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.

UC Berkeley and the 14th Amendment

On January 13 the UC Berkeley Committee on Student Conduct (CSC) placed Angela Miller, a UCB Junior, on interim  suspension, banned her from Campus property, precluded her from speaking to anyone affiliated with UC Berkeley, and evicted her from Campus housing. Ms. Miller was accused of participating in the Dec. 11, 2009 demonstration outside the Chancellor’s University House during which windows were vandalized and a concrete planter was broken. Eight people were arrested, including Ms. Miller, but given the insufficient evidence the Alameda County DA decided not to file any charges.

Evidently unhappy with this outcome, Berkeley decided to bring Ms. Miller in front a CSC panel to respond to the charges. During these proceedings  Ms. Miller was denied her right to counsel, refused access to photographic evidence (that only showed carrying a torch), and not notified of the Administration's intention to bring witnesses (who then turned out to rely in hearsay). Addressing her character and political views instead, the panel decided that Ms. Miller was a danger to the campus community, and proceeded to suspend her.

A post by UC Berkeley law students at Uncivil Procedure makes it clear that the University's proceedings violated Ms. Miller's constitutional rights to due process (as set forth in the 14th Amendment), also noting that

California law is clear that the rules governing disciplinary hearings at public universities are subject to constitutional due process guarantees.

The Uncivil Procedure post is a well-written and interesting piece: it forcefully shreds to pieces the University's charges against Ms. Miller, documents the breach of her constitutional rights, and makes a reasonable case that the CSC panel's aim was "to chill and impede student activism [...] UCB’s warning to any who dare show a contrary opinion." Somebody should be giving these law students an A.

The underpants gnomes strike again

Paul Krugman commented recently how some House members' plan for health care reform resembles the Underpants Gnomes' brilliant 3-stage business plan:

1. Collect underpants
2. ?????
3. Profit!

It would appear that Gnomes were at work again this past week in Oakland, when the Regents approved a plan to retrofit Cal Stadium, which was built in 1923 right on top of the Hayward Fault.

According to the plan, the $321M retrofit would be funded, as usual, by issuing a construction bond. And how do the Regents plan to pay for debt service on the bond? Through ESP, of course, the Endowment Seating Program: Cal would be selling lifetime licenses to approximately 3,000 seats in the stadium. It looks like, so far, about 1,700 such licenses have been sold, generating some $215M in revenue (that's about $125,000 per seat; reports have pegged the cost of such seats at $2,700, but that must be the yearly cost over 40 years, or else it would be impossible to generate enough revenue to pay for debt service).

Professional teams in the Bay Area have tried this already, with mixed results: it worked for the Giants at AT&T Park, but it was a flop at the Oakland Coliseum.

Notice that Berkeley's Athletic Program (besides boasting the highest paid employee of the UC system) has been losing money for years, with the Campus having to chip in a few millions each time. OK, so what happens if the anticipated revenue from ESP does not materialize? That's where point (2) of the Gnomes' plan comes in.

Here is what $3.1M in incentive pay will buy

Well, not much, it would seem. The Mercury News reports today that federal inspectors have uncovered "dozens" of problems at UC Irvine Medical Center, from sub-par storage of drugs to lost patients' confidential information, to poor oversight in general. So many problems were uncovered, in fact, that UCI MC risks losing millions in federal funding. We don't know how many of the 38 managers that will receive the incentive pay approved yesterday by the Regents are at UCI MC. But we do hope that the Regents will see it fit to rescind any incentives to be paid out to UCI MC managers.

$3.1M in incentive pay at UCMCs

During their their meeting this week in San Francisco, the Regents are expected to approve $3.1M in incentive pay for 38 senior medical center managers. That's an average of $81,600 for each manager, with David Feinberg, head of UCLA's Medical Center, earning close to $220,000 in incentive pay alone.

UCSF Chancellor Susan Desmond-Hellmann said her hospital saw a more than 5 percent drop in one type of infection, and that 89.5 percent of patients surveyed reported being satisfied with care. "This is how you run a great medical center," she said, referring to incentives.

The $3.1M do not come from state funds, but from medical center profits. According to the SF Chonicle,  the University would likely be sued if they did not approve the incentive pay (as such incentives were in the managers' appointment letters).

This raises a couple of questions:

1. The MCs are turning out millions in profits, should they not be asked to help support the University at large, the same way in which the University at large supports them?
2. There are many faculty and perhaps staff whose salary is specified in their letters of appointment or promotion. Why does the furlough program not expose the University to potential lawsuits from these faculty and staff?
3. And, since we are at it, why not extend the incentive program across the board? Here is a deal: if 89.5% of my students are satisfied with my teaching and I increase their test scores by 5%, I propose that the University  award me the average incentive of $81,600.