What’s the point of UC anyway?
What is the University of California worth to the state of California?
This week’s Faculty Seminar approached that question from various angles, including the value of UC research, the impact of UC graduates on the state economy and the non-fiscal contributions of UC such as increasing the overall education level of the state.
Those who presented in seminar agreed that measuring the exact benefit of UC on the state is tricky, because many benefits are non-monetary and others are indirect. For example, if Stanford graduates started Google, does that mean Stanford gets credit for Google?
The first person to speak in seminar was Assistant Professor of Law at Boalt Hall School of Law Amy Kapczynski, who spoke about determining the fiscal impact of research at the University on the state. Read her materials for the presentation here and here.
Kapczynski said the current method of determining the value and fiscal impact of research at the university is based on the number of patents and amount of licensing revenue it generates. She said that method does not take into account the many avenues through research can contribute to the economy or its non-fiscal benefits.
One example Kapczynski gave of an aspect of the influence of research that is not taken into account by the current method of measurement is how research can create an entire new field of work. She said data from a few years ago suggests that 160 companies have been founded out of research at UC Berkeley, which is evidence of research leading to economic productivity.
In addition to unmeasured economic impact, research by members of the university leads to the training of new researchers and the creation of a network of individuals who can problem solve together.
Kapczynski suggested the following alternative methodologies to more accurately measure the economic as well as non-fiscal impacts of university research:
- Econometric studies that show the benefits of publicly funded research on economic growth.
- Survey literature, in which people such as business leaders would be asked if they have used a certain type of publicly funded research and how that research has been benefitial to their companies or their work.
- Case studies, which show the effects of particular projects on the state of California. This sort of measurement would work better for scientific projects than humanities project.
George Goldman, Professor Emeritus of Agricultural & Resource Economics, suggested that the worth of non-scientific projects that originated in UC, such as the no-fault divorce law, could be measured by surveys that ask people how much they would pay for the benefits of those creations; for example, how much someone would pay to go through a no-fault divorce procedure versus another divorce procedure.
Goldman was the next presenter. He spoke about the fiscal contributions of UC graduates on the state, whether through taxes or other means.
Goldman said that the impact on the state of cutting funds to UC is not immediate.
“Suppose the UC gets cut $2 billion. Will anyone notice in the state?”
The answer, he says, is no.
Goldman elaborated on the complication of quantitative measurement with the example of the economic impact of agriculture in the state, which is only around 9 percent GDP. He said that that measurement doesn’t take into account the economic impact of people who use agricultural resources.
Members of the seminar were surprised by the lack of numbers in Goldman’s presentation. Goldman responded that what sticks with people is not numbers but anecdotes.
He reflected upon his work with lobbyists, mentioning that a liberal lobbyist once told him that the most useful thing he ever told the lobbyist was that if you give rich people tax breaks, they spend the money they save out of state.
Goldman went on to talk about how uninfluential reporting an entity’s fiscal impact may be in protecting that entity. An example he gave was that people opposed to gay marriage aren’t going to change their minds if someone suggests to them that, if gay marriage is legalized in California, gay people will come from other parts of the country, spend money and stimulate the economy.
“People don’t change their minds based on economic impacts,” Goldman concluded.
Publicizing the fiscal impact of UC may also be futile.
“The good news is maybe we don’t need to know,” Goldman said. “Maybe we just need to say this is the state of California, this is the University of California, and the state needs this institution.”
Henry Brady, Dean of the Goldman School of Public Policy, spoke on the same topic as Goldman, relying more heavily on numbers. Brady did a cost benefit analysis of the state’s investment in UC and discussed alternatives to fully funding UC and their potential impact. See the materials for his presentation here.
One alternative is to abolish the UC system, which could lead to various behavioral responses by California citizens. Perhaps some go and get their education at non-UC institutions. The money that would have gone to UC could go toward Cal Grants in order to fund students’ education at non-UC institutions.
The state is currently funding a fixed-capacity model of the UC, meaning the state is not taking into account enrollment increases. Brady said the benefits for cutting money for education will occur now but the costs will occur later.
“Fixed capacity will loose the state money in the long run,” Brady explained. “Its penny wise, pound foolish.”
Brady said some non-fiscal benefits of education include increased tolerance political participation among people who are educated than those who don’t receive an education.
From an economic perspective, investing in education reduces incarceration rates and demand for social services, as well as increases earnings of potential graduates and the amount of time they spend in the labor force. These four factors lead to increased tax revenues for the state and increased lifetime earnings for Californians.
“Going to college makes the state money,” Brady said.
Associate Professor at Haas School of Business Christine Rosen spoke last. She said the act of trying to quantify UC’s value to the state goes hand in hand with privatization.
“UC is sort of buying into the wrong mindset.”
Rosen explained that the idealized image of markets as vehicles that they take self-interest and turn it into public interest is complicated by the fact that imperfections in people translate into imperfections in the market.
Rather than focus on the monetary benefits of UC for the state, Rosen suggests finding out how to tell the stories of students who have benefited from a UC education.
UC Berkeley School of Education Professor Alan Schoenfeld closed the seminar by remarking that the mantra, “We want a world that’s better for our kids than we had” no longer rings true among Californians and has been replaced by a “They can pay for my sins” mentality.
“I think that’s a big moral and social problem,” he said.
[Originally, Schoenfeld was going to present this paper by UCSF Professor of Medicine Stanton A. Glantz.]
Hell-raisers, Standpatters, Peacekeepers and the Meister Controversy
People involved the University of California budget crisis controversies fall into three categories: the Hell-raiser who disagrees with seemingly all of the university’s financial decisions, the standpatter who defends those decisions like they’re his lifeline, and the peacekeeper trying to reconcile apparent opposites, which usually results in even more Hell-raising and fervent standpatting than before.
Okay, that’s oversimplifying things a bit—there’s a lot more nuance to these people than I’m admitting here. People change roles. The standpatter archetype best fits the stereotypical reactionary administrator, but some administrators dip their toes into peacekeeper or even Hell-raiser territory when they point out areas of improvement for UC. Likewise, the Hell-raiser sometimes finds common ground with the standpatter and emerges as a peacekeeper.
Still, there’s a grain of truth in these archetypes and they loosely fit people debating the crisis. Let’s apply them to this week’s episode of the Faculty Seminar on UC’s Financial Future*: the Meister Controversy. But first, some background information:
What is the Meister Controversy?
In October, UC Santa Cruz Professor Bob Meister wrote an open letter to students titled, “They Pledged Your Tuition,”** which stated that student fee hikes increase the university’s capacity to sell bonds, drawing an association between the university’s debt capacity and the debt taken on by students and their families.
“UC recently sold more than $1.6B in highly rated bonds one month after declaring an ‘extreme financial emergency,’ ” Meister wrote, adding, “[Student] tuition is UC’s #1 source of revenue to pay back bonds, ahead of new earnings from bond-funded projects, which do not even come second … Because UC pledges 100 percent of tuition to maintain its bond rating, it has also implicitly assured bond financiers that it will raise your tuition so it can borrow more.”
Meister’s assertion that student fees are pledged as collateral for bonds inspired students, faculty and others to question whether the UC ever actually used student fees to service bond debt. UC Berkeley Professor Emeritus Charles Schwartz (physics) summarizes this response in the write-up that accompanied his presentation Tuesday:
Student Fee revenues are put at risk, through the General Revenue Bonds program, to support construction projects throughout the University of California (UC); and top UC officials appear stubbornly negligent regarding their oversight responsibilities. When we asked whether students’ Educational Fees have ever been spent to pay for campus construction projects the official answer came in two contradictory parts:
a) To the best of our knowledge, there has never been such an occasion.
b) The University does not record the data needed to answer that question.
An overview of the meeting
The seminar was moderated by UC Berkeley Associate Vice Chancellor for Budget Erin Gore and started off with tame (but informative) presentations by Schwartz and UC Berkeley professors Stanley Klein (optometry) and Bob Jacobsen (physics).
UC Chief Financial Officer Peter Taylor was the last scheduled speaker and focused on claims that the UC may use student fees to service bond debt, which he attributed to UCSC Professor of Political Science Bob Meister’s paper. After he spoke, Meister was given an opportunity to respond.
“The Meister Controversy is about a controversy I didn’t actually raise because there is no data,” Meister said, explaining that the focus of his paper was on the relationship between the debt capacity of the UC and debt expectations for students and families, not on whether student fees might be used to finance construction.
Yes, those last two portions of the meeting were just as intriguing they sound.
Here I will summarize each presentation separately, in the order it was given. I advise you to read the summaries of Taylor’s and Meister’s presentations together because those speakers responded to each other.
The Peacekeepers
UC Berkeley Professor Emeritus Charles Schwartz (physics)
Schwartz’s presentation focused on the Meister Controversy and served as an introduction for the presentations that followed. (See his write-up, which contains all the information he shared.) He and Klein presented proposals for how the university manages financing for construction projects. (Professor Alan Schoenfeld (education) co-authored the proposal. Klein wrote the amendment to proposal 2 at the bottom of the page.)
Read the proposals here:
Seeing Schwartz in the position of peacekeeper is surprising for anyone familiar with his reputation for (very loudly) blowing the whistle on non-transparent UC practices. Taylor, who said he agreed with parts of the professors’ proposal, observed this change of tone and remarked to Schwartz, “Either I’m getting old or you’re getting more mellow.” I doubt Schwartz is going be pigeonholed as a peacekeeper, though.
UC Berkeley Professor Stanley Klein (optometry)
Klein presented on the dilemma of trying to balance transparency with fungibility, or the ability to transfer funding between different expenses. (See his power point presentation here.)
Klein asserted that fungibility and transparency are not mutually exclusive. (This is completely the opposite of what Schwartz said during the Transparency 101 presentation in seminar a few weeks ago.)
According to Klein, fungibility can be a good thing because having fewer funds that apply to more purposes saves money by necessitating fewer administrators to oversee funding allocation than would be needed if university finances were split up into a greater number of funds.
He added, however, that fungibility can lead to confusion. For example, pledged external sources, or collateral for debt, are not the same as repayment sources for debt.
“When there’s confusion there are problems,” he said.
Klein presented the proposals he, Schwartz and Shoenfeld came up with as a way of finding equilibrium between transparency and fungibility and thus get faculty and administrators “on the same page.”
“There might be ways that we can have our cake and eat it too,” he said.
In addition to the two proposals, Klein suggested an amendment that included tapping into endowments to fund some construction projects and taxing high-salaried employees.
UC Berkeley Professor Bob Jacobsen (physics)
Jacobsen found information about the entire life cycles of nine construction projects at UC Berkeley. He presented on how renovations of Barrows and Stanley hall were funded and executed. (See his power point presentation here.)
In his presentation, Jacobsen emphasized the high degree of detail in the UC’s documents related to construction.
“They don’t stint on this stuff,” he said, explaining that whenever the regents use state money, they say exactly where it is coming from and who has pledged it.***
Jacobsen explained different types of funds that go toward construction (further explanation in his power point):
- University Opportunity Fund—an agreement with the state that dictates how federal reimbursement funds for construction must be allocated.
- Research Overhead—reimbursement money from the state for research conducted in a building and as a result of its construction can go toward funding that construction project
- Funds that function somewhat like endowments—i.e. they are invested the way endowments are but the principal part of the fund (the non-interest part) can be spent by the university.
The Standpatter and the Hell-raiser
UC Chief Financial Officer Peter Taylor
See Taylor’s power point presentation here for data about bonds and construction and other interesting points of information.
Taylor has been CFO of UC for about 11 months now. The UCLA alumnus said he spent 17 years as an investment banker before coming to UC.
Taylor complained about people taking “pot shots” at the UC without giving administrators a chance to respond, but added that Schwartz is diligent about trying to get the facts right.
Then he dug into Meister.
“Let me be crystal clear for probably the 800th time,” Taylor said. “We do not use student tuition to pay for construction debt service.”
Taylor said student fee hikes and increases in bond debt are not interdependent, later adding that Meister never used any evidence to prove student fees are used to pay for construction.
“Why is this paper posted on the web giving students and parents wrong information?” he asked.
Taylor explained that student payments go toward debt accrued by auxiliary enterprises such as housing and parking, but clarified that those payments are not student fees. I think he was referring to students paying to live in the dorms, etc.
The CFO went on to defend the university’s construction projects in response to claims that money spent on them could be allocated elsewhere. He said that if capital projects aren’t built, the university won’t gain revenue from them.
“It is inaccurate to say that 80 percent of those revenues [from building projects] are going to show up without building those projects,” he said.
I’ll have to ask for some clarification about the building revenue arguments. I think he was responding to claims that money spent on buildings could go elsewhere by explaining that the money that would, theoretically, go elsewhere is actually the revenue from the projects once they are fully built and in use.
Taylor ended his presentation by addressing transparency issues. He said Schwartz, Klein and Schoenfeld’s proposal for “regular, detailed reporting regarding debt service coverage” (quoted from the proposal) was satisfied by an item passed by the UC Regents about a year ago. According to Taylor, the item**** will be implemented by no later than the July UC Regents meeting.
“Going forward [the capital projects approval process] will be clearer and easier to understand,” he said. “Through additional transparency people will feel a little more comfortable and at ease.”
UCSC Professor Bob Meister
Meister’s main beef was that a controversy was being attributed to him that he claims he didn’t start.
“I never said that there was data showing how construction funds were actually serviced,” he said. “My interest is in the relationship between UC’s debt capacity, which is necessary in order to privatize the way it wants to, and individual student and family debt capacity in society.”
Meister called this relationship the “kernel of privatization”:
“UC’s financial plan for growth is a reflection … of what is wrong with that model of financing education.”
Meister spoke extensively about the Bond Indenture authorized by the UC Regents in July 2003 that went into effect in 2004. In his paper, he writes:
By pledging “General Revenues” as security for each UC revenue bond, the Regents are pledging everything that they can, including tution. This means that when any source of General Revenue goes up—including tuition and fees—UC’s ability to borrow on private capital markeys goes up, and its dependency on state capital funding goes down. After 2004, any revenues produced by a bond-funded contract would be added to General Revenue (unless this were limited by that contract); but any such projects could also be subsidized by each other, or by revenues from sources such as tuition, student activities, grant “overhead,” endowment, etc.
“Students get it. Students get that that was the point of my article and that’s what I would like the Meister Controversy to be about,” he said Tuesday.
Meister also addressed transparency issues.
“We don’t know how student fees are being used,” he said. “They are not tracked and we don’t know how debt service is being paid.”
Complicating UC’s assertions that it will not use student fees to service bond debt, he says, is a policy passed at last week’s regents’ meeting. The policy clarifies the student fee policy to say that the regents have total authority to set fees at any level and that student fee policies are not contracts with students.*****
Meister described the policy as part of a “complete circle”: the student fee policies were the reasons the regents weren’t doing things like spending student fees on construction and bond debt and “now that we’ve asked them to show they weren’t violating their own policy, they’ve changed their policy going forward.”
*Faculty Seminar on UC’s Financial Future, an open seminar organized by UC Berkeley Professors Stanley Klein (Optometry), Alan Schoenfeld (Education) and Charles Schwartz (Physics), devoted to research into topics such as construction finance and how the University of California contributes to the state’s economy. The seminar meets Tuesdays from 5-7 p.m. in 489 Minor Hall on theUC Berkeley campus.
**Other commentary and analysis addressing UC finances can be found on my “Commentary and Analysis” page. http://caledinsider.org/faculty/
***Meister said in an e-mail that the projects Jacobsen presented on were completed before 2004, thus exempting them from the Bond Indenture. See the portion of this blog post about Meister’s speech during the seminar.
****I will have to look up what the exact item was.
*****Taylor said this policy was in response to the UC losing a lawsuit by former students who claimed they had read on a UC Web page that fees at their professional schools would not increase while they were in school, but that they experienced fee hikes anyway.
Transparency 101, part 2
Tuesday night (March 16) was the second part of UC Berkeley Professor Emeritus Charles Schwartz’s Transparency 101 presentation. The turnout was much lower than the first part of his presentation, probably due to factors such as midterms and the closeness of spring break. More detailed notes from both parts of the presentation will be up by early next week.
Topics discussed:
- There is a lack of information available about how student fees are spent.
- State funding is referred to as “state education funds” in documents, as opposed to “state education and research funds,” which would more accurately denote how state funding to the UC is spent.
- Administrative growth–Schwartz said middle and upper management positions have grown 200 percent while overall employment has grown by 44 percent.
- Cal Profiles, “an interactive database containing multiple years of institutional data for all UC Berkeley campus units.” (description from the Cal Profiles overview page.)
The seminar also had a heated discussion of a Daily Cal article published today, “Athletics Department May Be in Violation of State Policy,” which states that the athletics department at UC Berkeley may be violating a state policy. People at the seminar said the article is inaccurate. Professor Stanley Klein (optometry), who brought up the topic of the article, said he thinks the title is incorrect but did not specify exactly why. Klein is on a task force that researches UC Berkeley athletics funding.
What do you think?
- How would California citizens feel about their money going towards education vs. education and research?
- Is the Daily Cal article inaccurate?
- Why can only people with student or staff IDs get into Cal Profiles? Should California citizens who are not a part of the university be able to access this information?
Transparency 101
Context: The Transparency 101 presentation was hosted by the Faculty Seminar on UC’s Financial Future, an open seminar organized by UC Berkeley Professors Stanley Klein (Optometry), Alan Schoenfeld (Education) and Charles Schwartz (Physics), devoted to research into topics such as the construction finance and how the University of California contributes to the state’s economy. The seminar meets Tuesdays from 5-7 p.m. in 489 Minor Hall on the UC Berkeley campus.
Note: Additional specific questions asked during the Transparency 101 presentation and their answers, if available, will be available in a later post.
***
“Money not formally restricted to its use is fungible,” UC Berkeley Professor Emeritus Charles Schwartz (physics) said. “Fungibility is the antithesis to transparency.”
Schwartz was speaking at a presentation hosted by the Faculty Seminar on UC’s Financial Future Tuesday night (March 9th) called Transparency 101. The presentation consisted primarily of a lecture given by Schwartz about parts of the UC budget and UC financial documents that he considered unclear. His lecture was followed by a response period for UC Berkeley Associate Vice Chancellor (AVC) for budget Erin Gore and AVC for Finance and Controller John Ellis, as well as a question-and-comment period for the audience, which consisted of around 30 to 40 students, faculty and staff.
Disagreements shaped the presentation, but overall it was characterized by a shared interest in inquiry. Everyone seemed to agree that UC finances could be more transparent.
Berkeley Professor Stanley Klein (optometry) emphasized the nuances of views expressed in the seminar, explaining as an example that he disagrees with Schwartz on a number of topics.
“That’s what makes this seminar interesting– different points of view,” he said.
The presence of Ellis and Gore made the presentation particularly unique. UC administrators and non-administrative members of the UC tend to be seen as polarized and uncooperative, but here they were engaging in thoughtful dialogue.
However, there may be a limit to the impact this dialogue can have. While Gore and Ellis can share information about UC finances and may even be able to revise UC financial records to make them more understandable, they have specific responsibilities that are mostly restricted to the Berkeley campus. Their positions have little to no influence over the UC Regents.**
Schwartz, who was clear to direct his criticism of the UC to higher officers such as UC President Mark Yudof, explained that Gore’s responsibilities include Berkeley’s budget planning at the beginning of the fiscal year and Ellis’s include the accounting for the campus at the end.
***
Controversies that figured prominently in the presentation were accounting for unrestricted funding, the classification of funding that goes toward university hospitals and the effect of pay cuts on faculty.
Unrestricted funding
In the quote about fungibility and transparency, Schwartz was referring to the University of California’s unrestricted fund, which is comprised of money pooled together from various sources such as state aid and student fees. Because the funding sources that flow into the unrestricted fund are fungible or not bound to specific uses, no one can pull a dollar out of a student’s fees and say, “This dollar went toward this professor’s salary,” or “This dollar went toward construction.” The uses of unrestricted funds, therefore, are not transparent.
Gore disagreed with Schwartz that fungibility and transparency are irreconcilable, though she admitted that information about how the UC uses its fungible funds is currently not as clear as it could be.
“Just because money is fungible doesn’t mean you can’t see where it’s spent—not to say we’re there yet,” she said.
Classification of funding for hospitals
On the topic of funding for university hospitals, Schwartz said the category “Total Expenditure for Instruction” in UC financial schedules 1D (Berkeley) and 4D (UCLA) is deluding because it does not refer specifically to money spent on teaching activities but also includes money that goes toward things like the salaries of doctors at university hospitals.
A professor in the audience countered that UCLA doctors’ salaries can be considered instruction expenses because the doctors may be educating medical students who are watching their procedures.
Pay cuts
In relation to the controversy over pay cuts, a graduate student asked if UC Office of the President officials could quantify at what level of pay cut faculty would leave their jobs. He recited a “mantra” used by UCOP officials:
“If we don’t pay them enough, then they’ll walk,” he said, and asked at what point the faculty would walk–will a doctor or professor leave after receiving a one percent pay decrease?
A professor responded that Berkeley lost 48 retention cases last year.*
Gore suggested that it’s not just the money that keeps people at the UC and that that various factors create a delicate balance, including a desire to contribute to public education.
“It’s more art than science,” she said. “The fear is always that we don’t want to break Berkeley, we don’t want to break (the) UC.”
The next step
Many topics, such as where the overhead on grants goes, were only touched upon on Tuesday. In order to follow-up on topics that were not thoroughly explored, seminar facilitators and audience members decided to continue the discussion next week, at the March 16 session of the seminar.
“We knew this (presentation) would just be dipping our toes into the issues of fiscal complexity,” Schwartz said.
*I don’t know if “last year” means 2009 or the 2008-09 school year, but it is the phrase the professor used.
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