30 March 2010

UC faculty salaries

A couple of interesting data points coming out of UCOP shed some light on where UC faculty salaries stand with respect to the "Comparison Eight" institutions. The Comparison Eight are four private and four public institutions that are used by UC to compare faculty salary scales and student fees. The four public universities are Illinois, Michicgan, Virginia and SUNY Buffalo; the four privates are Harvard, MIT, Stanford and Yale.

So, how does UC compare with peer institutions? The first slide shows that the last time UC salaries (general campus averages, not professional or medical schools) were in line with the the Comparison Eight average was in 1999-2000. That's when the peak of the dot-com boom occurred, Al Gore was running for president and Lieberman was still a democrat:

By 2009-2010 the average of the four private peers was out of sight, and UC was only slightly above the average of the four public peers, in spite of most of the faculty living in some of the most expensive real estate markets in the country.

As is well known, in 2006-07, the university implemented a plan to bring UC salaries back to market level by, well, next year. The first part of the 4-year plan was implemented in  2006-07, by we know what happened next:

UC salaries are now less than 90% than the market level, with no talk of resuming the 2006 plan.

UC Berkeley invests $300,000 for each student

We commented a few months ago about the hare-brained scheme at UC Berkeley to fund construction of the California Memorial Stadium and the new Athletic Center. UC was planning to pay for debt service for construction bonds at Cal Stadium by selling stadium seats at $220,000 each. We don't know how that is working out. But it appears that a similar scheme to fund the Athletic Center has run into some trouble.

UC's plan to pay for the Athletic Center was to float a $135 million construction bond, raise a similar amount through private donations, invest that amount in the stock market and use the returns on that investment to pay for debt service.

It was a good plan. Except that as David Downs reports in the Chronicle, the donations never materialized, and the first payment of $4.92 million will come due in a couple of years. It should be noted that Berkeley's intercollegiate athletic, which is supposed to be self-supporting, has in fact been losing money for many years, and had to be bailed out with several million dollars of campus general funds, and this before the Athletic Center fiasco. And the $135-million, 142,000-square foot, 4-story Center being build to house the lockers of Berkeley's football team will serve at most 450 students a year. That's $300,000 or 315 square feet for each of the 450 student-athletes using the Center.

25 March 2010

Skimming the UCOF proposals

As widely reported, the proposals contained in the preliminary report of the UC Commission on the Future, are numerous and varied.  Here are a few highlights, beginning with the good parts.
  • Continue the University's commitment to the Top 1/8, which promises the top 12.5% of high school graduates in California admission to a UC campus.
  • Continued commitment to financial aid for low-income students.
  • Increased graduate enrollment, to bring in line with the proportion of graduate students to undergraduates at peer research institutions.
  • Establish financial aid eligibility for undocumented students.
  • Give students a multi-year tuition (the standard term to replace "fee") schedule, so as to avoid mid-year increases like the one from last November.
All of these are laudable and clear goals, but none of the above address the financial situation of the university. When it comes to pointing to a possible solution to the current budget crisis, the Commission's recommendations are often vague, outlandish, controversial, or all of the above:
  • Increased enrollment of non-resident students, ranging from 5% to 15% of total enrollment, possibly displacing California students. 
  • Increase the newly-christened tuition by 5%, 10%, or 10% or  (according to different scenarios) a year for five years, bringing tuition to $13,148, $16,591, or $20,721 by 1015-16, respectively.
  • Introduction of 3-year degrees by streamlining requirements and expansion of summer session courses and AP credit transfers.
  • Exploration of online courses, the holy grail of financially challenged institutions.
  • Revision and renegotiation of Indirect Cost Recovery (IRC) formulas, based on the principle that externally supported research must include 100% of indirect costs.
  • Expansion of self-supporting programs, e.g., Executive MBA's.
  • Allow externally supported researchers to buy out their teaching from their grants, and hiring non-ladder faculty to "backfill" those researchers' vacated teaching.
  • Explore the possibility of allowing different campuses to set different tuition levels.
  • Promote a set of administrative "best practices" to eliminate administrative redundancies and bring about efficiencies at all levels. 
What is most striking about these proposal is how vague they are. The last point, concerning "administrative best practices," for instance, is just an empty slogan unless substantiated by clear examples and precise criteria of applicability. Other proposals are bound to be controversial with the faculty: implemementing 3-year degrees would require strictly holding faculty and departments to pre-set teaching load (a number being circulated is 900 credit hours a year for each faculty member). Similarly, insisting on 100% indirect cost recovery will not ingratiate the science faculty at all.

The proposal that perhaps most endangers the UC system as it was originally conceived is the possibility of setting differential tuition by campus. This would mean that Berkeley and Los Angeles would be able to charge private-level tuition, while reduced funding at the remaining eight campuses would gradually turn them into state schools. It would be, for all practical purposes, the end of the UC system.

The Commission's report contains a couple of significant acknowledgments, though. The first is the recognition that with less than 100% ICR, research has to be subsidized by core funds. While this might have some rational during the good times, it is less justifiable now. The other one recognizes that given the disparity among disciplines in their access to external sources, internal funding has to be prioritized towards disciplines in the arts, humanities, and social sciences.

The report fails to endorse an oil severance tax targeted for higher-ed funding, the way it is used, for instance, in Texas. Instead, the report goes into some discussion of a general tax for higher education, which would be even more politically unfeasible than oil severance.

But the most basic and longest-lasting impression that one receives upon reading the report, is that it is a document which fundamentally lacks an overarching vision for the university. It's a report that puts together a number of local ideas, some of which have been circulating for years, hoping that their cumulative effect would lead the university out of the crisis. There is no reason to think so. The recommendations are vague, politically controversial, and occasionally contradictory.

Only the articulation of a comprehensive plan, guided by some clear and fundamental principles, would have a chance of bringing together the different constituencies in the university. The way the recommendations are formulated right now, they will only pit students against administrators, science faculty against humanities faculty, and top-tier campuses against the lower-tier ones.

23 March 2010

UCOF recommendations

Here is a long document summarizing recommendations from UCOF's Working groups:

It's a long document (153pp), I will peruse and post some comments, but in the meanwhile I make it available here for public scrutiny.

22 March 2010

Why universities should (not) be run like a business

There is an insightful post by Iain Pears over at Future Thoughts discussing the extent to which universities are, or are not, like a business, and identifying areas where university administrators, in spite of their paying lip service to the business model, have in fact much to learn from best business practices:
the current problems are arising not because university management is efficient, but because it is not. 
The proximate occasion of the post is the bone-headed restructuring plan at King's College London, but the considerations in the post seem uncannily apt for the situation at UC.

First off, it is clear that universities are not at all like businesses. At least in theory, but often in practice as well, there are all sorts of checks and balances on the way a public company is run: CEO's answer to the board and its Chairman, who in turn answer to the shareholders. Disclosure requirements, such as  10-K forms filed with the SEC, and competitive pressure protect shareholders and their interests. If Management screws up, share values go down, and shareholders have the power to take corrective measures. None of this happens in the case of universities: not-being driven by profit, there is no immediate way to measure their performance, and their boards do not answer to any vested outsiders:
The problem with importing managerial techniques into universities – and into the public sector generally – is that it has centralised authority along business lines, but has not at the same time imported the checks which monitor performance and the balances to control managerial power. The result has been conditions which are a gift to the mediocre.
It is not unexpected, then, that university administrators, fancying themselves "masters of the universe," but without external checks, would implement a skewed set of priorities.  This is true at UC as it is at KCL.

The author at Future Thoughts identifies four areas where KCL has adopted policies that call into questions the quality of its managers. It's not a little unsettling to realize that very similar considerations apply at UC:
  1. Ballooning administrative costs: in well-run businesses, the proportion of administrative costs is supposed to drop relative to revenue as companies expand, resulting in administrative efficiencies and improved bottom line. Adminstrative bloat at UC has come at the cost of teaching, service, and research (which are the constitutionally mandated function of the institution).
  2. Heavy expansion of debt to fund an ambitious development programme. This is all to familiar: judging by the priorities implemented by the administration, UC seems more interested in funding capital projects by floating bonds on the securities market than maintaining the quality that has characterized it for so long. In a private company, capital investment leads to lower unit costs and higher revenue. University capital investments would be justified if they cut overhead by more than what they cost. It is difficult to make the case that this is happening at UC (see the Cal Stadium retrofitting, for instance). Otherwise,

    Such programmes are more likely to be a burden on the balance sheet, transfer money to debt payments away from core functions, without offering matching efficiency gains. They are precisely the sort of expenditure which should be put on hold at the first sign of trouble.
  3. Mishandling of personnel. KCL does not have the shared governance tradition of UC, but in both cases the administration has shown blatant disregard of faculty input (we won't forget the Pitts memo, although Pitts may wish we did). As a result, the system-wide Senate has lost much of its credibility as a vehicle for the voice of the faculty: where the Senate has not gone along with whatever scheme was being hatched in Oakland, their voice has been feeble and timid. 
  4.  Failure to guard the university's reputation. Here again, UC's reputation as the premier public system of higher education in the world has been tattered. This is of course, not just the University's doing. Years of neglect and dwindling state resources are the primary culprit. But for just as many years UC leaders (the Regents, UCOP, and the Academic Senate) have been whistling in the dark, pretending that it was just another cyclic drop.
Universities are not like business, true, but require the same qualities from their managers as successful businesses do: vision, leadership, intelligence, respect, adaptability to different circumstances and the particular nature of the organization, all in the service of the "bottom line:" teaching, service, and research.

UC students and faculty, their families, as well as the people of California and the companies that want to do business in the state — these are the shareholders of the university who should finally hold the institution accountable.

16 March 2010

Robbing Peter to pay Paul

The University of California was ordered to pay back $38 million in fees that were improperly charged to almost three thousand students at professional schools in LA, Berkeley, and elsewhere. Apparently the University admitted the students in 2003 with a commitment that they would be grandfathered into the fee schedule at the time of admission, only later to renege on that commitment and raise their fees by thousands of dollars midway through their degrees. The University has already lost similar suits, and in response the Regents have approved short-term fee increases at such professional schools to pay for the cost of the rulings. According to the  SF Chronicle, UC counsel Christopher Patti indicated that that might happen again if this latest ruling is not reversed in appeal.

In the meantime, as if almost on cue, at their next meeting in San Francisco this coming March 23-25 the Regents will consider a policy change that would allow professional schools to set their fees at levels comparable to similar schools at private universities. Currently professional schools are not allowed to raise fees above comparable public universities. The proposed policy change would just delete the word "public" from current policy.

The University of course has long considered students as a potential source of additional revenue rather than the constituency they are constitutionally mandated to serve (witness the 32% fee increase approved in November). What is particularly disturbing in this case is the insouciance with which UC proceeds to renege on firm commitments.

09 March 2010

UCRP, GASB, and the Rate of Return

In an article in yesterday's NYT, Mary Williams Walsh reports on an increasing dual trend in public pension funds' investment strategies. On the one hand such funds are shifting their portfolios away from stocks, which they view as too volatile, and towards "safer" long-term bonds; on the other hand, to make up for the lower returns traditionally afforded by bonds, they are increasing their exposure in instruments that are viewed as riskier, such as "commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing," which are usually traded over the counter.

The mixed strategy might look as sheer madness, and indeed it is, but there is a method to the madness, or at least a rationale if not a justification. This has to do with (relatively) new accounting rules for governments, education boards, and other public entities imposed by the Governmental Accounting Standards Board (GASB). Two GASB statements, in particular, are relevant to public pension funds, including UCRP:
  1. Statement 45 (issued in 2004) requires pension funds to disclose in their financial sheets the unfunded actuarial liabilities deriving from "post-employment benefits other than pensions," in particular retiree health care and life insurance. 
  2. Statement 50 (issued in 2007) aligns reporting requirements for pensions to those for other post-employment benefits, as laid out in Statement 45. In particular, pension plans must disclose both the funded status of the plan and the "methods and assumptions" employed to determine the fair value of investments (including, supposedly, the expect rate of return). This is especially relevant for defined benefit plans, such as UCRP, whose liabilities are not linked to market performance.
Now obviously, in recent times, public pension funds' portfolios have taken a severe beating.  As reported by Walsh, for instance, CalPERS has lost billions of dollars in private equity and real estate in recent years. And according to the presentation of the UC task force on post-employment benefits, the value of the UCRP portfolio has plummeted by about $20B between 2001 and 2009 (bringing down its funded status from 149% in 2001 to 95% in 2009 — further projected to drop to 61% by 2013, even with 17% contributions scheduled to resume this coming April 15).

So it becomes clearer why public pension funds are under increased pressure to sustain their expected rate of return on investments, even if this means "going to Las Vegas," as the former chairman of the Texas Pension Review Board put it in the Walsh article. Without such riskier investment strategies, and given the shift to long-term bonds, the expected rate of return would further drop and their unfunded actuarial liabilities (which now have to be disclosed) would balloon.  Notice that pension funds have also been systematically over-estimating their rate of return, expecting it to be somewhere around 8% annually, whereas it has historically been a lot lower.

It is important to notice that private funds are in a somewhat different place. They also have been shifting their portfolios from stocks to bonds in recent times (this is the case, for instance, at Boeing), not planning however to sell the bonds at some future point, but to hold on to  them for many years and use the yield from the bonds to pay off pensions to their retirees as needed. Of course, it also helps that private funds are not subject to the same disclosure requirements as government entities.

So, where does that leave UCRP? For a long time, UCRP pursued a very similar strategy to the current Boeing plan, light in stocks and heavy in bonds. These were the heydays of UCRP, when contributions went on vacation for twenty years and UC Treasurer Patricia Small was single-handedly managing the immense portfolio from her office in Oakland. Then, in one of the most obscure episodes in UCRP history,  Small was forced to retire, as the Regents decided — in a not completely disinterested fashion — to shift their strategy to better yielding instruments managed by brokerage firms charging the University millions of dollars in fees. As a result, contributions have resumed and the funded status of UCRP has plummeted.

Still, this does not explain why the GASB disclosure requirements have everyone in Oakland in a panic. After all, these are just accounting rules, and disclosure of unfunded actuarial liabilities does not change the substance of the funded status of UCRP. People in Oakland knew full well that a storm was gathering even before they were hit by the GASB requirement (and if they didn't, then someone at UCOP was not doing their job).

But therein lies the rub. Disclosure of liabilities is bound to affect the University's credit rating and a case can be made that defending the credit rating has been behind a lot of UCOP's actions lately, from the furloughs to the fee increases. In fact, the announcement of the post-employment benefits task force says that explicitly. After noting that UC's unfunded liability will increase from $13 billion today to $18 billion by 2013 and to nearly $26 billion by 2018, the announcement points out that
Such a significant liability could affect UC's credit rating when seeking funding for campus buildings, hospitals and other bond-funded programs.
So UCOP is under increasing pressure to reduce its unfunded liabilities in order to protect its rating. We do not know if UCRP is also "going to Las Vegas," but it would not be a surprise if they decided to turn to riskier investments in order to boost their rate of return, which in turn will show up on their financial sheets as decreased liability. Notice that UCOP is still assuming a rate of return of 7.5%, even though the market value of assets dropped 5.6% in 2007-08 and a whopping 19.2% in 2008-09. And yet, even on that optimistic assumption, and even with resumed contributions, they project that UCRP will be funded at 61% by 2013.

So they must be desperate in Oakland, and everything is on the table. The post-retirement benefits task force has been talking explicitly of reduced benefits for new hires, but expect them to consider reduced benefits for current employees as well, given a chance they might be able to get away with it (a question for UCOP's office of the legal counsel). The same holds for retiree health care, which is increasingly expensive. In contrast to retirement, the University is under no prima facie contractual obligation to provide a given level of health care insurance to employees, past, present, and future. So post-retirement health care is probably on the table not just for new hires, and not just for current employees, but nobody would be surprised if it was on the table for current retirees as well (in the form of higher premiums and deductibles).

Furthermore, the  office of the legal analyst has already requested that the state not fund the University's share of the resumed contributions to UCRP, not even the $20M appropriated in the January budget vis a vis the $228M requested by the Regents for that purpose (but notice that the state fund contributions to CalPERS). The legal analyst also recommends that UC employees be required "to cover a portion of the costs of any future benefit enhancements or unfunded liabilities that might emerge in UCRP."

We understand why the University is in such throes when it comes to retirees' benefits. Quite simply they need a whole lot of money, which must must however come from within the UC budget other than the general fund, i.e., in the form of student fees, increased premiums and contributions, a change from a defined benefit to a defined contribution model, or even extended furloughs.

A lot will be happening soon. Stay tuned.

05 March 2010

The day after

Yesterday's rallies and demonstrations were heard around the state and across the country. While mostly peaceful (except for a car window smashed at UCSC, the 880 freeway blocked in Oakland, and a tense confrontation at UCD), participation was somewhat less than expected. At each event numbers were in the hundreds, not the thousands. First-hand accounts can be found elsewhere, I just want to point out John Garamendi's expression of support for UC in the HuffPo, renewing calls to support Alberto Torrico's AB 656 introducing an oil-severance tax to support higher eduction in the state. Garamendi is one the few rational voices left in California politics.

04 March 2010

Furloughs 2010-11

As is well known, Pres. Yudof has committed to ending the furlough program this summer. Now, of course, that is a proposition that raises more questions than it answers, and here is why. UCOP must be fully aware that things are not going to be significantly better next year: although the Governor's January budget allows for a somewhat larger appropriation for UC next year than this year, this will be more than offset by the loss of federal stimulus funds. And this is predicated on the very unlikely assumption that the May revise will resemble the January proposal in this respect, which is furthermore conditional upon the federal government's pitching in a few billions here and there.

So UCOP would seem to have two options, neither one of which is good. If they fail to follow through on the commitment, then their credibility is shot to smithereens (even more than it is now). If they do follow through, that raises the obvious question of why furloughs were necessary this year in the first place, and again this exposes a certain level of duplicity. So what gives? Is it possible that our fearless leaders in Oakland have not actually thought this through? 

There is, however, a third option. It all depends on what you mean by "UCOP ending the furloughs." It would appear that (given the heat UCOP is taking on the furloughs) their plan is to pass the buck to the campuses, by imposing a certain savings target, and allowing the campuses to handle this as they see fit.

I would expect some campuses (UCB and UCLA, say) to find enough funds in their budgets to end the furloughs, while other, less endowment-rich campuses, would have no choice but to continue the furloughs.

Just a thought, we'll see what happens. In the meantime, let's see how this March 4 events turn out.

02 March 2010

CUCFA statement in support of California Democracy Act

The Council of UC Faculty Associations has released a statement in support of George Lakoff's proposed constitutional amendment to change the 2/3 majority rule back to a simple majority in matters of budget and revenue. 

The California Democracy Act is the initiative started by George Lakoff to restore a simple majority requirement for state budget and tax changes. Californians for Democracy are now collecting signatures to get the initiative on the fall statewide ballot.

You can learn more and download a petition for the ballot initiative to at http://www.ca4democracy.com/

You can’t actually sign the petition online. But, if you are a California registered voter, you can print it out, sign it, and mail it in by listing yourself as both signatory and circulator/witness. There is also a version of the form that allows you to add three more signatories. All signatories on a single form must be registered in the same county.

The deadline is April 12. By then 697,000 valid signatures will be needed, but to insure sufficient valid signatures are collected the goal is to collect 1 million signatures.

The Council for UC Faculty Associations endorses the initiative. This signature gathering effort is an opportunity for you to join your colleagues in helping to change the structure of the state legislature so that an intransigent minority will no longer be able to stop all action on the budget.

Please download the petition, sign it, and send it C4D. Although this is a long shot in the present political climate in California, it's the best hope we have. If this fails to qualify or gets voted down in November, it would be very bad news for the state and the university.

March 4

March 4 is only a couple of days away, and a number of events are scheduled around the state, including a rally on the Capitol steps. The administration has mounted a sizable effort to redirect the protests away from Oakland towards Sacramento, and certainly the dysfunctional Legislature and ineffective Governor bear much of the fault for the current state of the University. But it is also clear that, under the heading "never let a good crisis go to waste," UCOP is looking to use the current situation to push through momentous changes in the way the University is funded and run, from a shift to a "public/private" model to an attack on faculty governance (a weak senate leadership being complicit in this effort).

Will it work? Much depends on participation on the various campuses, especially when it comes to faculty that until now have preferred to sit on the sidelines.