Compare and Contrast

The LA Business Journal regularly runs lists of top firms in LA County by various criteria and sectors. It also has a listing in this week’s issue of colleges and universities ranked by enrollment.

UCLA is the largest campus in the County with over 40,000 students; USC is the second largest. With the talk around about privatization, it might be of interest to contrast UCLA (public) with USC (private), using the data from the Journal. The biggest contrast is that USC has more faculty, full time and part time, than UCLA, although fewer students. On the other hand, UCLA has substantially more non-faculty employees than USC. Both universities have med schools but UCLA’s is bigger. How much of the non-faculty employment gap is due to the difference in med school size cannot be determined from the Journal‘s data.

See the data below: [click on the image to enlarge and clarify]

As prior posts on this blog have noted, there has been particular interest in the ongoing brouhaha over the “self-sufficiency” program proposal for the regular MBA at the Anderson School. The Journal provides some data on the USC vs. UCLA MBA programs. Note that the ratio of full time (regular) MBAs to part time MBAs is reversed at the two schools. UCLA has more part time MBA students. This difference may be a reflection of the current funding regime in which the Anderson School makes more money from the part time programs and thus has an incentive to put more emphasis on them.

See the data below: [click on the image to enlarge and clarify]

Wrong Direction

In yesterday’s LA Times, Patt Morrison interviewed former UCLA Chancellor Albert Carnesale. Most of the interview dealt with other matters. But below is an excerpt on UC:

What do you make of what’s happening to the University of California?

We had this great public university, but you didn’t have to insert the word “public.” [It was] able to compete with the best of the privates. We’re losing that. We may already have lost it, in large measure. Students now pay more in tuition fees than the state provides. The resource gap is too great. It’s not as if all the fine professors suddenly will leave for private universities, [but] when you’re trying to recruit new people, they’re going to have this in mind. Graduate students will consider going where they can get a better financial package.

What can you do about this? You could have more state funding; a friend of mine said that’s called faith-based funding. You could have less cuts. You could have a greater degree of what’s called privatization. You might [accept] more out-of-state students — there’s a $22,000 premium for out-of-state students. You could have higher fees and higher aid. No one of these things would do it. It isn’t as if there’s nothing you could do, but they’re all politically difficult.

[The education master plan] has served this state extraordinarily well — the education level of the citizenry, the ability to maintain fine research universities, to have the kinds of jobs and economic growth California has had. If we want to maintain that excellence, it’s going to cost more.

I’m not badmouthing the University of California, but all of the signs for the future are in the wrong direction if it’s to continue to compete with the best of the privates. It will still be a leading public university, but that shouldn’t be good enough for us…

Full article at http://www.latimes.com/news/opinion/commentary/la-oe-morrison-albert-carnesale-070211,0,6989366,full.column

Yudof on Budget, Privatization, Pensions

There is an interview in the LA Times today (1-15-11) of President Yudof by Patt Morrison. Below are excerpts.

…Morrison: You’ve used the Ed Koch line, “How’m I doing?” After 2 ½ years, how’re you doing?

Yudof: I think we’re doing well, and I don’t mean to be Pollyanna-ish. 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. We put the new [student] eligibility standard into effect; it’s going to be a less mechanical admission [process], looking at the whole student record. We’re putting in place a 10-campus payroll system. The faculty has been very loyal; we haven’t lost an untoward number of people…

Morrison: What do you think about Gov. Brown’s proposed cuts to UC’s funding?

Yudof: I don’t blame Gov. Brown. I don’t blame the Legislature. This is where we’ve been heading for a very long time, so it’s sadness more than shock. In spite of all we’ve done to save money, raise fees, restructure our debt, this is going to cut into the muscle and sinew. A lot of people think there’s a lot of fat. We don’t have enough fat left to absorb a budget cut like this. We will set targets for reductions, and in March I’ll present the whole thing to the Board of Regents. I’m not planning on asking for a fee increase, at least not at this time; I can’t rule it out forever. We’re probably looking at layoffs and program cuts and things like that.

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.

…Yudof: [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.

Morrison: There’s talk of privatizing parts of the system, like UCLA’s Anderson School of Business.

Yudof: Well, I don’t like the privatizing. Frankly, internally there’s a lot of criticism of the proposal. But in this environment, if there were areas in which you could charge more to help balance the overall budget, it’s very tempting. But I’ve not signed off on it, [and] it hasn’t gone to the board.

Morrison: The governor once spoke of the “psychic rewards” of public service, as opposed to the dollar ones. That’s an old statement; I don’t know if the governor would stick by it. I think there’s something to it, but I would put it two ways. Many university professors could pursue more lucrative careers. It took me virtually 10 years of law teaching to match the highest offer I got from a law firm coming out of law school. I didn’t regret it; I’d made my choices. So there is psychic benefit. On the other hand we’re in a competitive business. Like any industry, [faculty] get [other] offers. Compensation is a significant factor. They say, “What am I doing here if I can get 50% more money from a private institution”? You have to be competitive. [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.

Morrison: Your predecessor resigned after accounts of secret bonuses and salary deals. Now some well-paid UC people claim they had a deal for bigger pensions. It’s complicated — a lot of the money wouldn’t come from public dollars but from profit-making parts of UC. What’s your stand on this? Isn’t the timing awful?

Yudof: I don’t do secret deals; everything’s in the paper! It is a complicated problem. When I arrived I had no idea we had a ruling [on the pension deal] pending. We looked at it and said, this resolution was never implemented. [The potential beneficiaries] disagreed. They’re not dishonorable people. That is a good-faith interpretation. We think it’s wrong, and we think under the current financial circumstances it’s difficult to justify. Perhaps it was the tone of [their] letter; I think that it hit overly hard.

Morrison: Is what we’re going through an aberration, or the new normal?

It’s probably the new normal. The truth is, the deterioration of [education] funding predates this horrendous Great Recession…

Full article at http://www.latimes.com/news/opinion/la-oe-morrison-yudof-20110115,0,4144979.column

Competition with the Private Universities & Endowments

A recent working paper from the National Bureau of Economic Research suggests that private universities react asymmetrically to shocks to their endowments. In particular, they overreact to negative shocks by cutting their operating budgets. That may suggest that, in the aftermath of their recent big financial losses, the privates were not as aggressive in raiding UC as they could have been but also that this effect is likely to wear off. That is, the endowment-loss effect may have shielded UC for a time, but we cannot count on it continuing.

Below is a summary of the paper:

Why I Lost My Secretary: The Effect of Endowment Shocks on University Operations

Jeffrey Brown, Stephen G. Dimmock, Jun-Koo Kang, Scott Weisbenner

NBER Working Paper No. 15861
Issued in April 2010

Over the past two decades, endowments have become an increasingly important component of the typical university’s resource base. We examine how U.S. doctoral institutions’ endowment payout policies and spending decisions are affected by financial market shocks to endowments. While most endowments have formal payout policies intended to smooth payouts over time, we find that universities are more likely to deviate from these policies following negative (but not positive) shocks. These negative shocks have important economic effects on university activities. Specifically, we find that universities with larger negative endowment shocks are relatively more likely to: (1) reduce support staff (e.g., secretaries) and maintenance, but not administrators; (2) among less selective institutions, reduce expenditures on tenure-system faculty while increasing the average salary of adjuncts/lecturers; (3) make larger cuts to tenure-system faculty and secretarial support when their endowment portfolio is less liquid (i.e. higher allocations to alternative assets such as hedge funds); and (4) among more selective universities, reduce financial aid for students the following Fall and enroll fewer freshmen. We also find that universities increase hiring when there are negative endowment shocks to their peers. Thus, financial shocks have real effects on university operations, but with cross-sectional variation in how universities respond.

The paper is available at:
http://www.nber.org/papers/w15861.pdf