15 October 2009

Eight Questions for Mark Yudof

We've known for quite a while that the University enjoys a higher credit rating than the state, so much so that UC recently borrowed $200M on behalf of the State. Thanks to a cogent and detailed Open Letter authored by Bob Meister, now we know why: the University can do something that the State can't, i.e., raise revenue at will by increasing tutition (whereas the State cannot raise taxes, given the political and legal constraints).

Meister's letter should be required reading in every classroom in the system: it explains in details how UC has pledged student fees as collateral for its bonds, which in turn are used to finance capital construction projects around the campuses.

Careful reading of the letter elicits the following eight questions for UC President Yudof, questions to which we anxiously await answers.
  1. How much revenue does UC obtain through tuition-backed bonds?
  2. Will UCOP disclose its plans to issue new tuition-backed bonds in the future?
  3. How much money will UC be committing to service debt incurred through any future tuition-backed bonds?
  4. Where exactly does UC list in its financial statements the reserves being held by the bond trustee, Bank of New York Mellon Trust (BoNYMellon)?
  5. Will UCOP release the "due diligence" documents it furnished the bond trustee, BoNYMellon, and the bond-rating agencies, Moody's and Standard & Poor's when it first issued bonds in 2004?
  6. More in general, what are UC's plans to raise capital in the bond market, whether these bonds are backed by tuition or not?
  7. Has UC ever diverted funds off-the-top from instruction budgets to construction budgets, and if so, in what amounts?
  8. Last but not least, how much revenue does UC derive from its contracts with the Department of Energy and the private partners at the National Labs?
UPDATE: based on Meister's report, Charles Schwarz asks whether, beside being pledged as collateral for construction bonds, tuition is or will be used also to actually service debt. We are confident this question will receive as swift a response as the eight questions above.

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