The Rise of the Cyber-Campus

Christopher Edley, Dean of Boalt Hall and special advisor to President Yudof, has come up with a "fantasy." The fantasy comprises a cyber-campus delivering online instruction (and UC degrees)  "from Kentucky to Kuala Lampur." Dean Edley envisages thousand of students paying  fees on a par with those at residential campuses (as suggested, apparently, but the Governor himself), taking courses designed and "owned" by senate faculty, but delivered by "squadrons" of graduate students.

"Demand will be unlimited,"  the final goal — "global domination." The only bottleneck to the rise of the cyber-campus will be supply of graduate students (and of course, those pesky senate committees, "revel[ing]  in the comfort of denial and the conservatism of greatness").

Asked whether he was "trying to set up a separate online academic senate," Dean Edley replied: "I’m not going to go there."

[A reply by Berkeley's Faculty Association to Edley's presentation is here, and more discussion here.]

The May Revise

The Governor's revised budget is out. As widely anticipated, it's a mean, nasty budget, aimed mostly at cutting services for the elderly, the poor, and the sick and disabled. The Governor's proposal do do completely away with CalWORKS would affect about 1.4 million people in California, and withdraw support for families of the unemployed including one million children.

The Governor's budget for K-12 and higher education is in line with the January budget, meaning a small increase in funding for UC, CSU and CC over last year's deep cuts (not enough to even making up for years of decline). Some have seen here a clear gamble: threaten to turn California into the only state without a welfare-to-work program, and force the Democrats in the legislature to agree  to cuts in education in return for not annihilating CalWORKS. Since K-12 is protected by Prop. 98 (and accounts for roughly $35 billion of the $83 billion budget), and the revised budget already targets state employees' salaries and benefits, we can expect such cuts, if the Democrats fall in the Governor's trap, to affect higher ed to a greater degree.

The tale of the disappearing billions

Remember the hopeful news we were getting during the first few months of the year about rising state revenues? Well, the LA Times now reports that those gains have been completely wiped out when April revenue fell $3B short of expectations. Nobody really knows why: it might be that when the Legislature reached a budget deal last year they sped up collections in an effort to bring in more of that revenue in 2009; or it might be that with unemployment at a staggering 12.6% and furloughs of public employees people just don't have as much taxable (or expendable) income.

Be that as it may, the Governor and the Legislature now face an almost impossible task. According to the LA Times,

The retraction could mean even deeper cuts in government services — schools, healthcare for the poor and services for the elderly. Lawmakers may also be forced to consider more reductions in funds for public universities, as well as tax hikes.

Which will of course drive the State into an even deeper economic funk.  The Governor had been making noises lately about restoring (at least in part) funding for UC and CSU. We are not optimistic about that happening any time soon, which might well mean extended furloughs, layoffs, and even deeper cuts for the University.

The Governor's revised budget is due out on May 14. Brace yourselves.

UCRP allocation strategies

HFMWeek, a news portal aimed at hedge fund managers, reported yesterday a shift in the University's $63B portfolio allocation. Not surprisingly, the office of the Treasurer, which manages both the UCRP portfolio and the General Endowment Pool, has decided to decrease its  safe, long-term absolute return allocation and pursue a riskier strategy in hedge funds and other "opportunistic investments:"

UCRP has decided to decrease its long-term absolute return allocation from 10% down to 6.5%, as well as its US equity allocation ... the university had made extensive investments in hedge funds by the end of 2009, allocating across Europe-focused event driven equity, relative value credit, event driven credit and global macro.

Relative value credit and global macro refer to investment strategies that have made the news lately. Relative value credit involves taking  a long  position on certain assets while shorting other assets, in the attempt to minimize exposure to market moves. Conversely, a global macro strategy aims to exploit such movements in global financial markets by taking positions in financial derivatives (Soros followed a global macro strategy when he single-handedly brought the British pound to its knees back in 1992).

This might or might not be a sound strategy mix; it is certainly part of the current frenzy to maximize the expected rate of return in order to protect UC's credit rating. But, given that this is our money, should not UC employees have a voice in how the portfolio is allocated?

The Academic Council's "Choices" report

Not much to disagree with, here. I was impressed by AC's clarity of vision and force of argument. AC recommends that UC:

• Maintain or increase state support
• Avoid suffocating core academic programs 
• Delay the start of any new programs until the core is stable 
• Adopt a multi-year fee strategy 
• Increase budget transparency 
• Balance system-wide needs and campus needs 
• Disentangle sources of funds but recognize essential cross-subsidization 
• Avoid stratification and tiering 
• Increase diversity by recruiting non-resident students 
• Prioritize retirement funding and total remuneration 
• Honor its commitment to current employees by rewarding future service under current UCRP plan terms 
• Consider Pension Obligation Bonds to maintain the health of UCRP 
• Recognize that online education will not substantially cut cost 
• Recognize that shifting salaries to grants will have adverse consequences 
• Overhaul Indirect Cost Recovery Tax auxiliaries and medical centers 
• Increase fundraising efforts  
• Review growth of campus administration 
• Curb construction projects
• Recognize UC Merced’s unique situation and fund that campus accordingly

The real question is what the Council will do when this report goes unheeded, just like its two predecessors, the "Futures"  and the "Cuts" reports.

UCPB Choices Report Endorsed by Academic Council 4/10

UCRP problems: solved!

It's so simple, you have to wonder why nobody came up with it yet: buy Greek government bonds (current yield: 7.5%), hedging with a credit default swap from AIG. Next problem, please.

UCRP implosion

Please take a look at Chris Newfield's post on the current dire predicament of UCRP and at the report of the Task Force on Investment and Retirement (a task force convened by system-wide Faculty welfare).

The TFIR predicts that even with the gradual resumption of contributions to UCRP and the optimistic 7.5% expected rate of return, by 2022 UC would have to contribute 50% of covered salary to meet its obligations. And of course the State has already made it clear that they do not intend to fund UC's share of contributions (although they do so for CalPERS).

A few considerations can be added to Chris Newfield's analysis.

For the first time, this has the potential to hit UC in what they refer to as "revenue centers," i.e., clinical enterprises and externally supported research. The reason is that funding agencies and health insurers will only pay the employer's contributions to UCRP up to the level UC pays, and only up to six months following the closing of fiscal year when they are due. Since only one out of three UC salaries comes from general fund moneys, each deferred contribution dollar by UC results in two dollars that are lost forever. UC would then be in the position of having to insist that funding agencies and health insurers pay much higher contributions than the university at large (with the risk of losing grants and business contracts), or else make up for the difference from internal funds, if not now in the future.

The TFIR recommends that UC resume contributions immediately at the full "normal cost" level (or 17% of covered salary, divided between employees at 5% and UC at 12%), instead of the gradual ramp-up implemented by the Regents. By definition, "normal cost" does not make up for accrued liabilities, so TFIR recommends that the university (or the state) float "pension bonds" to finance repayment of liabilities. As long as UC can borrow money at lower interest than the UCRP expected rate of return, this is better than allowing those liabilities to balloon.

The alternative to these pension bonds would be a sudden dramatic increase of contributions, upwards of 20% of covered salary.

It's highly likely that UC will take a long hard look at benefits levels, with an eye to a drastic reduction. There has been a lot rumors about a "2 tier" system, in which new hires' retirement is a "defined contribution" plan (403(b) or 457(b)). But this is too little, as the big hurdle are the already accrued benefits and the liabilities originating from their underfunding.

What else can UC do? One thing they cannot do is reduce benefits that are already accrued for current employees. Such benefits are regarded as deferred compensation and UC is contractually obligated to provide them. But one thing they probably can do is reduce current employees' benefits yet to be accrued in the future. Employees would keep all the benefits in their current UCRP statements, but any future contributions would be redirected to a 403(b) or 547(b) plan, or similar. Ordinarily, this would lead to litigation, but since UC faculty don't have collective representation, UC is probably not too worried about this.

Anyway, go read Chris Newfield's post and the TFIR report. Although it's not clear that much can be done about this, the more UC faculty and staff are aware of the issues and involved in discussion, the better we are all going to be.