Annoying Results of the State Audit of UC, Pt 1: No Cuts, You're Fine!

UC students, who will pay about 18% more in tuition next year, will be interested to know that the California State Auditor, which has now released its much-anticipated report, defines student fees as public funding (p 9). Their reason is that student fees are "obtained as part of [the University's regular course of business."  This explanation makes no sense at all, since federal research funds are also obtained through the regular course of business, but these taxpayer monies are classed with philanthropy and other things as private and thus excluded from this study.  This founding blunder misstates UC's actual financial condition, for some reason UCOP doesn't object to it, and the Auditor's other very important points, discussed in parts 2 and 3 of this post, are compromised by Sacramento's near-delusional inability to recognize the damage it is doing to public higher education.

This is an important report based on a lot of serious, thoughtful work.  But there are some problems, like defining student fees as public funds.

Last May I saw an email from UC's VP for budget Patrick Lenz, a lead UC negotiator in Sacramento, that included this bizarre sentence: "the only voice to agree with the UC that a $500 million budget cut does have an impact on the state’s funding of marginal cost per student was the LAO [Legislative Analyst's Office.}"  I read that sentence many times, since it seemed to be saying that all but one of our state agencies believe that a state budget cut doesn't mean that state revenues are being cut. I wrote several people for an explanation and didn't get one that made sense to me.  But apparently Lenz was exactly right, because when the state cuts its funds, UC raises tuition, so public funding stays the same - right??  Wrong! This year's tuition increases net 26% of this year's cut (pp 12-13), but even if they netted 100% student fees are not public funds.

Instead of looking into this, the state press has established the lede as the Office of President's differential allocations of state funds and tuition that have created a pattern of rich and poor UC campuses (Table 5, p 33) (see also Samuels and Cloudminder). I'll discuss this in Part 2, and some important technical points the report makes in Part 3. But first, let's look at how good UC has it thanks to our students' generous public funding of their university out of their personal public pockets.



 

As you can see, there are no budget cuts!  The picture says that there was a temporary dip but then the money came back. The state general fund share of the budget is still huge.  Given the widespread suffering in California, UC is clearly doing quite well. Add together the self-described $500 million in administrative savings after which UCOP is in perennial hot pursuit, plus all the new out-of-state students, plus two tuition hikes this year, and thus we can certainly take next year's $650 million cut!  The last huge one clearly had no meaningful effect on UC revenues. What are we crying about?

Let's take a closer look at this figure. It is misleading because

• it starts at the bottom of the decade's cycle, thus setting "normal" funding as low as possible. Our budget comparisons have always used 2001-02, the start of the last big cutting cycle, when GF stood at $3.16 billion.
• it defines as general funds various non-tuition fees paid by students, including non-resident tuition.
• It is corrected neither for inflation, nor for the Higher Education Price Index which is always higher than inflation, nor for 13% enrollment growth (which it does discuss elsewhere). 
• It is based on the report's bizarre definition of public funding, so measures neither the total UC budget nor "UC Core Funds" as defined either by Academic Senate reports or by UCOP in its budgets for current operations.
• It bumps up the top line with one-time federal stimulus money, counted as state funds since they were paid to the states, although these are going away.

Off the left edge of the chart is a higher level of past funding, but the crop means you can't see that the period under review occurs in a funding valley. Off the right edge of the chart is next year's $650 million collapse and the absence of stimulus money, but the crop hides the hillside to come.  The report calculates that state general funds are down only 9% (Table 1)  from the 2005 trough to the 2008-10 trough that was backfilled with federal dollars.  Here's what the big picture looks like, which we've had occasion to point out before.

Remember that red is where we've ended up, yellow is where we could have been if we'd started to return to our 2001 status in 2005, which the Glantz-Hays paper has shown would cost the median taxpayer exactly $32 per year, green tracks 1990's "Master Plan" funding levels, and the flat line was our projected "funding freeze" which would have left us better off than we are under Govs. Jerry Schwarzenegger and Arnold Brown.  This chart does not correct for growth in enrollments.

The state audit was an opportunity to show the state's funding trend in real state per-student, inflation adjusted dollars. This the Auditor failed to do.  Here's what that story actually looks like, carried up though 2010-11, all units in 2000 dollars.

 
UC's definition of very high public university quality derives from an entirely different public funding environment, one in which each student received almost twice the real dollar state investment as is the case today.  The state audit renders this story invisible. This means that the massive reduction in investment is something no public official will feel the need to address, or taxpayers to work to recitfy.

To the contrary, the report's Table 4 (p 24) has Instruction funding -- derived from the "public" accounts they analyzed -- increasing 15% over the five year period, and research up by almost the same amount. This beats inflation on an annual basis in one of the worst downturns in the state's history, Again, the story is that not only is UC doing just fine overall, but that so are its students, measured by a slowly but steadily increasing investment in instruction and research.

And to repeat, UC"s office of the president has no comment on this chapter of the report.  This can only further solidify the No Cuts story.

To see how cuts happen and how they are felt, we would need to turn to some additional issues:

• How Instructional and related public funds are allocated across disciplines on a particular campus (or "cross subsidies"). Cuts may be severe in some areas while others are untouched or augmented.  This is a topic the Auditor did not investigate.
• How Instructional and related public funds are allocated among campuses. Here the state audit makes some explosive comments about racial disparities in campus allocations, and I will take these up in "Annoying" Part 2.
• Whether we can tell the extent to which revenue categories, like Instruction or Research, are actually spent on instruction or research (which themselves need to be explicitly defined).  Here the state audit is disturbing, and I'll take this up in Part 3.

For the moment, we need to realize that the State Auditor has told the state's political apparatus that UC really has no shortage of public funding.  It suggests that the state takes for granted ever-rising student tuition as an accessible form of public funds.

Change the Culture of Helplessness

I'm grateful to Cloudminder for a steady stream of UC news updates: check out this past busy UC week. Berkeley's Daily Cal has been providing coverage of management and finance issues that is as good or better than the state's daily newspapers. See this piece on UC's decreasing net assets, for example.

But staying in the steady stream of dismal news does make it harder to remember that it doesn't have to be like this. I can still imagine an Arnold Schwarzenegger who forced a state funding growth ceiling on UC and CSU via the Compact but who did not then abandon it unilaterally in 2008. I can imagine a Board of Regents whose members get close to a couple of local campuses and use independent information to assess UCOP reports, and who evaluate solutions offered by faculty, students, and staff. I can imagine a UCOP that decides that transparency with more state trust is better for revenues than opacity with less state trust, and that makes a real long-term effort to explain the details of the budget, including answering questions like why basic arithmetic doesn't back up core claims such as the amount the state gives to UC per student each year (supposedly $7200, page 3). I can imagine a state legislature that would allow higher ed revenues to grow at the same rate as state income (if this had happened since 1990 UC would have $6 billion in state funding rather than be looking $2.5 billion). I can imagine a state population that would be willing to pay the same share of its income in higher education taxes that it did twenty years ago, and not closer to the half that share that it pays now (chart 2d).

The supposed impossibility of that version of California is not a fact of nature. It has been and is continually created by the decisions the major players make on a daily basis. This includes UC’s Regents and Office of the President. In these cases, their agency is regularly concealed behind a consistent strategy of blame-shifting onto the state legislature and, behind them, the voting public and their alleged universal rejection of the very concept of a public good. The university's decline has been accelerated by a culture of helplessness at the top, one which assigns blame elsewhere and helps to demobilize its own community.

Here are some examples from the March Regents' meeting.

The chair of the Board of Regents declared the restoration of state funding to be unrealistic, and in so doing took a major step towards creating that reality and locking it in. Sacramento Democrats and Republicans had their suspicion confirmed that UC would not hold them to a higher funding standard, and would not put up a fight against the current cuts. Similarly, Mark Yudof's recent testimony to the state Senate budget committee focused on avoiding a further $500 million cut as part of the so-called "all-cuts" budget, and tacitly accepted the first $500 million as a given.

In keeping with Chair Gould’s aforementioned diktat, Regent Richard Blum laid out a high-tuition plan as an absolute necessity - no further debate desired or required. I calculated that his plan would mean near-term tuition increases to over $20,000 (in-state) and medium-term increases to $40,000. The lower figure is the minimum required to maintain current levels of educational investment without the first $500 million cut. Rather than stating and tweeting the disastrous tuition news every day, UCOP spent all winter and spring saying that it planned no tuition increases - unless the additional $500 million cut took place. The effect was to muffle the only UC constituency with real influence with California's media, financially desperate undergraduate students. Having lost another five-month opportunity for opposition- and movement-building around public funding, UCOP then placed on next week's Regents agenda a proposal for a new 32% tuition increase, which would bring 2011-12 tuition to over $16,000, plus campus and registration fees (see next-to-last paragraph). UCOP waited until it could present the increase as forced upon them by a political reality over which they and their allies have no control.

Then there's the issue of UC's declining educational quality. UC Irvine Chancellor Michael Drake said that his campus is

Poised on the precipice of a negative change in quality, which, if allowed to occur, will require a generation to remedy. He praised the excellence of the UC Irvine faculty, but noted that faculty members now spend a great deal of time mitigating damage caused by cuts rather than building for the future. He described the situation of the University as one of slow decay rather than growth. Most effort is focused on protecting the educational path for students; innovation and growth are not being fostered.

These comments are extremely grave. Within American management culture, which requires continuous displays of problem-solving resolve to leaven its peculiar fatalism, they are a declaration of an educational emergency. They were accompanied by descriptions of the decline of the ability to develop individual creative capacities through face-to-face interactions, such as the wholesale elimination of the Irvine campus’s freshman seminar program.

But the state has heard all of this before. The decline has not yet occurred, is not currently occurring, but may occur in the future if the cuts are not brought to an end. Even Chancellor Drake muddled his message by saying that UC is in danger of moving from A+ to A. The vast majority of Californians, whose lifestyles are hovering around C+, would understandably accept UC “A”. Similarly, the financial statements in the Chancellor’s declarations suggest that the budget shortfalls can be handled with regrettable but nonetheless manageable layoffs that have already taken place. The non-UC reader would think, well they’re tightening their belts and fixing their IT problems and we’ll end up with a UC that gets an A for only $2.5 billion in state funds. There is no screaming on our end that says no it cannot be this way and also no it need not be this way. Refusing to take responsibility for having already damaged educational quality with its past political decisions, UCOP warns of decline this time. It is playing Chicken Little with the state.

In contrast to managerial fatalism, faculty members have been putting up a very good fight. I will have to do a separate post to discuss valuable pieces that came out this last week in The Nation and the London Review of Books, and same goes for work closer to home, such as the immediate past chair of the Senate’s systemwide Committee on Planning and Budget (UCPB) Peter Krapp’s excellent piece on why we need to keep the University of California unstratified and whole. But UC Uncut and UC Whole both entail the continuation of the Board of Regents and the Office of the President. At the moment, they are not the system’s strongest points. Whatever the specific errors of campus leaders, one can imagine campuses moving forward via chancellor-presidents with the local knowledge and on-site accountability of campus administrators. You can get a feeling for this by reading the testimony of Chancellors Birgeneau, Blumenthal, and Drake in March.

But local knowledge and direct accountability are largely lacking at the Regental-UCOP level. This problem will need to be solved if UC is going to go forward as a single system.

Ending a Bad UC Week: What Points Might Help Turn Things Around?

This was one of the worst weeks in recent UC,CSU, and CCC history, as the new Democratic governor dished out triple $500 million cuts to all the segments ($400 m to the community colleges), neck-and-neck for the cutting record of his Republican predecessor.  Comments on this blog and elsewhere suggest that some people think this is a clever political ploy, but many people are on the verge of giving up on the idea that California higher ed will ever recover under our political system. 

In the midst of this, there was something oddly cheerful about UC President Mark Yudof's conversation with Patt Morrison in the Los Angeles Times. He may have felt obligated to exude a leader-like calm. Under the circumstances, it would be better to exude a leader-like determination to go full tilt at the emergency.

In content  it was one of Yudof's  best press outlings since he arrived at UC.

The Good:

• Full cost accounting for Brown's proposed state cuts: "Remember, it's not $500 million, it's really closer to a billion, because unlike community colleges and state colleges, the state doesn't give us money for employer contributions to the pension plan, so that raises the real cost [of the cuts] to $700 million; then you have union contracts, energy contracts, inflationary increases -- we really have a billion-dollar problem."
• The racial dimension of underfunding. This issue rarely gets broached in print, but it has to be. Here, Yudof says,"The truth is, the deterioration of [education] funding predates this horrendous Great Recession. It's not like things went really great between 1990 and 2007, and then all of a sudden we had this problem. Some of it's driven by demographics -- an aging population of voters [worried about] Social Security and police protection. We have a huge demographic of Hispanic youngsters. It's no time to trim back and say, well, they're not our children; well, they are our children, maybe not biologically, but they're our children."  Scratch the biological othering and you have an important statement of a major origin of our self-dissolution. 
• Great salaries are not the UC norm: " [In] the nation's 62 top universities, our highest [paid] chancellor ranks 50th. And the chair of the group, from Santa Barbara, ranks dead last."  Incidentally, Henry Yang, UCSB's chancellor, is also the longest-serving chancellor in the system.
• Centrality of Higher Ed to the Future. "Who's going to train the nurses, the veterinarians? Who's going to invent the better solar panels? Who's going to make sure the crops are safe? Business is not doing this.  If we eat our seed corn, to use a Texas analogy, there's not going to be anything to support these programs. You have to create the basis for long-term prosperity."

The not-so-good

• Leading with the Pension Problem. "We have a $20-billion shortfall, long run, in the pension plan. I think it's going to take 20 years to dig our way out, but we have a plan."  No one wants to hear about UC's $20 billion pension hole -- out of context.  In addition to the New Year's Gang of 36 fiasco that sustained UC's reputation as rich enough to sponsor both high executive salaries and continuous internal maneuvering for bigger perks, the Right has turned cutting public pensions into a national crusade. The Economist declared war in a recent cover story, "The Battle Ahead,"  The Weekly Standard is pushing the idea that states should be able to declare bankruptcy so they can default on their obligations to public employees.  There are dozens of these examples, many with the intent of distracting from real economic problems like the transforming of private into public debt and the country's lack of viable innovation and employment policies.  Better either to engage and explain decent pensions as, among other socially-important things, compensation for UC's sub-market salaries, or say nothing at all.
• Same Old Wrong Claim that the Humanities and Social Sciences Lose Money. "We roughly have a $20-billion budget; $3 billion comes from the state. That's the English department, the Spanish department, economics -- that have difficulty generating the big outside grants. I love the humanities; I'm a creature of the humanities. But the engineering colleges are going to bring in more external research support, and that money's crucial."  Mais non, c'est faux!  In fact, the big outside grants lose money, and are supported in part by cross-subsidies from high-enrollment fields in and out of the science and engineering fields that bring in big, important, and yet very costly grants.  UC has officially acknowledged this. For example, the third sentence of a Regents's item in November 2010 reads, "The UC system incurs $600 million in unreimbursed indirect costs every year."  A San Francisco Chronicle report on the original UCOF discussion of this issue put the figure at $720 million on $3.5 billion in research revenues, or a loss of about 20 cents on the research dollar. The Academic Senate's indirect cost recovery report calcuates that ICR is about 25% while true indirect costs "appear to be in the 65-70% range" (p 5).  Mark Yudof's repeated misstatement on this has at least two bad outcomes: (1) it undoes emerging public awareness of why education is so expensive; (2) it undoes emerging awareness among scientists that they are not huge profit centers for the university.  Science research should have more funding, not less (as should the social sciences, arts, and humanities, which are pitiful also-rans). But research should be fully funded and thus not damage the finances of struggling public universities. If Mark Yudof can't be clear about this, how can we find any of the $500 million in internal savings we will need six months from now?
• Lionizing Arnold Schwarzenegger as the Education Governor. "[Former Gov.] Schwarzenegger had a huge regard for higher education. He understood its role in economic development. Great research universities take a long time to build and can be destroyed in a very short period of time; he understood that."  In reality, no modern California governor whacked higher ed like Arnold did, early and often.  He forced a Compact on UC and CSU that held down budget growth in good years, obligated annual tuition increases at 2-4 times the rate of inflation, and mandated infinite private fundraising to try (in vain) to fill operational holes.  He then welched on the Compact in a heartbeat in 2008 and cut UC 20%. He also crusaded tirelessly against public services in general, and tried to eliminate the UC pension along with those of all other state workers in 2005.  If the president of UC thinks this guy was a great higher education governor, then the UC president likes cuts and increasing dependence on private funds.  Mark Yudof clearly says he likes neither, so this kind of politicking should stop. 
• Letting Jerry Brown off the hook.  Why not instead say, "I know a lot about budget deficits. But budget deficits are no excuse for unraveling a great public university system."  
• Mixed Signals on Tuition Increases. "We've hit the students very hard, roughly 40% [of increases] in the last three years, I think. What we've given back? If you have a family income of $80,000 a year and you're financial-aid eligible, you don't pay tuition. I thought that was pretty good. And we didn't apply the increase to students [with family incomes] between $80,000 and $120,000."  So we didn't hit the students hard?  Full cost of attendance is making UC less affordable for low-income students, who in spite of Blue-and-Gold assurances borrow more both in percentage and absolute terms than do students of the middle-class.  UC needs to be much clearer that in spite of all the University tries to do, and its genuine good intentions, it cannot sustain student access with incessant, gigantic state funding cuts.

The omitted:

• Credible internal budgeting and operating reforms that will lead to real savings. I don't mean this $500 million in "administrative savings" floated last year by CFO Peter Taylor, (and I certainly hope that the Brown administration didn't get its $500 miillion cuts figure from that claim).  I mean concrete measures to respond to many stakeholders' legitimate concerns about UC's opaque budgeting and fund distribution, not to mention concerns about unfair distributions of resources and operational blockages of the kinds frontline faculty and staff know all about.  Given Brown's statement that he will work wilth all "stakeholders," Mark Yudof should sponsor real cross-functional collaborations, and assure the public that all parts of the UC community, including the dreaded unions that represent close to half of all employees, will be full participants.
• A timeline for public funding recovery.  Would it be possible for our president to say, "our plan, after making proportionately enormous sacrifices to the state deficit for the umptheeth time, is to rebuild funding to the $3 billion level by 2013-2014, and $4 billion by two years after that. Otherwise, I truly hate to say, we will be looking at $20,000 tuition for undergraduates.  Nobody wants that, but we have a duty to our students to protect quality, so we will do that if the state forces us to."
• Presentation of UC, CSU, and the CCC as a counter-cyclical economic stimulus.   This is a no-brainer.  Jerry Brown is taking up the Arnold Herbert Hoover non-stimulation of the California economy that the last governor got such a good start on. All higher ed leaders should do this every chance they get.  People give a vote of half-confidence to austerity because the folks in charge offer no alternative.
• A statement about the educational emergency. The deep crisis is not the budget crisis, it's the education crisis.  It's also the public services crisis --the meltdown in the high quality infrastructure and services that enable the creative, satisfied, productive population of today and tomorrow, with higher education being Exhibit A. California educational attainment has crashed, and both social and economic decline are already following. This has to stop. If we wait until the economy recovers, the economy isn't going to recover.

Somebody recently pointed out that institutions and societies don't fail because they never get second chances. They fail because they blow their second chances, and their third and fourth and fifth and sixth chances too.  Brown's budget is another chance to make our case, and Mark Yudof's interview suggests UCOP is somewhat more ready not to miss it.

They will need every last one of us to help them.