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Wednesday, September 21, 2011

Wednesday, September 21, 2011

Regents Budget Strategy: Stuck Between Stations

At the session of their Finance Committee on September 15, the UC Regents had their most intense and serious discussion of UC's budgetary crisis in recent memory.  The immediate cause was the Office of the President's first multi-year budget framework, and the reason it stirred so much debate is because it pulls a tuition trigger if state funding comes up short.  I'll describe some highlights of the debate, the deadlock that resulted, and several likely ways out of the deadock, which requires a minor but difficult paradigm shift on the Board.

UCOP calculates a $2.5 billion funding gap by 2015-16 (Display 4).  (This understates the actual gap, which is more like $2.5 billion right now (Figure 6), based on the 2001 Pathway and revenue needs of the Regents' own priorities (Figure 7), but I am so happy to see actual numbers presented to the public that I will skip the criticism.)  UCOP then reduces the gap to $1.5 billion with efficiencies (also too optimistic but what the heck!). The important bit is that they set a clear quantitative goal of recovering some major revenues -- $1.5 billion -- and show Sacramento the exact consequences of non-restoration of funds. This is genuine progress, and formed the basis of an important debate.

The headlines before the meeting captured the outcome of UCOP's worst-case scenario of zero increases (actually not the worst, given recent cuts), which would take UC tuition to over $22,000 for in-state students by 2015-16 (close but probably too low: see our projection in March).  UCOP's strategy is clearly not to try to raise tuition to that level, but to pressure the state into doing its duty to high-quality public education by reinvesting in the university.

This is where the debate began.

A faction led by Board Chair Sherry Lansing was horrified at even visualizing the prospect of doubling tuition over the next four years.  She intervened in the discussion at many points, saying variously, "This isn't the message we want to send," "this will scare people," and "this isn't a future that I am willing to accept."  Late in the discussion she compared the framework to those people who told her as a young girl that she should get married and raise a family rather than having a career.  Budget VP Patrick Lenz and President Mark Yudof tried but failed to head off this misreading of the framework's intent.  Lansing made it clear she did not want the framework to turn into a plan to be voted on at the Regent's meeting in November -- perhaps in part because she was not actually in the majority on the Board. 

I assume that Regent Lansing is not in fact missing the point of the framework, and, perhaps alarmed by the pre-meeting headlines and some unknown feedback, her position seems to be that creating a clear relationship between falling public funding and rising student tuition -- something UCPB called for ten years ago! --  is too scary or punitive to seduce people into increasing support.

The pro-framework group had two subfactions.  The first wanted to use it for its apparent official purpose, which is to goad, threaten, and cajole the legislature into providing proper levels of public funding. Regents who favored this in their comments included Regent Pattiz and the two public officials on the Board  (Lt. Governor Newsome and State Supeintendent of Public Instruction Torlakson).  As with Regent Lansing, they made various proposals for public advocacy campaigns, with varying ratios of emphsis on politicians, the public, and corporations.  UC has been weak here -- UCOP for example ignored a proposal by UCPB in 2004 that came complete with sample advertizements created by UCSF member Stan Glantz and an associate--so there is still room for improvement.

The second subfaction of the pro-framework group wanted to use it to show that correct public funding is a hopeless cause. This was led, as in the past, by the Regents of Doom:  Blum, Crane, and Gould, with a strong assist this time from Regent Bonnie Reiss.  This group was understandably skeptical that the legislature will be brought around by a better message campaign.  They also insisted that declining state funding is an obvious and unchangeable fact.

David Crane is the Board's Herman Melville, effortlessly channeling Capt Ahab on the quarterdeck, defining the state budget as a brick wall on which UC has already totaled itself, doing his version of Ahab saying "the white whale is that wall, shoved near to me. Sometimes I think there's naught beyond."  He stated that the two most effective lobbyists for the University, the students and the unions, haven't had the courage to step up to the fight.  He asked rhetorically whether anyone thinks the federal government will cut entitlements and the military before it cuts funding for the states.  Crane can do public budgetary checkmate like no one else, and he's certainly right about the rising tide of pension costs, health care mandates, and the idiotic revenue lock-ins of the California prison system in direct competition with higher ed, which prisons perpetually defeats.  His own literary conclusion: if you are waiting for the state budget to come back, you are waiting for Godot.

Next to him, Regent Gould played the moderating Starbuck, saying that the framework is designed simply to show to the legislature the "reality of the consequences of their decision. . . . Let us be truthtellers. .this is what [cuts] mean to our efforts to cover our costs . . .  I think we need to be honest with Sacramento.  It's so irritating  to have them be shocked and dismayed when we raise tuition after they cut us 650 million dollars.  That's just not honest.  We have an obligation as a Board of Regents to tell the truth."  His remarks may well have picked up some Regents on the fence in favor of giving the framework another look in November, although the positions of the silent Regents remain a mystery.

Regent Blum (0:40) said "I have no faith in Sacramento to ever do the right thing."  We should continue to make our case, he added, but we've been doing it for ten years, "and it's been essentially a waste of our time."  He went on, "Tell me why you don't go to a Chevron, tell me why you don't go to an Apple, . . a Cisco,  .. . Google,  . . . these companies who are sitting on money they don't know what to do with -- a lot of it's overseas -- and say let's just look at what the University of California has meant to you . . .and ask for $5 million a year each year for the next 10 years."  The basic idea is to replace public funding with corporate funding, and the model Blum cited was again the University of Michigan  that he said raised $3 billion for student aid (the actual $545 million which is still very good, but this is capital, not an annual fund, and is less than what UC has lost in state funding so far this year, etc.)

But another demonstration that private funds cannot replace public funds as a matter of simple math isn't necessary to repeat at this juncture because many Regents made the same kind of point.  Regents Newsome, Gould and Pattiz said that the scale of corporate giving would never solve a $1.5 billion problem, even if we assumed, which we should not, corporaet interest in turning parts of public infrastructure into objects of corporate philanthropy from the same companies that have worked for decades to reduce their public tax obligations.  Regent Fred Ruiz offered possibly unintended backup when he noted that his company is increasing by five-fold its contributions . . . to the Chamber of Commerce's PAC, devoted to electing business-friendly representatives who will oppose "job-killing bills," thus signaling that his company would give to business PACs rather than to universities, including the one he represents.

Overall, the Regents cancelled each other out.  As a symptom of a kind of collective depression, they seemed to agree on only one thing, which was that nothing that they had tried or would try in the future with the legislature would actually work. Their impossible situation was locked in by a second symptom: they could offer no generally acceptable explanation of why their various efforts with the legislature had failed.

The Regental deadlock reminded me of a book that the financier George Soros wrote in the wake of the 1987 market crash, called The Alchemy of Finance.  Soros had always been interested in epistemology, and described in that book his theory of "reflexivity," which boils down to the idea that peoples' perception of their social and economic systems change how those systems behave.  This may seem obvious to social and cultural scholars, but Soros used the idea to reject a naive but prevelant neo-classical trust in the efficiency and self-regulating nature of markets.  Crucially, reflexivity rejects fatalism or autonomism in the analysis of complex systems -- exactly the kind of fatalism which many Regents have expressed this year.

Were the Regents to put themselves in the budgetary picture, the "mystery" of their failure to influence public funding would immediately disappear.  The legislature freezes or cuts public funding because the Regents always raise tuition (in 18 of the last 20 years).  This is a national trend, e.g. Pennsylvania Gov. Tom Corbett's justification of massive state cuts to higher ed on the grounds that the universities raise tuition even with steady funding.  The UCOP proposal makes this logic explicit (see my discussion of the charts from March 2011).

Once the cycle gets started, it looks like an irresolvable chicken-or-egg problem, a problem of mutually-assured-destruction. But we do know  the interactive cause-and-effect cycle -- tuition increases excuse public funding cuts, which justify tuition increases. We also know that is that the current vicious cycle in California began with UCOP's Compact with Gov. Schwarzenegger in 2005, which locked in annually tuition increases of 7-8%, allegedly without consulting legislative leaders or most if not all of the Regents.  Whatever the historical details, were UC officials to see their place in the cycle, as one of two principal actors in the cycle, they could stop the action that perpetuates the cycle and see what difference that makes.

There is one Regent on the record who seems to understand how reflexivity is working on the UC budget. That is Eddie Island, the Board's unofficial moral conscience and perennial clean-up hitter.  He agreed with Regent Crane (1:27), noting
his future is bitter, and ugly, and unfortunately it's true. . .  But there's a reason for it.  When I joined this Board six years ago, I urged my colleagues to take off the table increasing student fees, and we refused to do that., and as long as increasing student fees are on the table, we're not going to--and in a meaningful way--address the problem. But we've come to a tipping point now. Where are we going to collect fees, exorbitant fees? I ask you to take a look at California demographics. . . only 27% of the students in high school in California are white students. The rest are minority students, poor students, first generation students, and they are clamoring to get into the middle class. . .[with fee hikes ]tthe one's who can afford it come from that 27%, but they're declining. . . . We're going to have a University of California that isn't for Californians. . . we haven't said as a board let's put together a $100 billion capital financing campaign to rescue the university-- because we haven't had to. We've had student fees to turn too.  But we have no place to collect these fees. . . we now have to do the right thing.  .  In our demonstration we've basically proved that rising fees is ok. . . we make the case for rising student fees. . . But our demographics aren't like Virginia's, or Michigan's . . we have a mandate to educate millions of underrepresented minority kids.  And we can't get there from here with high student fees. That model does not work with high student fees. We need a new model.
Regent Island put the Regents and their repeated fee hikes at the center of the action, and noted that these hikes have blocked alternatives. He goes on to offer a depressed narrative abouthow our politics have failed us, our politicians have failed us, there is no money in the bank, and that we have to turn to a new campaign with the corporate world -- in other words, his discourse didn't lead the Board out of the wilderness.  But it was clear from later statements, including one by President Yudof, that Island had make some people think about how the University had itself negatively affected the legislative system.  We may look back sometime and see the session as a turning point.

The discussion has important implications for public university strategy in this period of foolish austerity. I would state them like this:
  1. Higher ed leaders like the UC Regents must stop talking as though private can replace public funds.  These funds do different things, they are of different orders of magnitude, and discussing private fundraising in the context of public funding cuts confuses everyone and lets legislatures off the hook.
  2. University communities need to explain specifically how the public functions of public universities depends on public funds. I only had space to raise this issue in a recent piece, and existing research needs massive expansion.
  3. In November, the UC Regents should be able to look at a proposal, based on the same UCOP budget analysis, that offers a two-year freeze on tuition in exchange for a set percentage of general fund increases.
This proposal would be the "Fourth Scenario" that a Regent asked about last week: 0% tuition hikes in exchange for 16% funding increases, trying to climb back towards 2008, perhaps to be staggered to start a year later.  (Other measures, like enrollment freezes, could be part of the mix.)  There should also be a Fifth Scenario in the calculation -- fee decreases in exchange for a multi-year public ramp-up of sufficient size.  People need to see what that looks like.

In this proposal, if the tuition freeze is tried and fails with Sacramento, then tuition would be back on the table, but after the only viable alternative -- restored state funding -- had been given a serious chance in exchange for concrete protection for students.

This list may sound unlikely and risky, especially number 3.  But none of them are as risky as sailing with the despairing Captain Ahab, who sank his ship.


Catherine Liu said...

Chris -- Did Regents talk about Student Loan crisis and rising rates of default? We need clear connections between private indebtedness and public irresponsibility. Thanks for the summary.

Chris Newfield said...

not in this session!

Stanton A. Glantz said...

As always, a brilliant analysis, but it continues the erroneous focus on the Legislature. The real force in higher education funding is the Governor, and he is also who UCOP gesticulates in front of. If Jerry Brown proposed making rebuilding higher ed a priority, the Legislature would follow.

Chris Newfield said...

I agree with this criticism

MC Ferme said...

In Display 5, page 10 of the framework, the costs associated with increased student enrollments seem to exceed the additional income (which I assume takes into account fee hikes) coming in from such increases. Did anyone talk about cutting the number of admitted students at the regents' meeting? The numbers are paltry enough compared to the actual budget gap, but at least class size and length to degree issues might be mitigated if we don't continue this lopsided commitment to the "compact."

Anonymous said...

Oust UC Berkeley Chancellor Birgeneau....see internet

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