Suggested Better Budget Process

The extraordinary budget disaster facing public higher ed in California - and in many other states -has not been matched by extraordinary improvement in management practice.

We have instead a traditional top-down structure of the kind that is regularly blasted as ineffective by management theorists, but which remains the default in almost all US institutions.

For the public university, this means that choices are - or chaos is - created far from the classroom or laboratory, usually in the state capitol. Cuts and other proposals propagate like a shock wave through the system, from the office of the president in the UC case down to the senior administrators at each campus, and on into the divisions and departments. All the staff and faculty hear at the end is a sonic boom. Their job is to pick up the broken glass.

There should be much more collaboration and dialogue before decisions are made and it is too late. Although this is the first day of the new fiscal year, California and its universities still have no budget. The UC Regents do not meet until the middle of the month.

I would propose town halls and working groups with a specific agenda. Hopefully some of these steps have already been completed in administrative committees and the results can simply be presented:

1. full disclosure of current financial data to all "stakeholders" - faculty, staff, interested students.

This should include explanation of current fund transfers between state and non-state sources, e.g., how state funds help support the medical centers

2. explanation of UC's internal budget choices

-origins of 8% figure, explanation of savings and application
- description of alternatives considered (and apparently rejected)

3. presentation of future planning - Beyond the Crisis.

-balancing of cuts with academic planning; educational goals articulated and prioritized.

4. call for and development of counterproposals for the immediate crisis
5. reworking, synthesis, and transmission of improved budget model for 2009-10 to Regents via formal presentation

We also need an explanation of the origin of the currently proposed State of California solution: how did we get here, so we don't wind up exactly here again?

Some examples (and required reading):
- deliberate cutting of revenue streams, including Vehicle Licensing Fee
- Governor's preference for borrowing
- minority rule preventing reform
- population growth; higher growth in low-income population

All this is a lot of work. But there are a lot of people's work at stake, and many years of damage that we are now going to be expected to overlook and undo.

Bubble Planning

Private colleges are increasing tuition "only" 4.3% this coming year, according to a NAICU survey - the smallest increase since 1972-73. Congratulations are in order - inflation went negative in December 2008, so this raise is only 5% above what we're likely to see next year!

Endowments went famously negative too - here's a picture.

These consistent tuition increases are a big reason why the public is not sympathetic to cries of poverty coming from public universities, who have been raising their fees like mad as well. Tuition hikes been so much higher than inflation for so long -- up 440% in the past 25 years while the CPI was up about 110% -- that people are talking about a "higher education bubble": "Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college." Good question.

My only disagreement with this is that a bubble is something that hasn't popped yet. For higher ed, that bubble did pop - though private tuition pricers don't seem to have grasped this fact, while public universities are still forced to use tuition increases to replace state funding cuts.

That doesn't work either. Tuition increases aren't showing up in the classroom. Remember the Delta Project study that concluded, in IHE's summary,

There’s not much evidence to suggest that students at public universities are getting more for paying more. Between 2002 and 2006, average tuition at public research universities increased by nearly 27 percent or $1,419, but the spending on each student only went up by 1 percent, or $149.

It takes special genius for higher ed to have gotten here: its product is more popular than ever - unlike, say, GMs - it constantly charges its customers more, and yet per dollar it is delivering less.

Alice in Wonderland

Punishment is supposed to fall on those who have been bad in some way. Bad in terms of illegal behavior: those are given their day in court. Bad in terms of inefficient: their costs balloon and they lose customers (30% if you're autos). Bad in terms of bad theory: their risk goes bad and they cause the Great Recession.

There has been help for all of these people. Criminals have trials and more or less expensive counsel. Bad managers, if they are big and bad enough, get billions of dollars printed just for them. Same for the bad financial theorists, whose $300, 000,000 annual salaries - ok, mostly between $3,000,000 and $30,000,000 a year - got a $12.8 trillion bailout by Bloomberg's count as of March 31.

Then there are the non-criminal, the competent organizations with stable and in fact growing markets, increasing productivity rates, and the activities that create human capital rather than serve as the financial lead ball that drags everything to the bottom of the sea.

The university was not bad, it was good. It did only small things wrong. It spend enormous quantities of time - hours, days, and weeks - checking itself. It had more applications every year, and took many students each year for free (the state didn't pay its share). It had good theories and made scientific progress and social development.

It appears therefore that it must be punished the most of all. It is the university that must get no help at all.

Where's the Public?

I was happily off-line from California budget news, and returned today to see that understanding of the budget proceeds even more slowly than the budget deal itself. A key question: is Gov. Arnold Schwarzenegger really trying to use the budget crisis to "reform state government," or is he ready to wreck state services during a major recession in order to block any imaginable kind of tax increase?

Today's LAT piece by the regular budget reporters illustrates the intellectual blockage that is central to the budget crisis. It presents Schwarzenegger as a would-be reformer with a deep interest in "reorganizing state bureaucracy, eliminating patronage boards and curbing fraud in social services that Democrats have traditionally protected." It adds, "The governor also would like to move past the budget crisis to reach a deal on California's water problems that has so far eluded him."

This raises the obvious question: why didn't Schwarzenegger do all this things before, since he's been governor for the last 6 years?

It raises a further question: why would a responsible, non-destructive person pursue reform by cutting public services 20% (the University of California), firing some state workers, and letting others take 8% paycuts (UC again), helping to make the state economy even worse?

The simple answer is because there is no downside to this grandstanding that might keep the Gov's essentially Reaganite "no government" vision of prosperity alive (Arnold has proposed no Cal Grants for low-income college students and no CalWORKS program for the unemployed). His dogmatic, extremist, spoiler proposals are setting the agenda not only because he is the Governor, but because there is no actual political discussion in California. The public has no voice in any of this at all.

The Public is voiced by a) journalists, who claim the no vote on Arnold's Mickey Mouse propositions in May meant "no new taxes" - with absolutely no evidence that this is what it meant. (Every no voter I have asked about this has a different explanation - they are tired of Mickey Mouse budget propropositions.) The public is also expressee by b) academic experts, who say that the public hates taxes and also doesn't care.

Bruce Cain, professor of political science at UC Berkeley, said . . . most Californians will see those to be hurt by IOUs as vendors and "overpaid state employees," not themselves.

"The reality of what these cuts he is pushing for will mean hasn't hit home with the public yet," Cain said. "They see him standing up to unions and trying to cut all the waste and fraud. . . . Until the middle class bleeds in a way they care about, Arnold has the upper hand."

How does Professor Cain know this? There's no evidence of research about this on his website, any more than there is evidence of reporting in the newspaper article. I have written him to ask about sources, and in the meantime post the one exit poll I do know of, by David Binder for the Cal State faculty association. This poll contradicts the Arnoldian wisdom that the voters are baying for more tax cuts rather than modern, effective public services - and an end to annual (and now monthy) budget trauma.

See the somewhat better because a little more historical piece in the SF Chronicle. See also a few attempts to describe the impacts on the public of the cuts.

Meanwhile, where's the public?

Premature Fatalism

Just as the faculty are starting to get worked up, messages are coming down of the cuts as a done deal. At UC Santa Barbara, Executive Vice Chancellor Gene Lucas, someone I like quite a bit, passed on a message announcing a hiring freeze that reads in part as follows:

we are estimating that, factoring in current fee increases and the salary savings for 2009-10 from the pay reduction program, we still face at least an additional $25 million reduction of our campus budget this coming year, and possibly a similar sized reduction in 2010-11. Clearly, we are on a multi-year path of becoming a smaller institution in faculty, staff and students. We‚ll reduce program and services as well, but a budget reduction this large over such a short period of time means a reduction in the number of students we service as well as the faculty and staff that serve them.

I admire the candor of noting that this time the cuts are going to redefine the function of the university - even quality is quietly up for grabs.

I dislike the sense that the cuts are all a done deal, which guarantees that they will happen.

Charlie Schwartz has an analysis of UC presidential math that I haven't analyzed in detail, but that should be pondered. A couple of Senate friends of mine have also been unable to get the cuts arithmetic to add up right.

I'm still looking for a worse-case cut than UC.

University Budget Blood 1

I've been trying to find public universities that are slated to get cut as much as my own, the University of California, whose President as of June 17th is offering a menu consisting of three kinds of 8% pay cuts. I have yet to find anything this bad.

To get started, here's a CHE overview of state cuts, with a table at the bottom, and a CHE overview of the crisis that focused a lot of UC minds on the California issue. Here's my slightly irritated response.

Nevada: 5% fee hikes and 5% pay cuts.

Arizona: ASU - furloughs for all employees 2008-09 equaling 4-6% of total pay
University of Arizona: 8 days/year, or about 3%


Florida: 0% so far

North Carolina: 5% cut in overall budgets translating into unknown pay cuts

Wisconsin: 8 day/year furlough, about 3% cuts

Concordia University (NE): 3%

Worst cut recently announced: 20% at Greensboro College (NC)

Harvard: salary freeze, plus layoffs of 275 after retirement buyouts of 500, on a core staff base of 16,000

So far, UC wins for the biggest faculty cuts (on top of an ongoing 10-15% lag behind competitors in existing salary levels).

There is much anecdotal evidence that faculty are reduced to powerless wailing in the face of cuts: see this good CHE piece for many examples. The Obama election was thought by some - me at least - to mean a reduction of economic determinism. But at universities the opposite is happening: financial factors are overriding everything.