Potential involvement of UC in CA prison healthcare: Neither simple nor novel
***I’ve been playing phone tag with California Department of Corrections and Rehabilitation (CDCR) throughout the week. Once I get a chance to talk to a representative I will post their comment.***
With the state of California facing a deficit in the tens of billions and the University of California down hundreds of millions, a partnership that saves the state money and potentially redistributes it to education sounds fantastic.
According to a report by the telemedicine company NuPhysicia, Governor Arnold Schwarzenegger’s proposal that UC take over California’s prison health care could save the state up to $16 billion over the next 10 years– money which UC officials said could be redistributed back to the state general fund and from there to education.
But the idea is far from simple and hardly novel.
While the UC Board of Regents discussed the possibility of university-run prison health care during their March meeting, the idea was first brought up before the board in 2005.
In its 2005-06 analysis of the state budget bill, California’s Legislative Analyst’s Office said a health care partnership between the California Department of Corrections and the University “has merit, but the proposal is not fully developed.”
“Some of the potential benefits include (1) continued learning for prison health care staff; (2) opportunities for clinical research in a unique health care environment; and (3) more cost-effective health care delivery,” the analysis states.
Because no specifics as to how University involvement in California state prison health care would work were finalized at that time, the office declined to make any recommendations.
The office has yet to take an official position this time around for the same reasons.
“The governor hasn’t put forward a concrete proposal,” said Aaron Edwards, a fiscal and policy analyst for the office. “He has just outlined in concept of what could happen.”
The report is only one factor in the web of “maybes” and “mights” that comprise the debate and has infuriated the Union of American Physicians and Dentists, which is affiliated with the American Federation of State, County and Municipal Employees.
First presented at the March UC Regents meeting, the report suggests that UC manage California’s prison health care system, including supplying UC health care professionals and hiring other staff to run the system and using telemedicine, i.e. having doctors meet with patients via teleconference.
According to NuPhysicia, its recommendations could save the state $4.3 billion over the first five years of their implementation and between $12 and $16 billion over the next decade. California currently spends $2.4 billion a year on prison health care, or $41.25 per inmate each day.
The first point of contention the union has voiced against the proposal is that there is a conflict of interest at its base– UC President Mark Yudof was president of UT from 2002-08 and John Stobo, who is currently senior vice president for health sciences for UC, was President of the UT Medical Branch at Galveston. In 1997, the same year NuPhysicia was founded as part of the branch, Stobo began his tenure. NuPhysicia is used in Texas’s UT-run prison health care system.
Union members have also said that the report’s recommendations won’t provide adequate health care for inmates and in the end, the recommendations will cost the UC money.
The recommendations could cost jobs. UC spokesperson Lynn Tierney said that the proposal could lead to layoffs of current prison medical personnel about five years after its implementation as a result of consolidating UC health care and California state prison health care positions. At present, California has 73.5 medical personnel per 1,000 inmates compared to 29 medical personnel in Texas.*
At the May regents meeting, Stuart A. Bussey, the union’s president, said the medical cases in prison are more difficult than UC health care professionals might expect. Among other problems, 40 percent of prisoners have Hepatitus C and HIV is rampant.
“These are very complicated pharmaceutical patients,” he said.
He also warned against the use of telemedicine, saying it can lead to doctors not noticing patients’ health problems such as heart murmers and making false diagnoses as a result of not being in direct physical contact with patients.
“It’s kind of a dicier situation when you don’t have your five senses,” he said.
But Stobo stressed that telemedicine would not replace the traditional patient-doctor relationship.
“Telemedicine is an enabler, it’s a factor,” he said. “It’s not a solution, it enables solutions.”
Safety is also an issue according to Scott Anderson, a physician in the department of mental health with the California Department of Corrections and clinical professor at UC Davis, who said inmates can behave more aggressively than other patients. After the regents’ session on prison health care at their May meeting, he shared a cautionary tale about a prisoner slashing a nurse’s face with a razor. When he shared the anecdote during a two-hour discussion held by the regents later that day, he said the prisoner had slashed the nurse’s neck.
Anderson went on to say that prisoners are more likely to file lawsuits against health care professionals than other patients. He added that it was only after he entered prison health care that he was sued for malpractice–twice, in fact. Ultimately he concluded at the meeting that the costs of such liabilities could trickle down onto the backs of UC students who have already experienced a 32 percent fee hike this year.
Regent Sherry Lansing, who chairs the Committee on Health Care in California State Prisons established by the regents at their March meeting, said the UC would not consider the plan unless it were cost effective, adding that the committee’s purpose is to decide whether UC will enter prison health care and, if so, how. NuPhysicia’s model is just one option, she said.
If UC takes over prison health care, Texas, the birthplace of NuPhysicia, is the most analogous example to how such a relationship might play out.
Texas and California have similarly sized prison populations– 168,105 inmates in Texas and 166,556 in California, according to theinmatelocator.com. Likewise, the UT and UC systems are close in size with 141,134 and 159,000 undergraduate students, respectively.
Both states’ prison health care systems have, at one time, been in federal receivership, meaning they have been managed by a federally-appointed official for not meeting constitutionally-mandated health standards. California’s prison health care system has been under such oversight since 2006. Such a problem can be fixed according to Tierney, who said the 1993 university take-over of the Texas system led to the quality of prison medicine meeting constitutional standards.
A similar arrangement could be fruitful in California, Edwards remarked.
“According to an internal study (the University of Texas) has done, they’ve decreased costs,” he said, before adding that the office has not been able to independently verify the findings of the study.
Texas may be the most relevant example for California, but it is not the only one. At least five states currently have university-run prison healthcare: Louisiana, Florida, Georgia, Texas and New Jersey. The last three all do their prison health care through NuPhysicia.
Despite the prevalence of university-run prison health care, the regents are emphatically shrinking away from taking any official position. Still, they seem to have crossed-over from opposing such a plan to being more interested in following through.
“My first thought was just no way is this gonna happen,” said Regent Norman Pattiz who is a member of the committee. “Except now that I’ve gotten more information about it, I’m feeling a little less no-way.”
In addition to considering having UC manage California prison health care, the regents say they are open to options such as the UC serving as a consultant for state prison health care and starting a fellowship program through which UC doctors would become involved in state prison medicine.
The timing of the final decision is as up-in-the-air as the decision itself. Lansing said there will not be a decision within weeks, nor will the regents take years to come to a conclusion.
“I don’t know where this is heading. We are committed to looking at this in a very thorough way,” she said. “I don’t want to be held to a time line.”
* The Statesman reports that in Texas, 363 prison health care workers were recently laid-off as a result of state budget cuts–not necessarily because of UT’s involvement in Texas state prison health care.
Exams!
Posts may be sparse the next few weeks due to the imminent approach of final exams here at Cal, but be sure to check back in mid-May.
An e-mail sent out by the First Amendment Project
California, like many states, has a law that prevents search warrants being issued against journalists. These laws were mostly passed in the wake of a 1978 Supreme Court opinion in which the Court found that the First Amendment does not prevent a search warrant from being executed against a journalist, states were free to grant journalists such right by statute. The federal government passed its own version of the law as well, the Privacy Protection Act of 1980.
Why offer journalists this protection? The answer is simple: Journalists cannot do their job of informing the public if those who they are covering believe that the journalist is gathering information that will be readily available to law enforcement.
In December of 2009, David Morse, a respected and veteran independent photojournalist was arrested while covering the student protests at the Chancellor’s House on the UC Berkeley campus. The details of his arrest are a story in its own — perhaps we’ll cover that in a future email update — but what is most important now is that as he was being detained and ultimately arrested, he identified himself as a journalist to the UC police officers no less than 6 times, repeatedly offered to show his press credentials and did after several hours get a commanding officer to look at his press credential. Nevertheless, Morse was arrested and his camera was seized as evidence pursuant to his arrest.
The charges against Morse were ultimately dropped. But while he was still in custody, the police obtained a search warrant that enabled them to view the photographs on his memory cards.
The search warrant affidavit — which is essentially the application for the warrant the police present to the judge — made no mention of Morse being or even claiming to be a journalist.
First Amendment Project is representing Morse. Just last Friday, we filed on Morse’s behalf a motion to quash the search warrant and have Morse’s memory cards and photographs returned to him. A hearing is scheduled for May 11.
FIRST AMENDMENT PROJECT remains the only nonprofit organization in the country dedicated to providing free legal services exclusively on free speech and free press issues. We’ve been really busy and hope to have more updates on our work out to you soon.
California Democracy Act withdrawn
http://ucregentlive.wordpress.com/2010/04/15/california-democracy-act-withdrawn/
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.]
Q & A with Peter Taylor, re: Bonds
The week before last I e-mailed UC CFO Peter Taylor with some questions I had following the Faculty Seminar session devoted to the Meister Controversy. Here are his responses to two of my questions.
Q: Did UC issue bonds at all before 2003, or did it do everything through the state until the Bond Indenture was passed by the UC Regents? [I realized after reading the Bond Indenture, which you can find a link to in last night's post, that the indenture introduced general revenue bonds but that UC could issue its own bonds before that.]
A: The University has been issuing its own revenue bonds since the
mid-1960s. Most recently, just prior to the establishment of the
General Revenue Bonds in 2003, the University of California issued bonds
for systemwide University projects (with the exception of the medical
centers) through a bond indenture established in 1991 called the
Multiple Purpose Project Revenue Bonds (MPP). This particular indenture
is being phased out with the General Revenue Bonds being the
University’s primary borrowing vehicle. The MPP bonds are secured by
net revenues from the financed projects versus the broader general
revenue pledge that is utilized presently under the GRB program. It’s
estimated that the university today saves about $29 million through
general revenue bonds (GRBs), compared to project revenue bonds (based
on approximately $5.8 billion in general revenue bonds outstanding).
Importantly, as part of the general revenue bond structure, the
University does not have to finance inefficient reserve funds or provide
mortgages on our facilities which add costs to the University’s debt
financing. This saves the UC millions of dollars in financing costs.
Q: How does bond rating impact students/ a student’s
experience on campus?
A: Bond ratings are viewed by the University as a means to an end. In
other words, maintaining the most advantageous rating assists the
University in borrowing at the lowest interest cost possible to be able
to build and maintain capital assets that help the University meet its
core mission of education and research. Borrowing for capital projects
allows the University to address its capital facility needs for core
academic and support space, correction and replacement of seismically
deficient facilities, student housing and recreational facilities and
renewal of existing capital assets. New and renewed capital assets
allow, for example, enrollment growth and expanded research
opportunities. These uses ultimately enhance a student’s overall
experience at the University of California.
Alternatively, what would be the impact if UC’s ratings were
significantly lower? Then the overall borrowing cost of any significant
building or retrofit project would go up. Those costs are often borne
by students, through their dormitory payment, reg. fees, and life safety
fees.
The real question is are the building projects undertaken at our
campuses there to benefit students? I believe the answer is yes.
Ultimately, however, the decision to pursue a project belongs at the
local level. Local campuses know best what facilities students, staff &
faculty need to pursue their goals. We work with them to help design
the most cost effective package of finance to accomplish those goals.
A comment on last night’s post by UC Berkeley Professor Bob Jacobsen (physics) echoes some of the things Taylor has said, such as why the University benefits from having a good bond rating. However, Jacobsen goes on to question whether the benefits of a high bond rating are outweighed by the costs of achieving that rating.
“A better bond rating is clearly good for the University, because it means that money can be borrowed at less cost. The money saved that way may or may not make things better for students, but that’s a separate decision to be made.
This issue is “at what cost?” Has what the University has done to improve its bond rating had _other_ costs that are large enough to outweigh the savings?
That’s definitely worth investigating.”
What do you think about bonds?
What do you think of this quote from a 2003 article printed by the Bond Buyer?
While the [University of California] faces possible cutbacks in funding from the state, which faces a budget shortfall of approximately $35 billion, strong and growing demand at all campuses should help the system weather the storm.
The UC system’s size, stature, and low tuition relative to its peers give it significant pricing flexibility if it needs to increase tuition rates, noted Standard & Poor’s, which downgraded the system to AA in February due to California’s budget problems.
Reading articles about bond ratings such as this one, the thing I learn about the most is how much I don’t know. What does growing demand refer to—students’ demand for education? Is a higher bond rating motivation to increase tuition? What’s the significance of having a good bond rating?
In order to understand the role of bonds in University of California finances, we first have to understand bonds and their role in university finances, in general. I’ve been meeting regularly with UC Berkeley graduate students Shaina Potts and John Stehlin (both geography) to research UC’s financial model.* For the next month or so, we’ll be focusing bonds. We’ve been reading articles about UC bonds and UC bond ratings from sources like Moodys, Reuters and Bond Buyer, focusing on the years 2003, 2004 and 2005. We plan to meet with UC CFO Peter Taylor, Berkeley Associate Vice Chancellor for Budget Erin Gore and UCSC Professor Bob Meister (political science) to discuss the role of bonds in UC finances.
Read a tutorial on bonds here.
The year 2004 was significant for UC finances because it was when the Compact for Higher Educationwas established, which the California Legislative Analyst’s Office said went against the Master Plan for Higher Education passed in 1960. 2004 was also when the Indenture for General Revenue Bonds to Finance and Refinance Debt for UC Projects, passed by the UC Regents in 2003, went into effect. Before the Bond Indenture, UC could issue its own bonds but they had to back the bonds with specific revenue sources. Being able to back bonds with general revenues is mean to increase the UC’s debt capacity. I don’t know what the UC’s motivation to increase its debt capacity was or what it hoped it could do by taking on more debt. I also don’t know how not specifying the exact revenue source of a bond helps to increase UC’s debt capacity. These are things I hope to find out from speaking with Taylor, Meister and Gore.
According to Meister’s open letter to students, “They Pledged Your Tuition,” 2004 marked a turning point in UC’s bond rating; UC’s bond rating greatly improved and is in fact now much higher than that of the state of California. (Read about UC’s bond rating of Aa1 in July 2009 here and California’s bond rating of Baa1 in July 2009 here.) Stehlin said articles from Moody’s reflect the improvement of UC’s bond rating in 2004 as well. I don’t know what a higher bond rating means for students and nor do I know what bonds can and cannot be spent on.
Through meeting with people who openly disagree about whether or not bonds are good for the university, I hope to gain a well-rounded perspective of the role of bonds in UC finances. I have trouble putting dialogue about UC bonds into context because I don’t know how “normal” UC’s bond situation is or what the impact of universities selling bonds is on students. As such, I can’t judge how “good” or “bad” bonds are. What do you think?
*Disclosure: Potts and Stehlin were involved in organizing the March 4 protests, making fliers and such. Stehlin wrote an OpEd that appeared in the Daily Californian the week of March 4. I met Stehlin and Potts in a research group primarily made up of Berkeley grad students in geography. The group, which was associated with the Fee Strike Work Group and involved in organizing protest materials and activities, researched various aspects of the UC budget crisis including non-monetary issues such as diversity. I don’t think the larger research group is meeting any more.
News: Lawsuits, CA Democracy Act not on 2010 ballot and more
UC Printing Services Set to Close
UC to pay group’s legal fees in stadium lawsuit
California Public Employee Retirement System Pension Funds – Could they go …
Chief Executive Roundtable chair named alumni regent
No loans! Major colleges pledge aid without debt
Settlement clears way for Berkeley stadium update
California Public Employee Retirement System Pension Funds – Could they go …
UC to pay group’s legal fees in stadium lawsuit
Bump in revenues might help schools more than state budget
Protests prove costly to campus
Analysis: Recent California newspaper editorials
McCOURT v. REGENTS OF THE UNIVERSITY OF CALIFORNIA
THE REGENTS OF UNIVERSITY OF CALIFORNIA v. THE SUPERIOR COURT OF LOS ANGELES…
California Democracy Act Fails to Collect Enough Signatures for November Ballot
UC Berkeley, neighbors settle stadium lawsuit
How a Republican Accounting Trick Is Destroying Unions, Pensions, and Public … (blog/opinion)
UC’s Yudof wants to know more about Chamber of Commerce’s anti-Brown ad … (blog/opinion)
Pauley Pavilion: UCLA responds
UCLA has decided against using $15 million in student fees that students voted to spend on renovating two campus buildings (not Pauley Pavilion.) Read about the decision here: UCLA diverts student fees from Pauley Pavilion renovation. Read the earlier article that stated UCLA would put the $15 million here: State universities tap student fees for unintended projects.
I still have a few questions:
- Is the controversy over spending student fees on construction, period, or is the controversy over spending fees students voted to spend on construction other than renovating Pauley Pavilion?
- The later article states that how the $15 million will be used has not been decided. Why is that money not going toward the purpose voted on?
- Was it lawful for UCLA to plan on using the $15 million for a purpose other than what was voted on?
News: Pensions, Endowed positions, Statewide Accounting Curric, UCSD hospitals well-ranked
News: Retirement benefits, UC Berkeley student suspensions, Budget cuts to sports, Student loan reform
Task force considers options for retirement benefits
UC Berkeley Student Protesters Face Seven-Month Suspension
UC Davis students call attention to possible budget cuts to sports
Over 100 protest-related suspensions at UC Berkeley? (blog post)
Editorial: New loan reform will benefit college students (Opinion)
Audio from Committee on Investments Meeting
A few weeks ago, I attended the Wednesday portion of the March UC Regents’ meeting. I was the last press person to leave and had the opportunity to sit in on the last open session of the day: the committee on investments meeting. I think my audio recording of the meeting is the only one available, though the other open sessions of the regents’ meeting were recorded. Read my post about the committee investments meeting. The minutes for the March regents’ meeting do not appear to be available yet.
Part One of Committee on Investments meeting, 3/24/2010
Part Two of Committee on Investments meeting, 3/24/2010
There is an unrecorded gap between the two recordings due to technical difficulties I had during the meeting.
News: Pension funds, Prison healthcare, Building at UC Merced, California’s economic recovery
News: “Sports mortgages,” Student fees fund construction, Community colleges get attention but need money
Spammed comments
I went through my spam folder this morning and noticed there were some non-spam comments in there, which I approved. Sorry for the delay in approving those comments. FYI, I’ll approve anything that isn’t spam or that hasn’t already been posted.
News: UCSD hospital, Stanford’s endowment, Contract for UC researchers, employees
Correction to April 1 post
The University Opportunity Fund, described in the portion of the post about UC Berkeley Physics Professor Bob Jacobsen’s presentation at the last Faculty Seminar, is made up mostly of federal funding. The post originally defined the fund as “an agreement with the state that dictates how state reimbursement funds for construction must be allocated.”
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.
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