UC Audit

The legislature's Joint Legislative Audit Committee has just approved a request submitted by State Sen. Leland Yee to conduct an audit of the University of California finances.

Sen. Yee's request  addressed three major clusters of issues:

1. Public Funds: What are the major public sources of funding for UC? This includes money awarded by the Federal govenrment for the administration of grants.  How much of the public funding is restricted in use by the funder?  How does UC define "restricted" funds internally?  How does UC expend the indirect cost money that it receives for the administration of grants from the federal government? How is public money tracked and allocated?  How are escalator increases in grants spent if employee salaries are frozen?
2. Expenditures of State Funds and Student Fees: How does the UC spend student fees and funds from the state?  What is UC's method for tracking and adjusting non-salary expenditures and expenditure categories (such as travel, consultants, entertainment, general supplies, etc)? What is UC's method for tracking per-student expenditures for instruction?  As an annual average, how much does UC spend per undergraduate student on instruction-excluding graduate instruction and research costs?  
3. Auxiliaries: What is UC's definition of an auxiliary?  How many auxiliaries exist in the UC system?  How are auxiliary revenues being used and coded by UC?  What firewalls exist to ensure no state funds are used to backfill, supplement or guarantee projects or programs authorized by auxiliary organizations?

Something is rotten

Not, as Marcellus would have it, in the state of Denmark, but with the Board of Regents. A recent article by Peter Byrne over at blog.spot.us details the conflict of interest of several Regents, including the Governor himself, in the way the University invests its endowment and pension fund portfolios.

The conflict of interest is perhaps most obvious in the case of Paul Wachter, CEO of Main Street Advisors as welll as longtime personal friend and financial adviser to Gov. Schwarzenegger. It is in the latter capacity that Wachter is in charge of Schwarzenegger's blind trust. Among the Governor's assets that are not in a blind trust is "over $1,000,000" in stock of Dimensional Fund Advisors — and Regent Wachter similarly owns, according to his financial disclosure, "over $1,000,000" in DFA stock. (No upper limit is specified in either case on the disclosure forms.)

Interestingly, since 2004, the University of California Retirement Plan has invested over a third of a billion dollars in a DFA "emerging market fund." The original investment of $226M in 2006 was raised to $329M in 2007, although the value of UC's investment  plummeted to $151M (a drop of over 50%) by the end of 2008. But we should rest assured that the value of Schwarzenegger's and Wachter's investment in DFA was shielded by the large management fees DFA charges its investors.

As Byrne puts it,

it is remarkable that Schwarzenegger and Wachter allowed the UC Treasurer to invest hundreds of millions of public dollars with an investment management firm which they partly own. The regent’s investments with DFA were not a secret: they was publicly reported to the board. And Schwarzenegger’s and Wachter’s large stake in DFA has long been a matter of public record, so the Treasurer could easily have refrained from investing in DFA.

We had already commented on the shady ways in which UC manages its investment portfolio, and this seems just further confirmation.  All the glorious details, including some possible conflict of interest of former Regents Chair Blum. aka Mr. DiFi, in the management of CALPERS's investment fund, can be found over at blog.spot.us.

Faculty statement in support of March 4 action

The future of the University of California, and public education in California more generally, is under extreme threat. Governor Schwarzenegger and the State Legislature have slashed funding, and the UC Regents, Office of the President, and campus administrations have responded with measures that undermine the core teaching, research, and service mission of the university: student fees have been raised dramatically, hiring has been frozen, faculty and staff have been furloughed, lecturers have been fired, and many staff positions have been consolidated or eliminated, even as salaries of the highest UC executives have been increased. Market standards have superseded the values of intellectual creativity and excellence. Next year’s planned cuts will only accelerate these trends. The defunding of public higher education makes a college education inaccessible to many Californians, especially those already most disadvantaged; it endangers the vibrancy and livelihood of the state; it lowers the quality of life of all of its inhabitants.

The Governor acknowledged that student and faculty protests have affected him. The time for more pressure is now.

We continue the fight for public education in California. On March 1, UC faculty, staff, and students will lobby the Governor and legislators in Sacramento. Then, the struggle for public education ramps up on March 4, a day of system- and state-wide actions called by students, staff, and faculty from the ten UC campuses, the Cal State University system, the Community Colleges, and K-12 schools. That day, there will be a march on Sacramento and other actions in the state capital, as well as actions on local campuses and elsewhere, to demand the restoration of high quality public education that is accessible and affordable to all. We, the undersigned UC faculty, will suspend “business as usual” and participate in the March 4th day of actions for public education.

UC faculty can add their name to the letter by pointing their browsers to http://checkingeducation.com/faculty-statement.