Backroom Deals

This past Monday, after hearing the plight of students for never-ending tuition hikes and their outrage at the trampling of their constitutional rights at Berkeley, Davis and elsewhere, the Regents of the University of California promptly reconvened to a separate, smaller room for the non-public portion of their meeting, where they provided yet another resplendent  example of their vision, leadership, and courage in steering the UC ship in these stormy waters.

Once outside of public scrutiny, the Regents promptly proceeded to approve 9.9% pay raises for three vice-chancellors (UCLA, UCI, UCSF) as well as for a number of university lawyers. But the lottery winner was indisputably UC Davis general counsel Steven Drown who got a whopping 21.9% salary raise (only UCDMC chief operating officer got a bigger raise, but medical center employees' salaries benefit from the revenue the bring to the University). Mr Drown was noted during the recent "events" at UC Davis for his very visible absence while the students' first amendment rights were being covered in orange pepper spray.

In the meantime, it looks like a section of UC Davis faculty, mostly from the sciences and engineering, have launched Operation SCA ("Save the Chancellor's Ass"). One is reminded of not too distant proceedings at Irvine, when Chancellor Drake hired, fired, and re-hired Law School Dean Erwin Chemerinski, all in the same week. UCI science and medical faculty also rose en masse to save Drake's ass, quite possibly in return for Drake's saving their asses when the Medical School was selling body parts and fertilized human eggs on the black market.

New Budget Model

UC Davis has released a white paper outlining a proposal for a "new budget model" (we had discussed something similar back in February). The proposal is in line with, but independent of, the "Funding Streams" model being implemented by UCOP, and similar to the corresponding allocation schemes at Michigan or Minnesota. The leading idea of Funding Streams is that revenue is to remain with the campuses that generate it (hence, for instance, Berkeley's push to enroll more out of state and international students). The Davis proposal brings this idea down to the different units on campus ( a "unit" is defined, for the purposes of the white paper, as anything headed by a Dean, or the equivalent of such). Revenue generated at UC Davis — i.e., student tuition and indirect cost recovery from grants —would be allocated to the units proportionally to the amount of student tuition and grant dollars generated. The central campus would then assess a "tax" on such revenue (including return to aid) supposedly in proportion to resources each unit is using.

This is the main idea. The details are worth a look, too. First of all, "student tuition" means blended tuition, i.e., a campus-wide average of in-state and out-of-state tuition. This way, although the campus has a strong incentive to recruit out-of-state students, no single unit does. Second, part of the moneys recovered through the assessment would go (besides support for shared resources, such as the central library etc.) to fund a "Provost Supplement" allocated centrally to the units in order to further the campus' strategic goals. Finally, it's noteworthy that there is no presupposition that the Deans will, in turn, allocate resources within their own units according to anything resembling the same principle. So although cross-unit subsidies would (presumably) be curtailed, departments within each unit would still be jockeying for increased resources. The proposal also addresses the issue of how a student's tuition is to be shared between the unit teaching the class and the unit hosting the student's major (answer: 65% to 35%).

The proposal is to be praised to the extent that it brings a measure of transparency to an otherwise totally mysterious process. It is also, to an extent, a transfer of power from central administration to the Deans, for better of for worse. But it does nothing, by itself, to address budgetary shortfalls: while units in the sciences are motivated to increase the number and size of their grants (although grants are, as finally acknowledged, a net loss to the university), the number of student credit hours is more or less fixed, certainly in the short term. So the units, especially the ones that rely on teaching vast numbers of undergraduates, would essentially be engaging in a zero-sum game.

It remains to be seen whether the proposal, strongly advocated by Chancellor Katehi, will be favorably received at UCOP (probably yes) and on the other campuses across the system.

UC Disorientation Guide

Reclaim UC  carries a "disorientation Guide" for students entering UC this fall:

As you go from class to overcrowded class this fall, you’ll want to forget that tuition last year was around $1,800 less than you’re paying now. Continuing a 30-year trend, the UC Board of Regents gathered in cigar and gin-soaked boardrooms over the summer to raise our tuition by 17.6% and lay down plans for further increases in January, or maybe just raise tuition 81% over the next 4 years.

[...]

The UC Office of the President (UCOP) never tires of reminding us that tuition increases are the recession’s fault or scolding us that Californians are just unwilling to spend on education in hard times; this is a strange excuse though, since state funding has been decreasing while tuition has been skyrocketing since the early 1990s. [...] As it happens, in 9 of the past 10 years tuition was raised – well before the 2008 recession began; UCOP’s insistence on the necessity of this recent series of tuition increases has so many logical fallacies that if it were an assignment, it’d get an F (assuming, of course, that the overburdened TA grading it even had time to pay attention to it). Tuition hikes and budget cuts – at all levels of California higher education – are part of the decades-long process whereby the richest assholes in California (and the greater US) intend to make private what few institutions remain in public hands.

Even if you slept through math in high school, UC tuition increases aren’t difficult to calculate – just add a few zeros every few decades: since 1975 tuition has gone up 1,923% or, if you’d prefer to adjust for inflation, 392% (from $700 to over $12,000 per year)! Minimum wage in California, by contrast, when adjusted for inflation, has stayed roughly the same for the last 40 years, while the median family income has continued to fall since 1973. Most people in California make less money today, yet pay much more for education: for families struggling to pay rent, mortgages, car payments, etc., education becomes a luxury good. To make matters worse, financial aid packages meant to help low to middle income students attend the UC, heavily depend on students working part-time in an economy with a staggeringly high unemployment rate and very low entry- level wages; furthermore, it relies on students taking out thousands in loans that, most economic experts agree, will lock us into debt for the rest of our lives. Indeed, many economists believe that student loans will be the next credit bubble to burst, perhaps wreaking more destruction than the recession of 2008. Because there aren’t enough jobs for everyone who graduates, student loan default rates are nearing 10% – but, unlike other loans there’s no way out for student borrowers. Sallie Mae and Bank of America can take your paychecks and your children’s paychecks until they get back all their Benjamins, and then some.

Read the rest of it, here.

Summertime

(Not that the living is particularly easy.) Sorry for the long posting hiatus, I have been mostly on the go for the last couple of months. Sadly perhaps, not much new to report on the UC front. Let's see:

1. UCOP is pushing ahead with the idea of online education, which they view as the silver bullet for UC's woes. They seem to have no idea how expensive it is, and how much it would water down the UC brand. Not to mention that we heard no explanation whatsoever of why students would want to pay full UC tuition for online classes taught by graduate students or part-time faculty. At their latest meeting, the Regents approved a pilot program, on condition that it be externally funded from private sources. It's hard to tell who they have in mind. Perhaps some of the behemoths of online education in which UC Regent Richard Blum has so heavily invested?
2. UCOP's second brainchild is the idea that they can save half a billion dollars in "administrative efficiencies." That's an enormous amount, and they seem to have pulled that number out of their you-know-what. As far as anybody can tell, these efficiencies will amount to more centralization, more standardization, and more over-extended and under-paid staff. While students are asked to pay more for less, staff are asked to do more for less pay. It does not take a genius to see that this will lead to lower "quality of life" on UC campuses, not just for staff, but for faculty and students as well. 
3. Summertime is, of course, budget season in Sacramento. Nothing much seems to be happening on the Capitol, except for the Governor's idea to put State employees on minimum wage until the Legislature approves a budget. California is yet again facing a budget gap of biblical proportions, with very few ideas of how to about closing it. (Notice that the gap is biblical compared to the $80 or $90 billion budget, but only a  small percentage of California's GDP of 1.85 trillion: while not easy, one would expect that not to be impossible to achieve.) UCOP is all giddy about the promised $300 million in restored funding, an amount that would help end the furloughs, as UCOP has promised. But the Governor's proposed restoration of funding is predicated on several billion in federal aid (not coming any time soon) and huge cuts in services.

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.

UCOF recommendations

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

UCOF first recommendations

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.

Senior Management Accounting by Leger-de-Main

Stung by increasing reports of excessive executive compensation, UCOP has taken swift and decisive action to address the issue and  reduce the ranks of senior management at the 10 campuses, and without requiring the retention of fancy — and expensive — East Coast consulting firms. In a brilliant move that fully vindicates the high regard in which our leadership is being held throughout the UC, in Sacramento, and across the country, UCOP has amended the APM to reflect a reclassification of school Deans from senior management to academic personnel.

According to the old version of sect. 240 of the APM, Deans are typically appointed as senior management, and their compensation determined according to the Personnel Policies for Staff Members:

For Deans and Provosts appointed in the Senior Management Program, the Personnel Policies for Senior Managers, also apply.

According to the new version of sect. 240 of the APM,

Except as specified in APM - 240, Deans are subject to all Academic Personnel policies. ... A Dean with a concurrent title of Vice Chancellor and/or a Dean who reports solely to the Chancellor are governed by Senior Management Group policies.

Deans "who report solely to the Chancellor" would appear to be those that are not heading an Academic Unit, e.g., Deans of Students etc.

Having re-classified Deans as Academic Personnel, one would expect them to be subject to review by CAP, but in a not unexpected twist, reviews at the Dean level are "distinct from academic merit review."

Our admiration for the Great Helmsman in Oakland grows deeper with the realization that this change is effective Jan. 1, 2010 but it appears to have been made public only very recently, when people are busy with exams or away on Winter break.

Now that the term is over ...

... exams are marked, and grades turned in, our thoughts naturally turn to things to come. No, not roasted chestnuts and mulled wine, but rather Schwarzenegger's January budget. The California Constitution requires the Governor to submit a  budget proposal to the Legislature by January 10. The  budget must be balanced, in that proposed expenditures must not exceed estimated revenues. The proposed budget is then open for comments and negotiations, on the basis of which the Governor comes up with an updated proposal, the May revise, to be approved by the Legislature, again by constitutional mandate, by June 15 (for fiscal year beginning July 1).

The bad news, of course, is that the State is facing a $21B deficit in the next year and a half, proportionally divided between one-third in the remaining six months of the current fiscal year (Jan-Jun 2010) and two-thirds for fiscal year 2010-11.

If you thought that last year's budget deal was mean, nasty and stupid, just wait for Jan. 10. There is obviously nothing left to cut in K-12 and higher ed (it's different story for the Dept. of Corrections, though, who are on their way to overspending their budgeted amount by about $1B this year). But we should not expect that to stop the Governor and the minority-ruled Legislature from going through the education budget like Sherman through Georgia.

In the face of this, the Office of the President has decided to put in a request for an extra $913M in funding for next year, which would restore the funding cuts from this year (with similar requests coming from Cal State and the Community Colleges).

We don't quite know what to make of such a request. On the one hand, it's good that UCOP is finally pushing back against the planned de-funding of UC; on the other hand, given the current state of the budget it might seem an exercise in wishful thinking. One particularly uncharitable interpretation is that UCOP is just trying to provide cover for an accelerated privatization trend, by putting in a request that they know the state will turn down in order to shw that they tried, failed, and so have no choice but to further cut costs and hike fees.

Whatever the motives behind UCOP's request, the UC community should make it clear to Yudof that he needs to be completely forthcoming about the consequences of the January budget for the University, whether they will include extended furloughs, fee hikes, layoffs, what have you. One of the reasons that led to the Sept. 24 walk-out was that UCOP waited until the end of academic year to request "emergency powers" and implement the furloughs, at a time when the campuses were empty, the students gone, the faculty finally turning to their research.

It's not only the faculty, staff, students and their families that need to know what to expect, of course. It's only right that the people of California know what the Governor and the Legislature are up to.

Will we ever get to retire?

This is a little behind the curve, but of interest to most, if not all UC faculty. According to Randy Scott, who is Executive Director of Human Resources and Benefits for the UC system, UCRP will be funded at about 61% by 2013, down from 95% this past July (and down from 149% in 2001), even taking into account the April 15 restart of contributions to the plan (up to a total 17% of contributions from employees and employer combined), as well a projected 7.5% rate of return on UCRP investments.

This is, obviously very bad news. For one thing, it's not clear where the employer contributions will come from, given that the state has so far refused to own up to its share of contributions and has no intention to do so in the future. Moreover, it's not clear that the projected 7.5% rate of return is realistic: what kind of RoR can one expect if one had some $60B to play with? (How would I know?)

UCOP rules out any changes to the plan for retirees and current employees, but it's likely that new hires will see reduced benefits, including perhaps a switch from a defined benefit  to a defined contribution model.

For those who want to temper any budding holiday cheer with the gruesome details of the sorry state of UCRP, Randy Scott's powerpoint presentation can be found here.

The importance of being Ernst

According to a report released by State Auditor Elaine Howle, UC CIO David Ernst was improperly reimbursed for $150,000 in expenses between Juy 2005 and July 2008 while working at Cal State as chief of information technology services. The Howle's report points out that

The official received $152,441 in improper expense reimbursements over a 37-month period from July 2005 through July 2008. The improper reimbursements included expenses for unnecessary trips, meals that exceeded the university’s reimbursement limits, the official’s commuter expenses between his home in Northern California and the university’s headquarters in Long Beach, living allowances, home office expenses, duplicate payments, and overpayments of claims. 

In July 2008 Ernst was hired at UCOP as Chief Infomation Officer, at a salary of $238,000 (you can always count on UCOP to recognize and reward talent). In the meantime, state Senator Leland Yee has called for Ernst to return the improperly payments, while AFSCME has called for Ernst's resignation.

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.

All hat and no cattle

If one needed any  proof that Gov. Schwarzenegger's emphasis on transparency and accountability is just for show, one would have to look no further than the Governor's veto of  S.B. 86, S.B 218 and S.B 219.

S.B 86 would have imposed limits on executive compensation at CSU and UC; S.B. 218 would amended the California Public Records Act to include organizations performing auxiliary functions for CSU and UC; and S.B. 219 would have extended whistleblower protection to UC employees. All three bills were introduced by Sen. Leland Yee, and approved by the Legislature. All three were opposed by senior management at UC and CSU.

We had already commented on Sen. Lee's laudable efforts. It does look like Sen. Lee and Lt. Governor Garamendi are the only ones left in California public life who have any sense at all.

Schwarzenegger defended his veto of executive compensation caps by claiming that

A blanket prohibition limiting the flexibility for the UC and CSU to compete, both nationally and internationally, in attracting and retaining high level personnel does a disservice to those students seeking the kind of quality education that our higher education segments offer.

But even if we agreed with the Governor's (and UCOP's) privatization strategy, this seems backwards: if it wanted to guarantee students the best education experience California has to offer, the University should be actively recruiting and appropriately compensating its faculty, not the administrators. Let me ask you: When's the last time you heard of universities and colleges being ranked by the quality of their administrators? I can imagine it already, US News and World Report advising students to attend such and such a school — they have lousy teachers and no facilities, but their administrators rock!


The other lesson we learn from this (besides the fact the Governator talks the talk but does not have the balls to walk the walk), is that UC's (and CSU's) lobbying efforts paid off handsomely, at least for senior management at UCOP and across the campuses. The lobbyists UC employs (at an annual cost of $1.6M in payroll only) obviously managed to get the Governor's ear, convincing him to overturn the decision of elected officials in the California legislature.

AFSCME's rebuttal and UCOP's priorities

AFSCME, the union representing public eployees at the State, County, and City level, has replied to UCOP off-handed dismissal of their alternative budget proposals. While AFSCME's proposals might have been, in part, somewhat unrealistic (e.g., it's clear that the idea of cutting senior managment's salaries by 25%, no matter how attractive it might appear to us, was not going to fly), they made some interesting points that were well worthy of discussion, especially when UCOP's itself had solicited the unions for proposals that would achieve the same level of savings.

ASFSCME's rebuttal contains one new piece of information, which sheds further light on the way UCOP has decided to run its finances. We had already commented on the financial scheme by which UC would borrow $200M on behalf of the State against its own assets, only to lend it, in turn, to the State to finance capital construction projects around the campuses (mostly at the medical centers, one would assume).

We now learn from AFSCME that while the State will take over 3 years to repay UC, the University will have to repay that loan short term, within nine months, as is the case for all instances of commercial paper. This means that UC can find an extra $200M in its budget over the next nine months.  The question poses itself: was this the best way to use those $200M?

If UCOP had instead decided to put those $200M towards the budget shortfall, that would have been tantamount to slowing down capital projects in times of financial hardships. What's wrong with that?

We also take time to notice a piece of news that does not appear to have received a lot of attention, but is also indicative of UCOP's budget priorities: as reported by the Sac Bee, UCOP has just decided to add one more lobbyist, Vince Stewart,  to its Sacramento outfit, at a annual salary of $120K (before the furloughs). Previously, Stewart was the Schwarzenegger's deputy secretary of higher education.

That UC maintains lobbying offices both in Sacramento and Washington, DC is a little known fact. Payroll for the Sacramento office: $859K; for the Washington, DC office:  $741K, for a total of a cool $1.6M.

This might be perhaps a worthwhile endeavor if the lobbyists were employed to reverse the de-funding
of the University. Instead, they have been active lately to kill legislature to bring whistle-blower protection to the UC and impose salary caps for senior management. (The former lobbying effort failed, the latter succeeded only partially, for the record.)

Mark Yudof: the big man on campus

On the day of the faculty walk-out UC Pres. Mark Yudof is being interviewed by the New York Times about the recent tuition hikes and the budget shortfall. What better venue to address the issues at hand while at the same time put forward the President's vision for the future of the University? Instead, President Yudof decides  to use the NY Times interview in order to:

1. Defend his compensation package;
2. Deflect blame from California Governor Schwarzenegger for the sorry state of UC's finances;
3. Justify his housing allowance.
   

It might appear that it is true of Yudof as well what Abba Eban used to say of Yasser Arafat — that he would never miss an opportunity to miss an opportunity.

There is however one revealing bit in the interview. Asked whether he blames Gov. Schwarzenegger for UC's troubles, Yudof responds:

I do not. This is a long-term secular trend across the entire country. Higher education is being squeezed out. It’s systemic. We have an aging population nationally. We have a lot of concern, as we should, with health care.

This is a long-running theme for Yudof, already rehearsed in his 2002 Chronicle piece:  the trend towards de-funding public universities is mainly due to demographics and is therefore here to stay: an aging American population is more interested in health care than education.

Although President Yudof's premises might be questionable,  his strategy is coherent, if poorly executed. The Pitts memos were definitely a tactical blunder (without them there would have been a much smaller action on Sept. 24, or perhaps none at all), as is this NYT interview, which can only aggravate Yudof's image problems. UCOP's tactical carelessness is probably due to the conviction that UC senior management have exclusive access to the truth (they'd better, given their compensation packages), and anybody who questions UCOP's wisdom must be in bad faith. The same kind of hubris is behind the following snippet:

What do you think of the idea that no administrator at a state university needs to earn more than the president of the United States, $400,000?
Will you throw in Air Force One and the White House?

 The man is aiming high, which might be good news for the University, if not for the country.

Administrative rot

We have already commented on the administrative bloat at the University of California, for instance the fact  that admistrative positions in the $200K/year and above range doubled between 2006 and 2008. But sometimes adminstrative bloat rises to the level of administrative rot. Here is a story worth telling, all of whose pieces mentioned below are available in the public domain, but perhaps more can be uncovered with some more thorough digging (FIA, anybody?).

Once upon a time, there was an incredibly weathy, impeccably managed, multi-billion-dollar pension fund. This was, of course,  the UCRP, which provides the defined benefit plan for all UC employees, and the person who had been managing it for a long time was Patricia Small. Armed with a BA in Economics from Marymount, Patricia Small had served as the Treasurer of the Regents for many years, managing $58 billion's worth of assets, and ensuring stellar returns for the UCRP fund, year in and year out. Working out of her office at UCOP, she managed the UCRP funds based on a simple but effective strategy: invest in long-term bonds, which are more appropriate for the defined benefit nature of the plan, and in stock from a small number (65 to 80) of companies, and all of this with a small in-house staff and at a minimal cost to the University. The strategies had been so successful that UCRP started requiring no contributions from employees beginning in the early 1990's until, well, next April.

As one might expect, the prospect of untapped millions of dollars in potential brokerage fees sent investment managment firms salivating all across the great State of California.

Enter Gerry Parsky who was, at the time, Chairman of the Board of Regents (he was also at some point an official in Nixon's treasury department, a real estate, junk bond and venture capital investor, as well Chair of G.W. Bush's 2000 and 2004 California Presidential campaigns; Parsky is also the Chair of Schwarzenegger's Commission on the 21st Century Economy whose highly regressive proposal for tax overhaul has just been released).

In 1999, Parsky spearheaded the Regents' effort to remake UCRP's investment philosophy. They contracted Wilshire Asociates (at a cost to the University of $350,000) to analyze UC's investments and recommend changes. By pure happenstance, in July 2000 space tourist Dennis Tito, Wilshire's CEO and Chairman contributes $80,000 to G.W. Bush's California campaign.

Not surprisingly, Wilshire found the UC strategy "risky" and recommended that UC disinvest in long-term bonds to invest in domestic stock index funds. When Patricia Small objected to these changes, she found herself blackballed by the Regents and effectively forced to resign. Three days after her resignation letter, the Regents appointed — surprise! — Wilshire to implement the changes.

As a result, by 2002 UC was paying millions  to external fund managers to oversee the University's stock portfolio. This led to a decline in profits, partly because of the cost, but partly also because of some stupid and risky choices (such as riding Enron stock all the way down from $140.00 to $0.07 at a $145M loss to UC). Wilshire was subsequently awarded a contract to serve as general pension consultant ($1.3M over 3 years),. It was during this period that the Regents instituted the Treasurer's Annual Incentive Plan (AIP), which awards up to 150% of base salary for exceptional performance, as determined by the Regent's consultants. Wilshire was later involved in the fast-trading scandal  and they were finally dropped in 2004 favor of Richards & Tierney (now Nuveen), which in 2008 was in turn replaced by Mercer Investment Consulting. This is the first part of the story: details can be found in an East Bay Express article from which much of the above information is derived, as well as Charles Schwartz' exemplary and thorough treatment.

But let's go back to Patricia Small's position as Treasurer of the Regents. After she resigned, the position went to DeWitt F. Bowman (former chief investment officer for the California Public Employees Retirement System) on an interim basis, and then to David H. Russ, who was hired in 2001 at a salary of $275K, which rose to $325K (gross pay) by the time he retired in 2006. David Russ was succeeded in the position by Marie N. Berggren, the current Treasurer and CIO. And this is where things get a little strange: Berggren was hired at an initial base salary of $375K, which however rose to $470K by 2008, with extra pay of $340K for total compensation of $810K.

Why did Berggren's compensation almost double between 2006 and 2008? Was it because of the stellar performance of UCRP funds (which led to the resumption of employee contributions?) Was it because of her participation in the the UC Treasurer's Office Incentive Plan?

One wrinkle in all this is the potential conflict of interest involving Mercer: as evidenced here, the firm acts both as consultant as regards the Treasurer's Annual Incentive Plan (AIP) and as general investment consultant. It seems likely that Berggren's outlandish raises were recommended by the very same firm that was later hired to oversee the University's investments. Note that Mercer's appointment in this latter capacity was enacted in a closed meeting of the Regents in September 2008, at which the newly appointed President Yudof was also present. One wonders, how long did it take Yudof to smell the stench and decide to along with it?

Yudof's address to the Regents

The UC Regents met yesterday, Sept. 16, to discuss the proposed increase in fees for undergraduate students at the University. After a bit of bru-ha-ha, the meeting could get down to business, beginning with Yudof's address to the Regents (the videos can be found here, here and here).

This was a passionate plea by Yudof to the Regents, and again one that is worth a close look for the information it provides on the direction where the University is headed. Yudof began by painting a rather bleak picture: the worst is far from over, the state budget will not improve next year, federal stimulus money will go away, all the while the university has to deal with an "unreliable partner," viz., a "dysfunctional state government."

Having thus described the situation, Yudof then proceeded to articulate his argument, whose first premise is that we shold give up "faith-based budgeting," i.e., coping with the present situation hoping that things will get better. Things will not get better, the State will not provide more money for the University (for a number of complex but well known reasons). We have to face the "unhappy truths;" we can, and should go to Sacramento for more money, but we should be aware that the State has no more money to give.

The second premise of Yudof's argument is that "mediocrity is the greatest enemy of the UC." We must do everything we can to preserve quality. From these two premises it follows that we must increase our reliance on the only other source of revenue that is available to the University, and increase student fees. Students must realize that the State "stopped building freeways to higher education" and is now "building toll-roads."

This is the main argument. Are there alternative solutions? Yudof does not think so: he denied that there were administrative raises, denied that there were "unrestricted" or "reserve" funds in the budget (and even if there were, say at the Medical Centers — and he's not saying there are —it would "wrong" and perhaps "illegal" to use them), blamed the union's (and especially AFSCME's) unwillingness to negotiate for the layoffs.

The fee increases are necassary, according to Yudof, in order to "stop the decline of the academic program" at the University, prevent a brain drain at the UC, and "do away with the furloughs" as of next summer (a connection that has the added benefit. obviously, to divide the faculty and the students).

Pres. Yudof ended reminding the Regents of the Blue and Gold Program, allowing any student whose family earns less than $60K to attend UC for free, the fact that 30% of the increase returns to aid, and the very high proportion of student on Pell Grants, the highest of any research university.

Yudof's vision is clear and, if we accept the two main premises of his argument, his plan is rational and compelling. The details of his plan have, of course, been poorly executed, but that is a different story. The Pitts memos, for instance, were blunders of historic proportions: if UCOP had received the Senate's recommendations we would not probably be here considering an unprecedented faculty walkout on the first day of classes, and in fact nobody would be surprised if Larry Pitts were at some point scapegoated for this. The administrative raises, that were (contrary to Yudof's claims) real and documented, were very bad optics, even if inconsequential in the $20B budget of the University. And the decision to protect the revenue-generating units at UC, first and foremost the five Medical Centers, even it meant gutting the core campuses, could have probably been avoided or mitigated. But these are matters that concerns the implementation of plan, not the plan itself.

Yudof has been criticized as a "privitazer," but his views is not to turn UC into a private university, but into a true hybrid institution. As pointed out elsewhere on this blog, there are reasons to think that that goal might not be attainable, as hybrid istitutions are inherently unstable, but that is Yudof's vision. We can either accept that vision or reject at least one of Yudof's premises. Since preservation of quality at UC is a goal that we share, the only option on the table is to engage in political action to make sure that the State's priorities are reversed and its funding model radically altered. Not easy, but is there another way?

Academic Senate to AUUP: long live the Great Helmsman!

Chris Newfield just made available a letter that the new system-wide Academic Senate Chair Powell and Vice Chair Simmons have written to the AAUP (who had endorsed the proposed Sept 24 walkout). In their letter, Powell and Simmons claim that shared governance is alive and well at the University of California, and whoever thinks otherwise does not really understand what shared governance means. As my children would say: whatever.

Almost lost in the perfunctory mumbo-jumbo, though, is this pearl:

[Yudof] has indicated that the decision was necessary as part of his effort to insure that the faculty furloughs will not be continued into a second year. 

Oh? We are surprised, first of all, because there no such motivation in the now (in)famous Pitts memo, where UCOP was mostly concerned in laying down the law. But, second, the connection between the implementation of the furloughs and their continuation into a second year is one that UCOP has never bothered explaining to the faculty. This would, of course, be completely in keeping with the culture of secrecy and lack of budgetary transparency at UCOP, but another explanation is possible: there is no such discernible connection, and Powell and Simmons are just engaging in cognitive dissonance and  post factum rationalization.

Results of no-confidence vote

Results of the no-confidence vote sponsored by UPTE have been delivered to UCOP.

UPTE's press release is here (PDF). Over 96% of those who voted chose to express no confidence in Yudof's leadership and UCOP in general. We don't know at this point how many people voted, but it is in any case a strong signal. According to the SF Chronicle, UCOP dismissed the results as a "publicity stunt." They are right, in that the vote is certainly non-binding: Yudof answers to the Regents and not to the employees of the University.

But the Regents should take notice that Pres. Yudof managed, in a mere fourteen months in office, to antagonize a vast portion of UC faculty and staff. This is no mean feat, probably unparalleled in the history of the University.

So here is a question for the Regents: is Yudof the best person to steer the University of California during these difficult times?

Vote of no-confidence on Yudof's leadership

The UPTE union has called for a vote of "no confidence" in Pres. Yudof's leadership. Polling stations are open beginning today, Aug. 26, to Wed. Sept. 2. A list of polling stations can be found here, or one can vote online here.

Bullshit

This is, of course, a technical term. Whereas lying presupposes some acknowledgment of — and perhaps even a certain regard for — the truth, bullshitting is only concerned with the effect of the given utterance on its recipient. The California Professor was reminded of the distinction by UC President Yudof's repeated justification of UCD Chancellor Katehi's $400K salary, which represents a 27% increase over her predecessor's. While defending the appointment, and not for the first time, Yudof has pointed out that Katehi is one of the nation's leading electrical engineers and has 16 patents.

Do you know how many people like that are in the UC System? What about people with thirty-two patents — should their salary be $800K? (That would — I shudder at the thought — begin approaching the salary of the UC President). What about Nobel laureates and other world-renown faculty at UC?

The truth is that Yudof's argument is totally bogus — in a word, bullshit. It is of course true that Katehi is a respected scientist, barely tainted by the Illinois admissions scandal. But the scientific credentials have nothing to do with her appointment at UCD, which is just another instance of executive compensation run amok.