A Crisis of Priorities: Why Sacramento Is Not "The Problem"

(Updated with 2009 data. Original 2008 page is here.)

We've all heard the line. UC PR always says something like: "We need to [pay workers less and make students pay more] because Sacramento cut our budget. You should complain to them, not us."

This is a lie.

The UC administration and regents should be a primary target of protest. Here I will demonstrate why.

(All data from this site and Changing Universities (the blog of UC-AFT President Bob Samuels; some text borrowed), unless otherwise noted. UC itself keeps changing some of these numbers, so I have kept to conservative estimates where necessary.)

Summary

• UC has money, but its top-level decision makers choose not to use it for students and workers.
• They choose instead to prioritize building construction, financial games, and growing UC's army of administrators.
• A cut from the state is a convenient excuse to restructure the university in the vision of UC's elite authoritarian leaders.
• This vision includes eliminating middle class students and workers.
• The regents are an unelected group of well-connected elites with many conflicts of interest, to put it mildly.

None of these problems have much to do with Sacramento.

They have everything to do with an undemocratic structure that allows a few corporate-style "leaders" to steal UC from the public.

The "Fiscal Emergency" Myth

UC administration will say: "All the other money is restricted." But it's not. And there's a lot of it.

UC's Fiscal Health (source)

• The more than $4 billion of net patient revenue at its five academic medical centers is unrestricted.
• A total of $14 billion on its balance sheet can be used for any purpose.
• Expendable financial resources that grew from less than $8 billion in FY2002 to over $13 billion in FY2006 are unrestricted.

UC bylaws define a state of fiscal emergency as "an imminent and substantial deficiency in available University financial resources."

So ask yourself: Does this level of state funding cut really constitute a "fiscal emergency"? Does it require such dramatic hikes in tuition and pay cuts for even the lowest paid workers? We are talking about less than 3% of UC's budget, and far less than other available funds.

If not, well... There are other explanations.

The Truth Behind UC Administration

To paraphrase Noam Chomsky: If you're serious about truth, you don't pay attention to what people in positions of power say—you look at the record.

Recent and longstanding actions by the regents and the Office of the President demonstrate a clear set of priorities and management philosophy.

It is a corporate-style philosophy that seeks to destroy the very idea of public education.

That is a strong statement. Here is why I am comfortable saying it:

Tuition as Capital — More Student Loans Allow More Construction

According to Bob Meister (President of the Council of UC Faculty Associations), in 2005 Gov. Schwarzenegger gave UC administrators "a green light to raise tuition as much as they thought necessary without the threat of cuts." Immediately, Meister says, UC "began using tuition as capital assets for projects." In other words, UC can borrow money based on the ability of students to take out loans. The higher the tuition, the more student loans, the more collateral, the more capital. Everybody wins! Well, everyone who matters...

The regents are raising fees for students because these increases have already been "securitized" and are necessary to provide collateral for loans, principally construction loans. The money was already spent BEFORE the increases were made!

And we're not talking about classrooms. Most of these construction projects have nothing to do with undergraduate instruction (list here).

Two-Faced Corporate Dealings

While our "leaders" use the rapidly growing student loans of undergraduates to float billions in bonds for construction, they lend $200 million to the state, so the state can do some state construction and pay UC back with interest, to fund more construction projects, which have little or nothing to do with undergraduate education.

This just after a possible $800 million cut from the state supposedly requires UC management to raise tuition and cut salaries against their will.

UC spokesman Steve Montiel: "We're doing it because we're presented with a situation that called for some creative thinking."

Are you following this? Here's a sequence diagram:

UC administration says the threat (not even reality) of $800 million less from the state requires painful cuts to workers and horrible debt loads for students. But it's also a fine time to loan $200 million back to the state, with the guarantee that UC can later use it to build fancy research center buildings. They do not hesitate to lie/deceive.

UC Employees are Experiencing Widening Income Disparities — Even Faculty!

Where is salary going? Increasingly, to the wealthy.

Which part of UC is expanding? The top, by far.

UC's compensation structure reflects the general movement of the U.S. economy: The rich get richer, the poor get poorer, and the middle class—well, it was nice while it lasted. This economic system is not the result of some inevitable set of laws; it is determined by priorities and choices.

"Furlough" as Structural Adjustment

I have proven that UC President Mark Yudof's pay cut/"furlough" program takes far too much from those at the bottom and far too little from those at the top. There is absolutely no good reason to take money from those who can least afford it.

Bob Samuels, AFSCME, myself and others have suggested many alternate fiscal solutions for UC, only to be consistently ignored.

Under the guise of "retaining top talent", most workers, all students and the public of California are being sacrificed for the benefit of a few people at the "top."

Whatever Students are Paying for, it Isn't Education (source)

"Actual Instructional Cost" accounts for combined faculty salaries and health benefits.

UC administration will claim that we are suffering with 1990-level funding. As Bob Samuels has shown, since over 50% of the undergraduate student credit hours are now being generated by lecturers and grad students, and not by professors, the actual cost to educate a student has gone way down since 1990. Also, the UC has continued to expand class size to reduce educational costs.

Less than $.25 of every undergraduate tuition dollar pays for instruction. Private universities generally subsidize administration and research via high undergraduate tuition. What does this say about nominally public UC?

Yudof's "Top Talent" Lost $23 Billion in Two Years

During all this talk of "fiscal emergency", do you hear much about the $23 billion of investments that UC lost in the past two years?

UC's long-term investment management was outsourced in 2000. Charles Schwartz has shown that UC's long-term investments have been underperforming since 2000, compared to similar institutions. UC actually managed to underperform an underperforming economy. Meanwhile, Randolph Wedding is paid nearly half a million dollars per year to supervise the failure (along with many assistants, surely). One of those essential "top talents" that Mr. Yudof likes to mention.

UC followed the Yale model of investing heavily in toxic assets and in real estate. Now that the Yale model has failed, those who followed it are raising tuition, cutting classes, cutting faculty, cutting salaries, and increasing employee workload.

But is this a good excuse? The $23 billion is mostly in the pension fund, endowment short-term investments—a long-term problem. And the UC still has a ~$20 billion budget. As Bob Samuels noted in his Democracy Now! interview:

[UC] brought more money into the system last year than any year before. It doesn't have to raise student fees. It doesn't have to fire faculty. It doesn't have to cut courses. They're talking about eliminating minors and majors. They're talking about moving classes online. They're doing these drastic things.

UC administration has managed to turn successful long-term investment funds into questionable assets.

A closer look at the regents explains why.

The Regents are Royalty

Whether appointed by the Governor or regents by virtue of position, the Board of Regents is a collection of well-connected real-estate and media moguls, bank executives, defense contractors—in other words, profiteers. So what are they doing running a public university?

Here are some examples of regent priorities:

Richard Blum

• Made his fortune in real estate, construction and defense contracts.
• Major stake-holder in "Career Education Corporation", which invests in for-profit colleges and has recently been sued several times for providing sub-prime loans to students at institutions that do not provide the services they advertise.
• Consistently argues for involvement in unsafe investments.
• Approved outsourcing of investment management, which has resulted in underperformance.
• Arranged sweetheart construction deals with UC that would enrich himself.

Gerald Parsky

• Made his fortune in real estate, junk bond and venture capital investments while climbing ranks in the Republican party.
• Ousted UC treasurer Patricia Small in order to outsource investment management, and subsequently lose billions.
• Held secret meetings in which the regents repeatedly broke their own rules to inflate executive pay.

Russell Gould

• As Senior VP of Wachovia Bank, helped transform it "from one of the nation's largest banks holding millions in student loans into bankruptcy because of toxic sub-prime home mortgages and credit default swaps."
• Profited from student loans via Wachovia.
• Reportedly "worked behind the scenes to help broker" Schwarzenegger's 2004 Budget that included the Education Compact signaling reliance on private funding for UC.

Charlene Zettel

• Behind an effort to get the state of California to reduce state taxes.

Mark Yudof

• Via Twitter, Aug 6 2009: "Just spoke to small business owners in Santa Barbara...told them that in some ways each researcher at UC is like a small business owner"
• From Bob Samuels' interview on Democracy Now:

  After the UC's budget was cut by the state, the UC turned around and lent $200 million to the state. And people said, how can you lend $200 million to the state while you're giving faculty furloughs and while you're raising student fees and while you're cutting classes? And he said, "When we lend money to the state, we make a profit from interest. But when we spend money just on teachers' salaries, that money just disappears." So, from his perspective, instruction is a losing proposition, and the university should just try to get out of the business of basically teaching students and hiring faculty.

• A series of statements that Mark Yudof made during his address to the regents on Sept. 16th (you can watch these comments on YouTube):
  1. "We don't have any reserves."
  2. "In the last fourteen months, our reserves - so called - are down, I suspect, at the end of the day by one third."
  3. "We actually spent 300 million in the so-called reserves in the current year."
  4. "We better be alert and I will be alert that we are not out of reserves in another year."
  5. "The real challenge is, if we are not careful, and this downturn continues a couple of years, there won't be any checking account."

The backgrounds, actions and statements of UC regents belie the idea that they are acting in the public's interest.

UC Administration is Extraordinarily Bloated

"Soon every faculty member will have a personal senior manager"

(Courtesy Keep California's Promise.)

In the UC system, we have a saying: "When two administrators walk into a room, three always walk out."

Charles Schwartz has shown that the rate of administrator growth at UC is higher than most public or private universities:

• In 2006, in public universities across the country, 49% of the professional full-time employees, excluding the medical school, were faculty members. At UC that percentage was about 25%.
• In 1997, there were almost 2 faculty to every Executive and Senior Manager; by 2007 the numbers were nearly the same for both groups, while the Middle Manager group steadily grows higher.
• UPTE has documented that during the same regents meeting where a fiscal emergency was declared and the furlough program was approved, hundreds of administrators got compensation increases for things like houses, low-interest mortgages, automobile allowances, slush funds, and airfare (for non work-related travel).
• Student fees and state funds are paying for the increased compensation and growing number of UC administrators. Student fee hikes pay for this ever-increasing administrative army.

Anyone who says that Sacramento is "the problem" hasn't bothered to look at how UC is structured.

Summary

• UC has money, but its top-level decision makers choose not to use it for students and workers.
• They choose instead to prioritize building construction, financial games, and growing UC's army of administrators.
• A cut from the state is a convenient excuse to restructure the university in the vision of UC's elite authoritarian leaders.
• This vision includes eliminating middle class students and workers.
• The regents are an unelected group of well-connected elites with many conflicts of interest, to put it mildly.

None of these problems have much to do with Sacramento.

They have everything to do with an undemocratic structure that allows a few corporate-style "leaders" to steal UC from the public.