If You’ve Got a Few Hours to Spare Staring at Your Computer Screen: 2 Suggestions

The Economist magazine and the Lewis Center of the Luskin School of Public Affairs sponsored a forum at UCLA on April 26 on governance problems in California. You can see a video below (which runs about an hour and a half). Yours truly is at minute 45 to minute 51 and at later points. The forum centered on the Economist issue of that week which focused on California and tended to put the blame for current dysfunction in Sacramento on direct democracy – the initiative process.

Earlier, former UCLA Chancellor gave the 2011 Bollens-Ries-Hoffenberg lecture in which he outlined his proposal for self sufficiency funding of UC.

Chancellor: UC Berkeley becoming a federal university

Chancellor: UC Berkeley morphing into federal university (excerpts)

February 23, 2011 | Louis Freedberg | Californiawatch.org

As it gets more funding from the federal government, and less from Sacramento, UC Berkeley is effectively morphing from a state university into a federal university, according to Chancellor Robert Birgeneau. In an interview yesterday, Birgeneau said the transformation will “require us to think through what our role is both in the state and nationally.” He first made the compelling case for applying the “federal” label to California’s most famous public university at a conference organized by the Travers Program in Ethics and Accountability on the Berkeley campus earlier this month.

…Birgeneau said Berkeley finds itself in the position of many other state universities that also have seen dramatic declines in state support. When he talked recently with University of Michigan President Mary Sue Coleman about UC’s predicament, she told him, “Welcome to the club.” Among the questions raised by the shift in funding, said Birgeneau, is “how much autonomy should individual campuses have” if the state only provides a small portion of its income. Another question is “What should the balance be of in-state and out-of-state students?” Berkeley has substantially boosted the number of non-Californians it admits, benefiting from the higher tuition they pay. As a result, nearly 20 percent of undergraduates admitted to UC Berkeley this year were either out-of-state or international students.

…Birgeneau said he had not fully fleshed out his concept of what it means to be an increasingly federally supported university. But, he said, “the reality is that with the progressive disinvestment in higher education by the state, the state is becoming a tertiary player.”

Full article at http://californiawatch.org/dailyreport/chancellor-uc-berkeley-morphing-federal-university-8816

Note that UCLA, largely because of its med school, receives a larger fraction of funding from the feds than Berkeley.

UPDATE: The Sacramento Bee publishes a supportive editorial at http://www.sacbee.com/2011/02/24/3425961/future-of-uc-hinges-on-choices.html

Silicon Valley CEOs Advocate Stable Funding for California Higher Ed

Governor Brown asked a group of Silicon Valley CEOs for suggestions as to how to stimulate employment growth in California. Among their suggestions:

Develop a reliable and equitable financing and fee structure for state institutions of higher education and strengthen the buying power of the Cal Grant program for both public and private universities to encourage graduate and undergraduate student development.

You can find the complete document at http://svlg.org/docs/whitepaper_govbrown.docx

Note that the opening statement in the document that California did not create jobs during the past decade is misleading. Below is a graph of California nonfarm payroll employment I pulled from the US Bureau of Labor Statistics. As the graph shows, there was employment expansion in California until the Great Recession hit, undoing past job creation. Nonetheless, Silicon Valley types are likely to carry disproportionate weight with the governor. In his previous incarnation as governor, Brown particularly liked “technology” and gave money to UC-Berkeley for a high-tech electronics lab. (Yours truly was involved in that episode.)

Yudof Explains Tuition Increase in Public Letter: Tries to Mitigate Bad News with Good News But Comes Across as an Apology

Most of the media coverage in fact focuses on the tuition increase, not the mitigating subsidies to lower income student nor the material on the quality of UC. Whether intended or not, the letter was likely seen as an apology for the increase.
———————–
Open letter to California from
UC President Mark G. Yudof

2010-11-08

The University of California was conceived in the immediate aftermath of the Gold Rush, and ever since the fortunes of the state and those of the university have been entwined. One would not be the same without the other. The university is both a creation of and the catalyst for California’s unique, forward-looking spirit.

Because of this symbiotic relationship, all Californians have a stake in making sure that this system of premier research campuses, medical centers and national laboratories remains on course to serve coming generations of Californians as well as it has their predecessors.

In this vein, I am writing today to let Californians know about the fiscal realities that confront the university, and also about some recommendations I intend to bring next week to our governing Board of Regents. First, though, I’d like to provide a bit of background.

As I arrived at the university two and a half years ago, a confluence of challenges was lurking just beyond the horizon. Some were immediate and unforeseeable, the most obvious being the sharp collapse in the fall of 2008 of an already wobbly national and state economy. Other challenges were hidden beneath the university’s well-deserved reputation for excellence, a reputation varnished and protected by generations of dedicated faculty, staff and alumni.

Our pension and retiree health programs were exposed to billions of dollars of unfunded liabilities. A 20-year cycle of underfunding by the state had weakened our financial underpinnings. The administrative culture was sorely in need of modernization and transparency, and the level of pay for faculty and staff had been allowed to fall behind that of their peers.

In short, there was much to do on several fronts, and in many cases with little time to waste. The first job was to close an immediate $1 billion hole in our budget, created by cutbacks in state support. This led to fee increases, furloughs, layoffs and program cuts. For the long term, we began to replace old ways of doing business with newer, more efficient and more transparent methods. We began to move on pension reform. This was not and is not an agenda for anyone seeking to win a popularity contest, but so be it. My sole focus has been on protecting excellence.

Solid progress has been made; we are, for instance, embarked on a campaign to wring $500 million out of administrative expenses by initiating a series of practical but long overdue efficiency measures. This is money that will be put toward our core mission of serving students. We also have been gaining political allies in Sacramento, where the latest state budget didn’t deliver all that we sought, but at least restored one-half of the cuts made in the prior year.

Still, the economy remains stalled and state funding lags behind our needs by at least $1 billion. The reality is that much more must be done if the university is to keep its promise to California. In this context, I today am announcing separate proposals to reform our post-employment benefit program, to raise undergraduate student fees for fiscal 2011-12 and, at the same time, to expand the reach of our financial aid programs to a broader circle of eligible Californians.

Please allow me to provide a brief overview.

The University of California faces a $21 billion unfunded liability for its retiree pension and health programs. For 20 years the university, its employees and the state enjoyed a “holiday” from contributions to what by any measure is a generous defined benefits program. This had to end. If current trends were allowed to continue, the university within years would be paying more to meet its benefits obligations than to educate students.

After extensive consultation with faculty and staff, I have decided on a two-pronged approach. Current employees and the university together have begun to contribute more into the retirement plan, but by doing so will receive no reduction in benefits. Employees hired after July 1, 2013, will be offered a plan with modestly reduced benefits, but one that will cost 20 percent less than the current pension program.

I am confident that these reforms will leave the university with pension and health plans that are fair, economically sustainable and still attractive enough to recruit and retain the quality faculty and staff that are the beating heart of a great university system.

As for the fee increase, our proposal is to raise mandatory systemwide fees for all students by 8 percent, or $822, in fiscal year 2011-12. A third of the money raised will be dedicated to financial aid, leaving an estimated net infusion of $116 million. This added revenue will put the university on a footing that allows campuses to reinvest in faculty, expand course offerings, improve academic support and generally begin to recover ground lost last year to crisis. It will ensure the resources needed to maintain excellence.

It must be noted that, in real dollars, state support for each full-time-equivalent student has declined by roughly half in the past two decades. In the current year, students through tuition and fees now cover 41 percent of the cost of their education.

If we maintain quality on our campuses, and we must, a $12,150 annual charge for tuition and average campus fees will still compare favorably to that levied by other public universities. And across the entire spectrum of higher education, the University of California still will represent a considerable value. Consider: Six of our campuses are included in an association of the nation’s 60 leading research universities.

A public university should not be judged solely by its tuition level, but also by whom it teaches and serves. Providing opportunity to worthy students regardless of socioeconomic background and income level is a crucial piece of our mission as a public university, and we are keeping on course despite the fiscal climate. Four out of 10 of our students come from families with household incomes of less than $50,000. Half come from homes in which English is not the primary language, and a third are the first in their families to go to college.

And so I am pleased also to announce a proposal to raise the ceiling of our Blue and Gold Opportunity Plan to include families with incomes of less than $80,000. We are able to do this because, as I noted earlier, following our standard practice, a third of the revenue raised by the proposed fee increase will be put toward financial aid.

What this means is that going forward California students with family incomes below $80,000-provided they qualify for financial aid-will pay not a dime of tuition. According to polling by the Public Policy Institute of California, more than two-thirds of all California families it surveys report household incomes of less than $80,000. With this new ceiling, more than a third of our 181,000 undergraduates are expected to have their tuition covered through Blue and Gold. Moreover, I am proposing that we expand our middle-income grant program to cover the full amount of the fee increase for one year for financially needy California undergraduates with family household incomes of less than $120,000. All told, as many as 55 percent of our undergraduates will not have to pay the fee increase.

The decision with all these proposals ultimately rests with the Board of Regents, but I believe that together they represent measures needed to keep the University of California on course, both in the near and long terms. Let’s be clear. These won’t be the last tough decisions the university will face. But they are essential steps upward out of a hole that was a long time in the digging. Californians should never accept the idea of their University of California tumbling toward mediocrity. And my job, my only job, is to make sure that it does not.

As I’ve said, all Californians have a stake in this effort. California is changing. A mounting collision of irreversible forces-demographic, economic, environmental and social-could lead to a new dawn of progress and prosperity, mirroring other fundamental transformations that have occurred across the state’s history.

Or, misunderstood and mismanaged, this convergence of what are truly global forces could leave California a fractured state-unwilling to unite in common causes, unable to stir innovation, incapable of providing hope to those who seek a better life and powerless to protect the environment that has been essential to California’s unique footing in the world.

In my admittedly biased view, the University of California represents the state’s best shot at coming through this unavoidable passage a better place. The university’s role as an agent of transformation in California has been demonstrated again and again across more than 140 years of shared history.

It is and always has been more than the University of California. It also is the University by and, most importantly, for California. And my sole focus today and every day that I serve this wonderful California institution is to make sure it stays that way.

Thank you.

Mark Yudof

Source: http://www.universityofcalifornia.edu/news/article/24446

Maybe it’s best just to apologize:

Duelling PEB Reports

When the Post-Employment Benefits (PEB) Task Force finished its deliberations, it published a majority and minority report. See earlier postings. UCOP responded to the dissenting report with a rebuttal. The dissenters replied to that response. In turn, UCOP responded to that response. Depending on when you looked at the UCOP webpage on PEB, you may not have seen the full back and forth. So here is the menu as of today:

The full report of August 30 is at http://universityofcalifornia.edu/sites/ucrpfuture/files/2010/08/peb_finalreport_082710.pdf

The minority dissenting report of August 30 is http://universityofcalifornia.edu/sites/ucrpfuture/uncategorized/files/2010/08/peb_dissenting_082510.pdf

The UCOP response to the dissent of Sept. 14 is at http://universityofcalifornia.edu/sites/ucrpfuture/files/2010/09/peb_dissenting_response_0910.pdf

The dissenters’ response (Prof. Robert Anderson’s response) to the Sept. 14 response of Sept. 30 is at http://universityofcalifornia.edu/sites/ucrpfuture/files/2010/08/critique-response-anderson-ucrp_100110.pdf

The UCOP response to Prof. Anderson’s response of Oct. 1 is at http://universityofcalifornia.edu/sites/ucrpfuture/files/2010/08/critique-response-pitts-brostrom-ucrp_100110.pdf

On the table are three options for new hires and – assuming certain legal issues are overcome – a choice for incumbent employees to switch future accruals into whatever plan is created for new hires. The PEB majority proposed options A and B. The dissenters proposed adding a less complicated but more expensive (in total, i.e., employer+employee contribution) option C. The dissenters also insisted that whether B or C is chosen, there needs to be a concrete plan to bring total remuneration up to competition levels.

The dissenters point out that the unfunded liability of the existing plan remains the same no matter what happens with regard to options A, B, and C. The unfunded liability has already accrued. Even if UC were to have no future pension plan accruals for anyone, the unfunded liability would remain. Thus, none of the options directly address funding issues for the unfunded liability. The UCOP response is essentially to acknowledge that point but to argue that if UC spends less on future pension accruals under any option, there will be more money left to plow into dealing with the unfunded liability. But note that in the end, there can be more money only if it is assumed that UC continues to pay below-competition salaries. Otherwise, it cannot be assumed that a dollar saved in future pension accrual under some two-tier plan proves a dollar to put into dealing with the unfunded liability.

Part of the issue here is that the state has so far not resumed assuming some liability for the UC pension. Language from the legislature stating that there was no such liability has been removed. But no dollars have been appropriated as a result. Obviously, given the shaky state of California’s budget, immediate extra dollars are not likely. There is also the issue of what may happen in January when a new governor takes office. If UC does not have some type of plan in place, it could be swept into some statewide reform, possibly through a ballot measure. And there is no guarantee that even with a plan, UC might be swept into some statewide measure – although there would be better odds of avoiding that outcome.

UCLA Management School Plans to Move Away from State Funding Due to California’s Budget Crisis

Giving Up State Funds (excerpts)
September 7, 2010
Inside Higher Ed

How bad are things in California? The budget cuts and fiscal uncertainty are so severe that the University of California at Los Angeles’s business school is proposing that it give up all state funding — in return for greater budget flexibility and the right to raise out-of-state tuition to the levels of private institutions. The plan has been approved by UCLA, but is awaiting a review by Mark G. Yudof, president of the university system.

Leading public universities regularly complain about the decline in the shares of their budgets that come from the state, even as regulation has not lessened. But being willing to give up those funds altogether is rare. The University of Virginia’s business school did so, but has very much been considered an outlier.

“The driver here is the decline in state support,” said Judy D. Olian, dean of the Anderson School of Management at UCLA. She stressed that she did not view the shift as changing the business school’s mission or its connection to the rest of UCLA or the UC system. At this point, she said, state support makes up only about 18 percent of the business school’s $96 million annual budget, and she said that percentage overstates the contribution because much of the state support is tuition revenue that must go to the state first now before it is returned to the school. In a new model, that revenue would never leave the business school. In the end, the business school would truly lose less than $6 million a year, Olian said.

In the 1970s, she said, about 70 percent of the business school’s budget came from the state. “The decline makes it easier to say that the gap is not going to be large and we could overcome it,” Olian said…

Olian stressed that the (tuition) differential (favoring) California residents would remain — and noted that California’s residency laws are loose enough that many who enter the program as non-residents are Californians by the time their second-year charges are due. Further, she noted that “tuition has been going up under the state-supported model,” and she said that such increases might well be more predictable under the new approach.

Full article at http://www.insidehighered.com/news/2010/09/07/ucla

Similar story appears in the Financial Times (may need to register for free to read): http://www.ft.com/cms/s/0/d5745294-b9d9-11df-8804-00144feabdc0.html

UPDATE: Dean Olian circulated the following message in an email to faculty at Anderson in response to these news stories:

Dear Colleagues,

UCLA Anderson’s proposal to shift to a new business model of financial self sufficiency appeared in several press pieces today… As you know, discussions with the media can take various turns. The key points made in these interviews were as follows:

1. UCLA Anderson has not yet received approval for financial self sufficiency. The new model is pending review and approval by UC President Mark Yudof. The proposal has been vetted and supported by the School’s faculty, the Board of Visitors, and UCLA’s leadership.
2. The public mission of the school and faculty/student affiliation with the University would not change – from the outside and as a member of the UCLA community and Senate, we would look and act the same.
3. The benefits to UCLA would include the ability to redirect funds to cover the cost of undergraduate over-enrollment and unfunded mandates at the University, plus receipt of an overhead fee from UCLA Anderson.
4. To offset the loss of state support, UCLA Anderson will engage in cost containment efforts, grow private funding and new revenue streams, and modestly raise tuition.
5. The model is consistent with the “new UC” vision that the President and UC’s Commission for the Future are espousing, which includes a call for self sufficiency models where they can work.
6. While an innovative and interesting prototype, this model would be viable only for very few schools in the UC system; it is not the answer to the UC’s funding crisis.
7. Student fees would increase only modestly since they have already escalated close to market levels due to declining State support.
8. Student aid would increase by about 30% given the funding models we have built.
9. UCLA Anderson would benefit from greater flexibility around program investments and faculty salaries, resulting in our ability to remain market competitive.
10. The benefits are to the School, to UCLA, to the UC system and to the economy of the region. As a school with 40% entering students from California, and about 75% ending up placed in California, UCLA Anderson is a major ‘importer’ of talent and contributor to the region’s business leadership pipeline.

More Moving Towards Michigan

Money may not grow on trees. But under the so-called Michigan Model – after a plan adopted by the University of Michigan – out of state students are an attractive substitute for a money tree because they pay full tuition. UC-Berkeley has already headed in the direction of pulling in more out-of-staters. Now it is reported that UC as a whole is likely to be moving in that direction under a recommendation of the Committee on the Future.

From the San Francisco Chronicle (Excerpt):

UC sees money in out-of-state students

Wednesday, September 1, 2010,

Nanette Asimov

Ask any University of California undergrad where he comes from, and the answer – with 94 percent certainty – will be somewhere between San Diego and Crescent City.

That may soon change.

UC should recruit higher-paying students from out of state over the next five years to take the place of thousands of in-state students, an influential commission that advises the UC regents decided Tuesday in San Francisco.

The commission said that UC enrolls about 15,000 California students beyond what the state pays for, and the university would do better financially with more out-of-state students…

Some UC campuses are already adding out-of-state students, notably UC Berkeley.

Its chancellor, Robert Birgeneau, said last week that he wants 20 percent of Berkeley undergrads to be from out of state in four years, up from 11 percent today.

The Commission on the Future is eyeing a similar percent for the rest of UC, but did not provide specifics.

The commissioners did agree that out-of-state students will have to present academic records higher than the median of local students at each campus they apply to.

Full article at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/09/01/BAFR1F6EQV.DTL&tsp=1

Whitman Radio Ad Proposes Transfer of $1 Billion from Welfare to Higher Ed

The latest radio ad from gubernatorial candidate Meg Whitman proposes adding $1 billion to the budget for UC and CSU. The money is to be obtained from reductions in welfare spending by tightening up the welfare program. Click on the video at the bottom of this post (the big round circle in the center) to hear the ad.

Joe Mathews, author of the Schwarzenegger bio book, “The People’s Machine,” critiques the ad at http://www.nbclosangeles.com/blogs/prop-zero/A-Meg-Idea-That-Doesnt-Add-Up-101817413.html

Excerpt from Mathews: Meg Whitman’s new radio ad features what sounds like a good idea: Take $1 billion from what she describes as California’s bloated welfare case loads and give it to the University of California and California State University systems.

The problem? There isn’t $1 billion in welfare to grab. The entire state welfare-to-work program, known as CalWORKS, is a $1.6 billion. Plus, if Gov. Schwarzenegger gets in his way, the program will be shut down (he has proposed just that in the current budget stalemate).

(IMPORTANT ADD: A campaign spokesman notes that Whitman’s policy book says that the $1 billion would come from savings to welfare and other budget reforms.)

Even if CalWORKS sticks around, Whitman is basing her ability to find $1 billion in savings on a selective reading of statistics. Her campaign policy plan points to a figure that only 22 percent of able-bodied work eligible welfare recipients are working for their benefits in California. So eliminate the rest of the recipients and there’s a billion dollars. She also notes that California has high caseloads, which she proposes to cut by aligning California’s welfare rules with those of other states.

If only savings were that easy. California’s higher caseloads are mostly a mirage, which reflect how the state counts people on the rolls. CalWORKS keeps people on board at lower rates even after they secure low-income work. Other states do it but use different accounting and thus do not count families on their caseloads…

UPDATE: Another analysis of the ad at http://www.sacbee.com/2010/09/05/3006706/ad-watch-whitman-misfires-on-college.html#mi_rss=State%20Politics

Do Student “Fees” Support Financial Aid? Depends on How You Divide the Pie Says LAO

The Legislative Analyst’s Office put out a “policy brief” on that question Aug. 6. You can find it at http://www.lao.ca.gov/sections/higher_ed/FAQs/Higher_Education_Issue_19.pdf

Essentially, LAO says that since student costs are partly paid by the state’s general fund and partly from student fees, when you divert some of the total (state support + student fees) into aid, it is impossible to say from which part the aid comes. In short, LAO seems to say that you can divide the pie any way you like to get any answer you like.

However, there is a potential problem with that approach. UC in particular has policies about the percentage of fee revenues collected from students that are diverted. So automatically if fees go up, an increase in aid occurs. You could say that UC could always change its policy to justify any amount of aid (more or less than the current percentage) and, hence, the formula is meaningless. In effect, the Regents just pick the percentage that accomplishes the dollar amount of aid they want to distribute. That is the implicit message of the LAO’s verdict which is certainly correct as a legal matter. As a political matter, the meaningless interpretation seems to be a stretch.

Political Deadline on UC Pension & Its Dangers

I have been posting material related to the two gubernatorial candidates’ positions on public pensions. As noted, Brown mentions UC explicitly in his pension program – although he does not say anything in particular about it. Whitman does not explicitly reference UC. The key points to keep in mind are:

1) Unlike other public pensions, UC has the $2-for-$1 problem. In essence, 2 out of 3 dollars of employee contributions to UC’s pension fund come from non-state sources such as research grants and hospital patient revenues. If the inflow of pension money is too low, the $2 cannot be recouped retroactively. Those dollars become the liability of the fund, i.e., the Regents must somehow in the future find $3 for every $1 they under-collect. For two decades, no contributions went into the pension fund because it had been actuarily overfunded. When it became underfunded, the state did not pay in. Zero contributions flowed in until last April when contributions resumed from Regental/UC money – the state did not contribute. And, so far, the state has no plans to contribute. Even with the resumption in April, the contribution rate is too low and, in fact, is below Regental policy.

2) Within the powers-that-be at UC, there is great temptation to continue the underfunding or to take inadequate steps to address it. Addressing the problem fully means less money for other activities. And the eventual major problem that will arise from inadequate steps today will occur on someone else’s watch tomorrow.

3) Within the powers-that-be at UC, there is also a temptation to underplay the connection between the pension and total compensation for faculty. The kinds of solutions that are being proposed, typically a degraded pension for new hires, have only a limited effect on the underfunding problem – which stems mainly from past liability already accrued, not future. But a degraded pension for new hires reduces the attractiveness of the wage+benefit package. A related temptation is to find rationales for arguing that through some methodology, faculty total compensation is not really lagging against the competition (and therefore cutting benefits is OK).

4) Given #2 and #3 above, when proposals regarding the pension go to the Regents in the fall, there may well be push-back and delay. The Academic Senate might resist the kinds of options being put forward. If there is no plan in place by the time the new governor takes office, UC could be swept into general pension “reforms” for the state. Indeed, that could happen even if there is a plan by then. On the other hand, the political deadline of January 2011 could provide a rationale for pushing through UC pension changes that are harmful to UC or that inadequately address the problem.

5) Most faculty are blissfully unaware of points #1-4 above, or have at most a vague perception there is a problem that someone will have to solve. Meetings on campus that have dealt with these issues have been mainly attended by older faculty and retirees, who want assurance they will get their pensions. They are told they will. But younger faculty, who are planning to make a career at UC, are more likely to feel the adverse impact of inadequate solutions. Down the road, and really not so far down the road, the pension problem will have major impacts on funding for other UC activities.

For some examples of the political dynamic surrounding public pensions, here are four items that happen to have appeared in the news just today:

http://www.baycitizen.org/labor/story/jury-volunteer-stirs-pension-fund/

http://www.latimes.com/news/local/la-me-secret-calpers-20100725,0,73608.story

http://www.latimes.com/news/local/la-me-0725-lopezcolumn-20100725,0,2122415.column

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/07/24/BUDR1EGLGI.DTL&tsp=1