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Monday, May 21, 2018

Monday, May 21, 2018

Open Letter to UC President Janet Napolitano on Fundraising

Dear President Napolitano,

You have now been the president of the University of California for nearly five years. You are one of a handful of people who speak for the entirety of the university system. You are the head of a slightly larger group (two or three dozen?) that decides UC policy.  You also have direct access to the mass media to explain the needs and benefits of UC. 

You represent a university that consists of hundreds of thousands of students as well as about 150,000 staff and over 10,000 faculty. Many of us have given decades of our working lives to UC. We have deep experience of the institution and highly developed expertise in our subject areas.  And yet with few exceptions, we have no way of bringing this expertise to the wider public.  As a group, our views are as unknown to the state at the end of our thirty-to-forty-year careers as they were at the beginning.  

This places an enormous moral responsibility on you to represent hundreds of thousands of silent people correctly. It imposes an enormous intellectual responsibility as well.

As the representative of the university, your intellectual responsibility is of course to tell the truth: universities that replace truth with politics and marketing steadily lose public trust, as they should. By "truth," I don't mean a fixed obvious fact we can kick. I mean the current state-of-the-art on a topic, created by open methods, testing, and debate, and subject to further revision as better data and interpretations arise.  The job of universities is to determine the truth defined as an issue's state-of-the-art understanding, which in all areas continues to evolve.  This means that university administrations are in the position of having to keep up with the state-of-the-art in relevant fields as generated by their students, staff, and faculty. 

One field that administrations must keep up with is higher education studies.  As a scholar in some of its most pressing subfields, I sometimes feel that senior administrators are running away from research findings rather than embracing and acting on them. 

A case in point is university philanthropy.  Last week you met with CSU Chancellor Timothy White "to discuss the future of public higher education."  The Daily Cal coverage ended with this:
Napolitano also discussed the role of philanthropic financial contributions in the UC’s financial model. 
“We have very generous donors, and if we look at the trajectory of philanthropy in the UC, we see a pretty steep upward curve over the last 10 years or so,” Napolitano said at the conference. “The point of fact is that public funding at the level it was at is unlikely to be restored, and we’re going to need to continue that upward trajectory in terms of philanthropy to support the UC.” 
This tells the audience that private donors have been and will continue to compensate for the decline in public funding. It accepts that the public funding will stay inadequate, which demobilizes the 62 percent of California adults who "say the level of state funding for the public higher education system is not high enough."  It states that fundraising, which has been a central UC fixation for at least 25 years, can grow indefinitely, and increase its share of UC's budget.  

These venerable beliefs are not correct.  But they have remained in place over many years because we have never had an open, research-driven, fact-based debate about philanthropy in which the need to increase fundraising was not assumed in advance, and in which administrators review and then follow data-based research findings.

For example, UC's most recent report on private support finds that annual giving has doubled over the past twenty years (1). That is a good thing: philanthropy funds many important specific projects that would otherwise languish.  But research has shown something you no doubt also know: philanthropy growth is not relevant to the public funding shortfall.

The basic problem is scale.  In 2006, my Senate colleagues and I showed this in a report that was transmitted to President Dynes in 2006 and presented to the Board of Regents in 2007; those slides are here).  We noted that the University, which was already down $1.35 billion in general fund allocation from 2001, would need a $30 billion gift to replace this revenue stream.  Our internal joke was that fundraising could fix UC's general fund problem-- if UC nationalized Harvard's endowment.  We are right to be proud that UC's generous donors now give $2 billion or so to UC every year.  That generates $100 million a year at 5 percent interest, which is about 3 percent of UC's current general fund revenues.

Another UC report this year, which the Board of Regents read at their recent retreat, confirmed this conclusion.
Philanthropy to the UC system and its campuses has risen by 50 percent since 2000, and now totals more than $2 billion per year. Virtually all of these funds are restricted and are not available to support general operating costs. Even if philanthropy to UC were to double in the next 10 years, the increase would nominally offset only a quarter of the decline in state funding per student since 2000, and the additional (private-interested) activities required by the philanthropic funding would lead to an even smaller offset for educational (and public-interested research) activities. Fundraising may help with capital costs, but it is much less likely to be a significant income source for ongoing educational costs. (39)

This new report supports fundraising but not as a replacement for public funding.

I'll belabor a few other issues that reduce philanthropy's net returns to the University.  Fund-raising cost indices suggest that the overhead for raising a dollar is about 20 cents, so initial net is perhaps 80 percent of the gross figures we publish.  Many gifts leverage matching funds from the University, so the true net after costs is quite a bit less than that, or even negative (UCLA's Luskin Center received a generous donation of $40 million for a project with overall costs of $162 million).   There are other subtractions: the doubling of UC fundraising needs to cover nearly 30 percent more students with inflation lowering the take another 20 percent over that ten year period.   There are institutional burdens: the donor model has spawned hundreds of school, program, and department-level fundraising programs across the UC system, whose costs in time, money, and loss of resources for the educational core have not been calculated.  More indirectly, talking up private funding may encourage the state not to rebuild public funding to 21st century requirements.  (This is a feedback loop that, given years of inadequate annual general fund increases, UC officials should consider seriously.)  And this is not an exhaustive list of issues.

As a true believer in universities, I am always sorry to find so much fault with our belief in a cherished source of revenue. But we can thank our generous donors, encourage new ones, and tell them the truth that we need to fight like mad to rebuild the public funding base that makes their giving valuable. 

I'll wrap up with a question: why are public universities competing with privates on our weakest (and their strongest) ground?  The source of UC Berkeley or UC Irvine's comparative advantage has been strong public funding.  The source of Stanford's and Cal Tech's has been great private wealth. Why don't we try to advance on our own terms?

You no doubt carefully reviewed the New York Times's major college access study a year ago.  Called "Top Colleges Doing the Most for the American Dream,"  its authors devised a College Access Index that ranked colleges and universities "based on a combination of the number of lower-and middle-income students that a college enrolls and the price it charges these students."  

Here are the top 10 places, where UC put in an astonishingly good performance. 

These figures make intuitive sense-- except perhaps for those in the final column, endowment per student. They show that UC campuses are simply not in the big endowment game. UCLA, the wealthiest UC, has a per-student endowment that is 1/50th of Princeton's. Access champion UC Irvine's endowment is 1/116th that of neighboring Pomona College. And so on. These are the results of 25 years of consistent UC fundraising focus.  They are also normal: public universities top out at $250,000 and $220,000 per student (University of Virginia and the University of Michigan, Ann Arbor) and the list plunges rapidly into the 5 digits (UT-Austin's oil money gets it to $72,500).

We should have a broad university discussion of the evidence and conclusions to draw from it. In the meantime, these are my inferences from the research.  First, mass access to high quality public universities is distantly related to a large endowment.  Second, this mass quality is closely related to non-private sources of income, meaning state funding: rebuilding that must be job 1 for public university presidents. Third, we should pitch mass quality to potential donors as the general public good that leverages and transcends the special good their gifts do for particular people and programs. Fourth, we should brag about our small per-student endowments. They show we are working on a grand scale, producing value for the entire public that lies behind us.

Even without a full-scale investigation of UC philanthropy, you could reasonably revise future statements on this subject to read as follows:
“We have very generous donors, and if we look at the trajectory of philanthropy in the UC, we see a pretty steep upward curve over the last 10 years or so. The point of fact is that public funding must be rebuilt to support the full benefits of these gifts.  We’re going to need to continue that upward trajectory in terms of philanthropy.  But it cannot support the UC on its own. We must work at a massive scale to get the state the million additional degrees its needs.  We need the whole population to help us with that.
The cost to the median taxpayer would be low--but this is enough for now.

Loyally yours,

Chris Newfield


California Policy Issues said...

In the meantime, let's use the big donations we do get to build more Grand Hotels: https://luskinconferencecenter.ucla.edu/

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