commission from the Academic Council: Forego new building and capital projects that are not absolutely essential for safety. “

I believe that these final suggestions actually represent the real recommendations of the Commission. In this neoliberal vision, the few students who are lucky to get into the UC system will pay much more, receive less financial aid, and will be taught be fewer faculty members. This is the ultimate vision of downsized version of public higher education. Let us hope that the Regents have the insight to see that not only do these plans fail to make educational sense, but they also do not make fiscal sense.

Monday, October 18, 2010

Why Options A, B, and C are Bad

While it looks like some senate faculty leaders and members are planning to support the new proposed Option C for the future pension plan, it should be stressed that none of the proposed plans are good and none of them deal with the essential problem facing the university. As everyone agrees, the plans proposed by the PEB Task Froce, including Option C, do not deal with the current underfunding of UCRP or the unfunded liability. In fact, most unions and faculty committees argue that what needs to be done is to move quickly to fully funding the current normal cost, while starting to pay down the liability. Unfortunately, the new proposed plans serve as a misdirection to shield people from the truth, which is that everyone has to chip in now to save the current plan, and by creating a new tier, you only dilute the current system. In short, we need more people paying more not fewer people paying less.

When I have talked to senate leaders they tell me that they are supporting Option C because it is a lesser of evils, and they really don’t want A or B. However, I have argued that the senate committees should simply reject all of the task forces’ recommendations and instead simply support a way of funding the current system. For example, if the university moved now to having the employees pay 5% of salary and the employer paying 12% of covered compensation, we could quickly move to full funding of the normal cost. Moreover, by borrowing from the Short Term Investment Pool, the university could also begin the process of paying down the liability. This simple plan would require no reductions in benefits and would begin to tackle the central issue.
I have been told that the two main reasons why the Office of the President did not follow the advice of the Academic Senate to move right away to full funding is that the medical centers do not want to pay their fair share and the state has still not committed to paying its part. While it may be difficult to get the state to come up with the money now, in the past, the state has agreed to owe the money to the university, and we can take out a bond to cover the current state costs. Furthermore, it is absurd for the medical centers to cry poverty when they brought in billions of dollars of profit last year.

To the supporters of Option C, it must be stressed that by pushing back the retirement age to 65, you will do great harm to staff and manual workers who retire in their mid-50s. Moreover, the unions, who represent most of these employees, will reject Option C, and so the whole plan will be dead on arrival.

The dissenting opinion from the PEB task force clearly states that Option C should only be supported if it comes with a credible process to protect total remuneration. In other words, the deal on the table is to accept benefit cuts and contribution increases for future employees in order to guarantee an increase in salary for current faculty and staff. Not only will this create a generational conflict, but it relies on a vague promise of salary increases that the university has a habit of breaking.

Another concern is that the new proposed tier would extend extra retirement packages for the Senior Management Group. Once again, Option C does not prevent this type of movement of wealth to the top, and the reliance on salary increases to make up for lost benefits will most likely follow the current path of rewarding the people at the top. Also, since the Cost of Living Adjustments are limited to 2%,the result is that medium- and low-wage workers will see a dramatic decline in their retirement income as the costs of retiree healthcare escalates.

Another problem with Option C and the other plans is that they call for current employees to pay at least 7% of income in order to stay in the current system. In other words, to motivate low- and medium-wage workers to choose a cheaper benefit, employees contributions will be inflated above historical levels.

Please write your senate friends and leaders and tell them to vote “No” on A, B, and C.

Monday, October 11, 2010

Unions Respond to Proposed Pension Changes

A coalition of UC unions has put together a set of shared principles regarding the UC pension system (UCRP). We plan to present the following at the next Regents meeting November 16-18:

1. Since unions represent 45% of the employees currently covered by UCRP, any changes to our pension plans will have to be accepted by represented workers. Collective bargaining on proposed benefit changes must precede, not follow, such changes for unrepresented workers.

2. The Union Coalition of the University of California (UCUC) is united in our rejection of the proposed pension benefit cuts: the second tier and UCRP opt-out/DC plan choice. The proposed pension changes do not improve the fiscal health of UCRP, are divisive and unfair, and target low- and middle-income workers disproportionately. Similarly, we reject the eligibility and cost-shifting changes to the retiree health benefit as premature because plans to pre-funding the benefit have not been fully explored.

3. We are willing to consider a plan that would make UCRP more secure and continue its tradition of fair treatment. We are also willing to consider a plan to prefund the retiree health benefit to maintain the current level of benefits and the current eligibility criteria.

4. Keeping the UCRP adequately funded is the key issue. We suggest that the university moves quickly to fully funding the normal cost of UCRP in 2011, using employer and employee contributions. Restarting a higher level of contributions earlier will keep future costs down and capture available funding from the medical centers and contracts and grants. Total contributions must then gradually increase at levels needed to keep the plan healthy. Because of currently underfunding, we realize the plan can not to go to 100% funding in the near future, so the goal should be to keep it at healthy funding levels. Since none of the proposed plans by the task force will reach 100% funding in the next ten years, we believe the university should change its funding policy to reflect this reality. We support borrowing from STIP if necessary to fund the normal cost in 2011 and beyond. We request an adjustment of several of the actuary assumptions to more
 accurately reflect current and future employment statistics (i.e. the predicted salary increases, inflation rate).

5. How much of the total contribution is borne by the employee is the subject of collective bargaining. However, we believe the university should return to the historical ratio between employer and employee contributions (5:1). Further, any increase in employee contributions should be coupled with salary increases.

6. If the Unions are fully involved partners in shaping funding plans and preserving benefits, we would commit to partnering with UC in Sacramento to secure state funds for the UCRP.

7. We demand joint governance for the pension plan through the creation of a pension board of trustees with equal numbers of current and retired plan participants and Regents or their appointees. Placing a union representative on the Investment Advisory Board only deals with one, albeit very important, arena of concern. The Union Representative to the IAB and an alternate must be chosen by the UCUC.

8. To cut costs and promote fairness, the university must eliminate all supplemental retirement for highly compensated UC employees, including the following: The Senior Management Supplemental Retirement Program that puts an extra 5% into retirement savings accounts, along with any plan that would replace it; the 415(m) “restoration” plan that increases retirement income for employees whose UCRP income exceeds $195,000; and 401(a)(17) “restoration” plan that increases retirement income for 200 employees whose salaries are greater than $245,000.

It is clear from these principles that the unions are not just saying no to any new pension changes; rather, we are providing a more effective and fair solution. The simple fact of the matter is that the proposed changes by the PEB Task force do not address the central problem of funding the shared pension system.

On another front, several unions (AFT, AFSCME, UPTE, CNA) in consultation with CUCFA and members of the senate faculty welfare committees have put together an additional joint set of principles regarding possible pension changes:

1. We need to move to a full funding of the normal cost of UCRP. The suggested new tiers do not address this issue.

2. There has to be a credible plan for total remuneration approved by the regents.

3. We must begin paying down the UCRP liability now. This can be done in part from borrowing from STIP or Pension Obligation Bonds.

4.We need more people paying more into UCRP and not fewer people paying less.

5. There should be a full discussion of alternative plans with the inclusion of faculty, unions, and staff at all levels of the process.

6. We need a plan to pre-fund retiree healthcare.

7. We will work together to get the state to pay its share of the employer contributions.

8. The university should end supplemental retirement packages for Senior Managers.

9. Any changes to the pension plan and retiree health should not discriminate against low- and medium-wage employees.

10. We oppose raising the employee contributions to a high level in order to induce current employees to opt into a new system.

Please let me ( know if you would like to sign on to these principles. We need to submit our documents to President Yudof by Oct. 13th.

Wednesday, October 6, 2010

October 7th: Get Out the Vote and Support Higher Education

Throughout the country on October 7th, people will be demonstrating to support public education. This date also marks one of the last days people can register to vote for the November election, and so many groups are calling for joint activities to support officials who will defend public education.

This defense of public education comes at a time when privatization is gaining power in multiple ways. Not only are private citizens being asked to pay for increasing tuition costs at our public universities, but parts of the University of California are considering breaking all ties with the state. For instance, the Anderson School of Management at UCLA has announced that it would like to stop all state support in order to raise tuition and have more private control. In response to this privatization, we should ask if the business school will pay for the buildings it uses, which were built by the state. Moreover, will Anderson pay a tax to support the central administration and shared staff and maintenance? Also, should Anderson pay a high franchise tax in order to use the UCLA name?

As I have pointed out before, once a part of the university is considered to be self-sustaining, it usually means that it refuses to share its profits and contribute to the common good. For instance, most of the self-sustaining units were exempt from the furloughs and the departmental budget cuts. According to the logic of the Office of the President, the money-making sectors should keep their profits, but the state-supported areas have to suffer deep cuts.

The move to defend public higher education against privatization means that not only should we push for more state and federal funding, but we also have to fight against the myth of self-sustaining units. While some people think the university should be run more like a business, we have to realize that many large corporations only succeed because they live off of corporate welfare. Not only do companies receive huge tax breaks and subsidies, but they also profit from outsourcing their research and development to public universities. Just as the Anderson School wants to go private as it uses public facilities, free market businesses call for tax cuts, while they lobby for more governmental bailouts and handouts.

Let’s all rally together on October 7th to say no to privatization and yes to public education.

Monday, September 27, 2010

Pensions, Lies, and Videotape: An Employee's Guide to UC's Propaganda

I write this post with great urgency. The University of California is about to decide on a path that will determine its future, and if the university's employees don't wake up and do some math, there may be no turning back. The basic truth is that the UC administration is misinforming its employees in order to get them to accept a reduction of pay and benefits; however to understand how the university is misleading its workers, one must first comprehend how the system is financed.

In its effort to convince employees that they should either choose a permanent 7% pay reduction or see their retirement benefits be reduced by close to 50%, the UC administration is simply misrepresenting the following issues: 1) why a high level of contributions is currently needed; 2) how the UC has historically funded retirement; 3) what are the most effective ways of dealing with the problem; and 4) how the problem will affect the future of the university. To respond to these issues, we can simply go to the videotape and look at the recent Post-Employment Benefits Town Hall (click here to see the video ).

The first major area of contention is the question of how we got into this mess. The university's simple response is that we were all on a contribution holiday for the last twenty years, and now we are paying the price. It is interesting that by using the term “holiday,” it sounds like we have all been partying, and now not only do we have hangovers, but we have to pay for the damage we all have done to ourselves and those around us. In response to this depiction, we must remember that it is the regents who have ultimate authority over UCRP, and so it is the regents, and not the employees or the state, who are responsible. Moreover, in Nathan Brostrom's Town Hall response to what happened to the pension fund, he does not even mention that the university lost $16 billion in its retirement investments during 2008-09, and he also does not state that it is the regents who have responsibility for these investments. And of course, the administration is turning to the regents to correct the problem after they have caused it.

To counter the fact that investment losses are in part driving the pension’s growing unfunded liability, the university argues that if we never stopped contributing, we would be over-funded. My response to this defense is that, yes, the regents were wrong to stop contributions, but we have to ask, where did the money go that the UC once put into our retirement system? Moreover, even if we did continue our contributions, the regents might have lost funds through high-risk investments.

As a recent study of the UC regents shows, the UC has placed much of its retirement investments in high-risk areas because the regents themselves stand to profit from certain types of investment. Thus, the move to private equity, hedge funds, and real estate was pushed by regents who have strong stakes in these areas. If this true, and no one has been able to disprove it, it is a very scary thought that the same regents will decide the fate of not only our retirement system but the entire UC budget.

Due to the massive investment losses and the failure to continue contributions, the university now faces the strong possibility of having to contribute over 20% of its budget to the pension for the next twenty years. This means that the pension problem is not just a retirement issue, but it is a system-wide problem. We are talking here about a permanent crisis coupled with permanent furloughs. After all, when the UC lost just 1% of its funding during the last two years, the administration imposed layoffs, furloughs, departmental reductions, and a major reduction of spending on instruction. Imagine what will happen when the UC has to put 20% of its budget into the pension program.

This frightening scenario doesn't have to become reality. The UC does not have to reduce its budget, and we can force the regents to do the right thing, but first we must counter several misrepresentations, including how the UC really spends its money.

In terms of pension contributions, we need to remember that only a third of the employer costs comes from the core budget, and the university itself argues that the state is obligated to pay that part. Since only one third of the UC employees covered by UCRP are state funded, the other two thirds of the employer contributions should be paid by the medical centers, external research grants, and other services. This means that even if the employer had to contribute 20% of covered compensation to the plan, it would only really be less than 7% out of the general budget, and if the state paid its share, we would lose nothing from our core budget.

It is also essential to point out that the administration misrepresented the facts during its Town Hall when Duaine Duckett argued that the UC would try to keep the historical contribution split of the employer paying twice as much as the employee. In fact, during the last decade of contributions (the 1980s), the employer contributed an average of 12% and the employees averaged 2.4% (a 5:1 ratio). This division is obviously nowhere near a two-to-one ratio, and so I must declare that the university is intent on lying about the past.

So as many people have asked me, why would the UC lie about this? The simple answer is that they want the employees to feel that they must pay a much higher part of their salary into the system to keep it healthy. However, the more complicated response returns us to how the UC budget works. Currently, most of the budget comes from the medical centers and external grants, and as we have discovered this year, the grants on the whole lose hundreds of million dollars each year , and the medical services make billions of dollars of profits annually. However, as we learned from the furlough fiasco, the medical centers do not want to pay their fair share, and the people being paid from external grants are afraid that if they ask the grant-giving agencies, primarily the federal government, to pay their fair share, the UC will lose many of its grants.

While for the last few years, the university has justified not starting contributions on the grounds that the state has to pay its part in order for the grants and services to pay their share, now we hear that the medical centers do not think they can pay their part even though they had over $5 billion of net profit last year. Due to their enormous wealth, the medical services are not only delaying the employer contributions, but they are calling for a defined contribution plan that the university is now considering.

As several faculty senate committees have argued and some of the unions now support, the first thing that has to be done to stabilize the retirement plan is to fund the full normal cost, which is about 17% of covered compensation. Moreover, we have to start paying down the unfunded liability, and by a total contribution of about 23% for the next several years, we could accomplish both of these goals. If we maintain the historical division of contributions, the university should contribute 19% (roughly a third from the state, a third from medical centers, and a third from grants and other services); meanwhile, the employees should contribute 4% of their salary. If we moved this year to this type of funding level, we would not have to change the retirement calculations or offer a new tier or a defined contribution plan.

Instead of accepting this type of rational funding plan, the UC administration is intent on creating a new system that redistributes wealth to the top, and if employees think that it is only the new employees who will be screwed, please think again. In order to motivate people to opt into the plan in 2013, the university plans to increase the employee contributions to at least 7%, while the new plan will offer a cheaper benefit for a lower contribution level. It is therefore untrue when university officials insist that the new changes will not affect current employees. Furthermore, by creating new plans, you pull people out of the current system, when what we need is more people paying into the common fund.

According to the university’s own account, the new tiers will not reduce the unfunded liability for the next twenty years, and the plan will only become fully funded in thirty years. Their suggested solutions are not only morally unfair, but they do not make financial sense. In one of the typical university misrepresentations, Brostrom simply says “When we look at the next 30 to 40 years, we have too few assets.” The real truth is that no one can predict what will happen with the financial markets in thirty years, and therefore we must have a system where we continue to monitor our investments so that we can readjust our contribution levels. Of course, we also have to make sure we are making the best investment decisions, and this is why the unions have argued for shared governance over the pension plan.

In response to the union coalition’s request for employee representation on the pension investment board, President Yudof wrote that it is unnecessary because the UC has been outperforming its competitors by averaging an 8.9% rate of return during the last twenty years. However, Charles Schwartz has shown that the UC has been underperforming since 2000 when it started to outsource the management of many of its investments. While it may not be a lie to proclaim that the UC has outperformed its “benchmarks,” the question remains concerning the value of the benchmarks UC continues to use for comparison. Moreover, while many large investment funds lost 30% of their value during the global fiscal meltdown, most of these funds used the same questionable practice of moving funds into high-risks assets. What we need for the university to do is to at least acknowledge that their investment policies may have contributed to the under-funding status of the pension plan because without this acknowledgment, it will be impossible to make better decisions in the future.

One possible hope from the PEB Town Hall is that the university promises to listen to the faculty senates, and so it is necessary for faculty to make their voices heard on their local campuses. Faculty have to clearly reject the new proposed plans, and they have to push for a more equitable and effective funding policy. Unfortunately, things are moving fast, and the administration plans to discuss the new changes at the next regents meeting in November and then possibly vote on them in December. If staff, faculty, and unions work together to fight for a better plan, we can reverse the administration’s intended changes.

Monday, September 20, 2010

Moody’s Resets the UC Agenda

During a recent press conference discussing the changes in the UC post-retirement benefits, one of the university budget officers declared that the efforts to reshape the pension plan have already been applauded by Moody’s in their latest bond ratings. Looking at the investors’ service report dated (Sept. 9 2010) “MOODY'S ASSIGNS Aa2 RATING TO UNIVERSITY OF CALIFORNIA'S, LIMITED PROJECT REVENUE BONDS 2010 SERIES E AND F; UNIVERSITY'S OTHER RATINGS AFFIRMED WITH STABLE OUTLOOK,” we find the following: “The University's retirement health and pension plans represent a significant and growing liability and expense of the System. We believe the University will need to take significant steps to either curtail the benefits or improve ongoing funding of the costs in order to sustain its long-term credit quality. However, the University has been pro-active, creating a taskforce dedicated to provide recommendations to modify the current benefit design that should result in a reduction in the liability.” Here the bond raters clearly indicate that if the university wants to maintain its high long-term credit rating, it must show that it is willing to “curtail” or “modify” retirement benefits.

The push to drive down the costs and value of the UC retirement plan is coupled with the claim that the university is still in a healthy fiscal state because it remains, “one of the premier higher education systems in the world, serving over 220,000 students, conducting over $3.7 billion of research annually, and generating in excess of $5 billion of net patient revenue in fiscal year (FY) 2009 at its five academic medical centers.” It is important to note that while the medical centers continue to rake in huge profits, they are now apparently resisting contributing their full share of the employer pension contributions. The PEP Task force hints at this point by stating that, “if the University funds the State share of PEB costs immediately, it cannot be assumed that other fund sources will be able to afford their share without some time to revise their operating models and assess the impact of faculty, students and staff.” The “other fund sources” mentioned in this report are the medical centers and research grants that should cover 67% of the employer contributions.

Of course, Moody’s does not mention that the medical centers do not want to share their profits, and the research grants may already be costing the UC money; instead, the bond raters stress how the UC is currently rolling in unrestricted funds: “Sizeable balance sheet that remains highly liquid, with $3.5 billion of unrestricted financial resources ($5.9 billion excluding post-retirement health liabilities) and active treasury management monitoring a short-term investment pool exceeding $10 billion.” Since the UC is only paying its retiree healthcare costs on a “pay-as-you-go” basis, the university currently has close to a combined $16 billion in its unrestricted funds and short-term investment accounts, which is not bad for an institution that is supposedly facing a fiscal crisis.

One of the things that is helping the university to increase its revenue as it cuts costs and benefits for workers is its ability to use low interest rates to take on a huge amount of debt: “Significant capital needs likely to result in rising borrowing levels; debt outstanding has grown from $8.3 billion in FY2006 to over $13.3 billion in FY2009 and including new borrowings since the end of the fiscal year, a 61% increase; however we believe management and the board will remain prudent and focus on utilizing debt strategically in a challenging economic environment.” Like the rest of America, the UC is addicted to debt and continues to increase both its financial holdings and its need for credit.

While the university appears to have unlimited access to cash, the bond raters once again warn that the system is plagued by unionized workers, governmental regulations, and high healthcare costs: “Substantial exposure to healthcare sector (29% of operating revenues) and associated credit challenges, including generally more volatile operating performance, high susceptibility to regulatory and government payor changes, coupled with unique stresses on California healthcare, including unionized labor, and seismic requirements.” Here we see the underlying neoliberal agenda of the bond raters surface; according to this logic, the only thing holding the university back from making more profit and taking on more debt is the fact that there are regulations, unions, and employee benefits. If only the university didn’t have to worry about pesky things, like its employees, even more credit would be available.

One area where Moody’s thinks the university can improve is in its ability to extract more money from students: “The University has implemented significant tuition increases in the last year and is likely to continue to implement substantial increases. We believe constraints on future growth in this area will largely be mission-based and politically driven as market drivers would likely allow the University to grow tuition revenues at high rates, especially if the University was willing to seek out a greater proportion of out-of-state students.” According to this neoliberal logic, the only thing preventing the university from charging more is politics. While we might expect bond rates to make this type of political anti-political statement, it is important to stress that the more the university relies on debt and high finance, the more it has to follow the will of the raters.

One of the central demands of Moody’s, which is matched by the UC administration, is the need to wean the university off if its reliance on public funds. This move for privatization is related to an updated accounting of the lack of state funding: “Funding from the State of California (debt rated A1) is likely to remain very challenging for the next several years. The State's support accounted for 14% of operating revenues during FY2009, reflecting a decline in state appropriation revenue of $561 million or 18%. In FY2010, the reduction is estimated to be an additional $637 million.” While it looks like the university lost $1.2 billion dollars during the last two fiscal years, it is important to stress that much of this money was replaced by federal recovery money: “As of May 26th, management reports that the system has received $837.8 million in ARRA funding.” I want to emphasize that this ARRA money is not federal grant money; rather, these funds were used to reduce the overall state reduction for the last two years to under $400 million. In other words, during each year of its fiscal crisis, the UC lost about 1% of its total $20 billion budget. However, it is virtually impossible to account for how much money the UC receives each year from the state because of the way California has been paying its bills: “In FY2010, the State deferred $250 million from July until October and an additional $750 million was deferred until the end of the fiscal year. The University has used its own liquidity and borrowings under taxable commercial paper to bridge this funding gap.” In other words, UC is not able to account for how much money it gets from the state each year because it is involved in a complicated system of lending and borrowing state funds.

While we still do not know exactly how much money the university has lost from the state, we do know that even during the fiscal crisis, which justified furloughs and layoffs, the UC continued to increase its revenue and profits: “Moody's believes that the University's demonstrated ability to grow financial resources through operating performance, investment returns, and philanthropy should support planned strategic capital investments and additional leverage. UC's financial resources have grown from approximately $11 billion in FY2002 to nearly $13 billion in FY2009, including the recognition of over $2.3 billion of post-retirement health obligations.” Due to the diversified nature of its funding streams, the UC is able to claim poverty, while it brings in record profits.

One place where the university has performed well is in its ability to stay highly liquid: “The University's policy is to not allow more than $200 million of CP [commercial paper] to mature on any given day, therefore limiting maturities within a given week to $1 billion. The University retains significant liquid investment holdings, including $630 million of U.S. Treasury and Agency securities not on loan as of June 30, 2010. The University also holds additional U.S. Treasuries and Agency securities on loan ($2.0 billion). In addition, the University holds over $6 billion in corporate commercial paper and other investment grade fixed income securities that could be liquidated within a week.” The university thus has a high level of debt but also a high level of assets it can cash in at a relatively short notice.

While the university clearly does not face a fiscal crisis, it does have a very high level of debt due mostly to ongoing construction projects, and while the bond raters are pushing the UC to reduce its retiree liabilities by reducing benefits, this report also shows that the unfunded liabilities are mostly an accounting figure used to justify further reductions in employee costs. If the university wants to reduce its debt and its reliance on the neoliberal investment services, it is clear that it has to change its focus from construction to instruction.

Friday, September 17, 2010

The Regents Must Have Two Heads

After the UC Regents voted to increase employee contributions to the pension plan, they quickly moved to the next important business, which was to vote for special compensation packages for some of the highest paid people in the system. As State Senator Leland Lee wrote in a press release, the regents voted for executive salary increases totaling $6 million, and they also approved the plan to hire more administrators for a an additional $2.4 million annually. My favorite example of executive excess is UCLA Medical Center CEO David Feinberg who got a $400,000 raise and will now make $1,330,000 per year.

So after another budget presentation about the huge UC deficit, which may require another round of student fee increases, the regents and senior management must have gone to their second brains in order to approve a series of obscene compensation packages. I simply do not understand how they can justify cutting the benefits and total compensation of most of the employees, while they immediately move to increase the pay and benefits of the highest earners.

As I told President Yudof during my public comment minute, not only does it look like the university is intent on robbing the poor to give to the rich, but they cover this reverse income distribution with a rhetoric of fairness and equity. I also said that if he wants to put together a task force to reshape benefits, it makes no sense to have zero union representation on the task force. After all, 45% of the people in the pension plan are unionized, and any new deal will have to go through the unions, so why does Yudof continue to form tasks forces and commissions that exclude almost half of the employees?

On a brighter note Bob Anderson and Dan Simmons from the Academic Council asked some tough questions and made some positive statements. Perhaps we now have an academic council that will hold the regents and senior management accountable.

Tuesday, September 14, 2010

The Senate Council has Spoken, but will the Administration Listen: A Rejection of the Commission of the Future’s Recommendations

Last week, I discussed how the senate faculty members of the Post-Employment Benefits Task Force wrote an effective criticism of the plan to restructure UC’s retirement benefits. I would now like to examine the senate’s “MEMORANDUM TO THE UC COMMISSION ON THE FUTURE FROM THE UC ACADEMIC COUNCIL: Senate Response to the Second Round of the Working Group Recommendations.” Much of the council’s response relates to the expanded recommendations that were added by senior administrators after the working groups had submitted their recommendations: “Council observed that many recommendations are similar to prior recommendations and felt that the Working Group recommendations address issues in a far more thoughtful, detailed and comprehensive manner than the Expanded Recommendations or the recommendations from the Council of Vice Chancellors. Several Senate agencies expressed discomfort with the lack of information about the provenance of the Expanded Recommendations. UCSD notes that this ‘makes the process look secretive and could imply some hidden agenda by the Commission or by the administration.’” The senate faculty members are politely pointing out here that they did not expect the administration to rewrite the working groups’ recommendation at the last minute.

The way that the expanded recommendations were introduced challenges the concept of shared governance and makes it seem that senior administrators ask faculty members to contribute, but if the administration does not like the outcomes of the faculty’s input, senior management feels free to make changes without consultation. Moreover, many of the new recommendations replace shared governance with central control: “Respondents were concerned that many of the proposals would undermine ordinary processes of University governance (UCB). The proposals often imply establishing systemwide structures and reporting, which can threaten local autonomy and can become inflexible unfunded mandates, straining diminishing administrative resources (UCB, UCSD). Council is wary of excessive centralization, and asks that specific plans for systemwide initiatives be reviewed once they are developed.” Here we see senate faculty pushing back against the desire of some people from the Office of the President to replace campus autonomy with a more centralized decision-making system.

Not only does the council reject this process of centralization, but they also question the entire outlook of the administration: “Finally, UCFW expressed disappointment at the scope of the recommendations. UCFW notes, ‘Rather than focus on the real fiscal problems that need to be fixed, the Commission deals largely with simple problems that can be fixed administratively.’ They argue that UC needs to ‘tackle issues that impact the future existence of the University.’ UCB concurs that the recommendations should focus on ‘transformative (as opposed to incremental) change.’” By translating most fiscal problems into administrative problems, the new recommendations push the solutions into the hands of the central administration.

One clear example of this attempt to extend the reach of the central administration is in Recommendation 6, where we find the call for “Strategic academic planning in a systemwide context” and “easier cross-campus enrollment and curricular collaboration.” In response to Expanded Recommendation 1, the faculty clearly question the need to “Collect information on effectiveness of academic program reviews including (1) the elimination of unnecessary program duplication, (2) intra-and inter-campus program consolidation, and (3) programs discontinued due to low enrollment, low degree production, and/or quality concerns, and those not responsive to state need or student demand.” The senate faculty members also disagree with Expanded Recommendation 2, which calls for the central administration to, “Collect information on policies to ensure effective curricular design and planning, including curricular offerings, and alignment of faculty course assignments with workload policies.” In their criticism of these new recommendations, the council questions the authority of the administration to make these changes: “All three of these recommendations address issues in the purview of the Academic Senate. Moreover, many respondents noted that the Senate has in place very effective, regular, and thorough procedures for academic program and course reviews (UCI, UCM, UCSD, UCEP, AdvGrp).”

Many of the faculty senates question the need or ability for the central administration to involve itself in campus curricular decisions: “ Some members were offended that the recommendations assume that academic units are not meeting core teaching requirements. Others felt that this information already is available and an extra layer of reporting is unnecessary (UCI, UCLA, AdvGrp). However, they would support a mechanism to collect existing information, as long as it does not increase the burden of reporting requirements (UCSB, AdvGrp). Some took issue with the notion that homogenizing the curriculum is desirable, arguing that curricular diversity across the system is a strength (UCB, UCSD). Requiring cross-campus collaboration (especially extending automatically granting course credit beyond the scope of SR477 and SR544) would stymie innovative curricula and ignore different approaches to disciplines and course content. They particularly questioned the meaning of the phrase ‘unnecessary program duplication.’ Who determines this, using what criteria? (UCSB, UCEP, AdvGrp). We note that each campus must maintain a core academic program and be allowed to develop a full range of disciplines (UCM, UCSB) and that programmatic funding priorities should not be made based on a short-term assessment of labor market demand or student interest (UCSD). Finally, low enrollment or degree production are not sufficient criteria for disestablishment, and decisions regarding program elimination should be determined by those qualified to render such judgments, that is, the Academic Senate (UCSD, AdvGrp). Council prefers the approach in Size & Shape 6 and Education & Curriculum 4. The Regents have delegated authority over the curricula to the Senate, and Senate bylaws clearly assign power to the divisions to approve and supervise all courses and curricula (UCLA, UCEP).” The senate faculty groups clearly reject the central administration’s desire to usurp the authority of the faculty in order to eliminate programs and transform curricular content.

The senates also resist the need to move all of the campuses to the semester system: “Senate agencies strongly disagreed with this recommendation. Respondents argued: 1) the financial benefits have not been demonstrated via a cost/benefit analysis (UCI, UCSD, UCEP, AdvGrp); 2) no information was presented showing the ways in which transfer is impeded by the calendar (UCEP, AdvGrp); and 3) this project should not proceed or be allocated funds at a time of constrained resources (UCD, UCI, UCLA, UCSF, UCEP, AdvGrp). Moreover, the increased burden on faculty workload would negatively affect faculty morale. Some noted that since eight campuses are on the quarter system, synergies already exist (UCSD, UCEP, AdvGrp).” Many of the campuses have already voted against this change, so it is strange that it would be recommended by the administration.

Another area of concern for the senate faculty is the recommendation to increase nonresident admissions to meet campus capacity, reaffirm the 60:40 ratio of upper division to lower division, and move towards a 1:2 ratio of community college transfers to freshmen: “Council conditionally agrees to most elements of Size & Shape 8. Council supports the Master Plan, but notes that the University’s commitment to the Master Plan should be contingent on the availability of state funds, as well as on the strength of the transfer pool (UCB, UCI, UCSB, AdvGrp). UCI questions whether a 60:40 upper to lower division ratio allows for a 1:2 ratio of transfers to freshmen. UCM comments that some community colleges are not adequately preparing students, and UCEP notes that more information on the progress of transfers is needed. Finally, the state should provide greater funding for upper division students before UC increases the number of transfers.” The council correctly stresses here that someone has to actually crunch the numbers to see what happens if the university expands the number of upper-division students through transfer as it reduces the number of freshman enrollments.

The council also strongly disagreed with Expanded Recommendation 3: although some faculty members do support the targeted expansion of self-supporting terminal Master’s degrees. Some concerns include: “1) Use of University resources. Council cautions that self-supporting programs usurp campus resources and should not be built on existing courses and infrastructure (UCD, UCSB). An analysis of potential competition between self-supporting and state-supported programs must be part of the approval process of any self-supporting program (UCD).” Many senate faculty committees have questioned the financial and academic soundness of promoting self-supporting programs that often end up drawing funding away from the core mission: “As with online education, the proposal would divert resources to new endeavors that are outside the core of the University based on the sometimes dubious assumptions that they will generate revenue. But the revenue goal is unrealistic, as it is based on high- cost MBA programs. The University is unlikely to generate ten times the annual net revenue by expanding to other areas. Choosing an arbitrary revenue target is not good academic planning (UCI, UCLA, UCEP).” The faculty have rightly concluded that many of the new proposed money-making schemes may actually cost money, while they function to undermine educational quality.

This criticism of the central administration’s push for privatization is also present in the senate faculty’s resistance to online education: “We reiterate that before proceeding beyond the pilot project, the University must evaluate course quality and cost effectiveness (UCLA, UCSD, UCSF). The proposed timetable and scale in this recommendation are unrealistic and incompatible with a rigorous process of evaluation (UCB, UCI, UCEP, AdvGrp). Similarly, while we restate our opposition to undergraduate online degrees pending evaluation of the pilot project and further consideration by the Senate, we will not restate our concerns about the appropriateness of online instruction in the UC context.” The council wants the university to slow down and first test online courses before it decides to increase the number of these classes.

In the coming months, we shall see if the administration is really taking the senate faculty’s views into account. If not, faculty should join with student groups and unions to fight this move to centralize and privative the University of California.