Systems Failure

As Chris pointed out, there was a striking gap at last week's Regents' retreat.  On the one hand, there was a new discourse of educational decline--but it remained strikingly vague.  On the other hand, there were a precise set of financial proposals--but they were neither new nor up to the challenge.  As is so often the case with the Regents, their distance from the actual functioning of the University (especially as it takes place on the campuses) became clear.  But we would be hard pressed to think that the business officers were any better.

Appropriately, much of the discussion focused on the cuts in state funding and their effects.  It appears, that Oakland is finally recognizing that they can no longer issues warnings about the potential damage of future cuts but must instead begin to demonstrate the already existing damage resulting from prior cuts.  That recognition is welcome.  But if it is to lead to something new it must be accompanied by a second recognition:  that it is unclear that UCOP is prepared to act effectively on that realization.  There are what one might call an external and an internal dimension to this problem.

Progress at the UC Regents' Retreat

The most important statement of the morning session of the UC Regents’ retreat came from President Mark Yudof, who for the first time that I have heard put the decline of UC academic quality at the top of the Regents' agenda.   He kicked things off (around 0:24 on the UC FA Blog's recording; Yudof Facebook version) by saying that the University of California is experiencing a “quiet but steady erosion of our academic quality at almost every level.”  He noted that people often express outrage at rising tuition, pension cuts, and various other UC policies. But where, he asked, is the outrage at the erosion of academic quality? He said that the board, in trying to cope with funding problems, had taken a series of passive decisions that damaged quality.

  
There were no board votes approving faculty salaries that are not competitive with peer institutions, . . .yet we are 10-20% behind in faculty compensation. There were no board votes approving a freeze on faculty hiring, but effectively that is what we’ve had over the last few years. There were no board votes approving a steady rise in our student-faculty ratio over the last decade, but in fact our numbers show a decline over the decade of 50% -- that is, we have 50% more students per faculty member than we did in previous decades. And in the past six years we have 30,000 more students without adding any new faculty at all, other than replacing existing faculty. You didn’t vote on any of that, but that is the consequence of the situation in which we find ourselves.   

The University of California with its legacy of trailblazing academic quality deserves better.  It is up to those of us at this table to reaffirm an active, immutable commitment to academic quality at UC, starting now.

This was music to my ears. The idea of fighting educational decline is not new, of course—the faculty senate committee for planning and budget (UCPB) started arguing in 2002 that threats to quality quality was the key argument against budget cuts, stated this directly to the Regents in 2007, and then the press began to cover quality problems during the fiscal crisis in 2009. What is new is the statement that declining academic quality is the university’s number one problem, or the declaration of a kind of educational quality emergency.  There is hope that rebuilding quality will finally get our undivided attention.

The retreat then turned immediately to balance-sheet and business strategies, led by Nathan Bostrom and Peter Taylor, at the head of business and finance respectively.

The Regents love these guys, and they are indeed both very articulate and also good at encasing budget strategies in a language of educational goals.  But the morning passed in a parade of previously rehearsed small-time revenue measures.  The second piece of good news was that the Regents seem finally to be tiring of the mismatch between the revenue problems and these business-process solutions.

The scheme that brought out some frustration was “parking securitization.”  The actual ownership structure remains undecided and unclear, but the basic idea is to bundle most of the parking spaces at all the campuses and transfer the concession, valued at maybe $1 billion, to the UC Retirement Program, which would then feed UC systemwide parking revenues into the pension fund.  The relevant slide (10) suggests selling bundled systemwide parking to a 3^rd party, which made many people immediately think of the disastrous sale of Chicago’s parking meters to a company that has screwed everything up.  Mr. Taylor insisted no 3rd party would be involved, but this did not quell the uprising.

For example, Regent Schilling commented, “I assume the campuses rely on this revenue?” Mr. Taylor said well yes, but the revenues they rely on for maintenance and operations would stay on the campuses and another portion would go to UCRP – you “can slice and dice this any number of ways.”  Regent Schilling said that she'd asked because, “I just want to be careful that we don’t screw the campuses.” Not screwing the campuses quickly made the plan more confusing and also chopped away a any likely returns.

Raising another core issue, another regent said it’s strange that this is the exact opposite of the Luskin hotel and conference center we just voted at UCLA.  There, he noted, we are trying to build new assets for the future when we could get the same thing—hotel rooms—for a lot cheaper right now by going down the road.  With parking, you’re proposing that we get rid of assets we already have. How do these opposite strategies fit together?  Regent Blum chimed in by saying that as much as he admires UCOP's creative financial team,  parking securitization is a very bad idea.  The real problem, he said, is we haven’t paid into the pension fund for twenty years, but that doesn’t mean we should transfer assets.  Overall, parking securitization went nowhere.  Since the campuses do indeed skim parking for all sorts of local operational needs, this scheme will encounter massive resistance and is very unlikely to happen.

Most of the other business ideas have been around for a while—a controversial kind of bond restructuring ($50 million in annual savings, slide 8); moving of short-term funds from lower- to higher-interest instruments ($30-$50 million, or $40 million on slide 9); the taking by UCOP of accumulated interest from thousands of campus “funds functioning as endowment” (FFE) (a one-time $20 million, slide 7); the use of standardized systemwide vendor contracts ($50 million annually at the medical centers, with another $50 million estimated for the campuses); and finally, cuts to unfunded state-mandated programs. About two hours for all revenue increases that don’t involve further cuts to faculty, students, and staff.

No one who spoke in the meeting  believed that you can add up these savings and get something like $200 million in new money that could be put into instruction and research.  Regent Blum pointed out with some exasperation that the umbrella contracts were proposed by a previous consultant five years earlier, and that a now-retired UCOP official had worked full-time on savings that never materialized.   Say with great effort that $100 milion were saved. That would amount to about 5% of the cuts plus mandatory cost increases UC has suffered since 2008.

So following Mr. Yudof's great kick-off, the discussion got sidetracked from the issue of reversing educational decline by getting UC out of structural deficit mode and into a full budget.   The obvious first problem with these business strategies is that the scale is too small by an order of magnitude.  The second problem is that UCOP keeps circling like a moth to the flame around ideas that involve a reach-in on campus resources, in the campus's worse financial period since the Great Depression. Mr. Taylor joked several times that for what he is about to propose he will need to hire bodyguards.  So why keep making this kind of proposal?

This gets us to the third problem, which is a flawed managerial epistemology.  It says in effect that management expertise bring with it a higher-order wisdom that creates new value by overriding local practice.  UCOP's plans always link efficiency to centralization. In reality, centralization is as likely to cost money as it is to save it, since coordination requires time and more money while at the same time suppresing tacit knowledge, concrete relationships, accumulated know-how, on-site experience--the whole craft practice involved in particular administrative jobs in specific communities that address distinct needs.  The centralization override is not only painful and frustrating for the affected employees, but is destructive of the knowledge that resides in them.  CFO Peter Taylor is eloquent on the beauty of standardized contracts that leverage size and scope—I have never heard better speeches on the virtues of vendor consolidation. But finance people aren’t often great students of humanistic management theory, which does grasp both the ethics and the value-added of freeing up employees to structure their own work and make their own decisions in horizontal collaboration with each other. Under questioning, Mr Bostrom and Mr Taylor did concede that campuses and departments may sometimes be right to say that they know what they’re doing.  Once this truth is admitted, many of the expected financial savings disappear.

The fact is that educational quality comes from the campuses, will be fixed there, and will be fixed from the bottom-up.    Possible administrative savings of $100 million via better vendor contracts and interest rates should be seen as financial officers doing their jobs, not as pathbreaking reforms.  The latter will count only when the affect the quality of a UC education. 

Anderson A-No-No

As you have probably seen (since it has been covered by the Financial Times, Business Week, the LA Times, Inside Higher Education, the Chronicle of Higher Education, and other news outlets) the System-wide Coordinating Committee on Graduate Affairs suspended its review of the proposed transformation of the Anderson MBA from a state-supported program to a self-supported program.  Chris offered an analysis of the proposal's budgetary confusion back in June. CCGA offers a full menu of objections.

For those of you keeping score that means that both Senate Committees (UCLA's Graduate Council and CCGA) that had the time to do a thorough review of the proposal refused to approve it.  The Legislative Assembly at UCLA had supported it by a small majority in a June meeting.  But it should be noted that that meeting had a severely limited time for discussion, crucial financial details were only made available to the Assembly the day before the meeting, and the voting began before the discussion had actually finished (although the administration had been given its own time to speak).  Despite the seriousness with which the Legislative Assembly members approached their task, it is hard to see how they were provided with the opportunity for careful analysis that the Senate Committees had. 

Closing the School Door

Just in time for the two major political parties to offer their different visions of austerity, the California Community College system released a report based on their survey of the effects of the budget cuts.  Not surprisingly, the cuts have dramatically reduced the ability of the Community College system to offer courses and opportunities for those seeking to enter higher education through the most affordable door.