Saturday, July 22, 2017

The best laid plans... and those that aren't

Thanks to Michael Meranze for spotting this report on Berkeley's Regents-approved stadium folly. It's an illustration of what can happen when big capital projects - and their business plans and assumptions - go awry. 

Luckily, nothing like that could ever happen at UCLA. (Or could it?)

[We'll spare you the obscene title which you can figure out by looking at the link below.]

Patrick Redford, 6/07/17, Deadspin 

The University of California-Berkeley first built Memorial Stadium atop their campus in 1923 as a tribute to those who died fighting World War I. It’s one of the most beautiful college football stadiums in the country, a gem perched in the Berkeley Hills that overlooks the East Bay, San Francisco, and the Golden Gate Bridge. Problem is, stadiums get old, especially stadiums that straddle the Hayward Fault, a more destructive cousin of the famous San Andreas Fault. Memorial Stadium is quite literally bisected by the fault, which not only means that there is risk of a catastrophic earthquake, but that the stadium is slowly being pulled apart by fault creep.

A 1997 study rated the seismic safety of the stadium “poor,” and school officials embarked on a quest to fix it shortly after. Regents told the school to either fix the stadium or find a new place to play. That’s an impossible decision, given that Berkeley is a high-density urban area crisscrossed with fault lines and bound by mountains to the east and the San Francisco Bay to the west. By 2006, Berkeley officials had decided not to try and build a stadium somewhere else or play home games in the Raiders stadium, but rather to completely renovate and retrofit Memorial Stadium and build a new locker room and workout facility underneath it. The school was going to take on a bonded debt of $445 million for the $474 million project, hoping to pay it back by selling 50-year rights to season tickets for hundreds of thousands of dollars.

Almost immediately, the project got mired in a series of delays. An infamous tree-sitting protest began on the morning of Cal’s annual rivalry game with Stanford in 2006 and delayed construction all the way until September 2008. A neighborhood association sued the university over potential plans to build a parking garage (there is a comical dearth of parking in Berkeley), and that case wasn’t settled until 2010. The delays, the adjacent American economic crisis, Cal football’s declining on-field relevance, and the UC system’s budget crisis (which prompted $650 million in cuts and 17 percent tuition spikes) turned the incredibly ambitious project into an unholy albatross. Stanford stadium guru Roger Noll warned Berkeley officials that the project was too risky, and he was proven correct in his assessment.

By June 2011, only 49 of the 3,000 long-term seats had been sold. By December, the school said that they were $113 million short of their goal. Kansas tried a similar long-term seat plan and they abandoned it after it failed spectacularly. Cal tried to pivot away from the seat selling plan by 2013, but by that point, a gaping budget shortfall was staring them in the face, and that was just from paying off the debt. The Bears now owe at least $18 million per year in interest-only payments on the stadium debt, and that number will balloon to at least $26 million per year in 2032 when Berkeley starts paying off the principal stadium cost. Payments will increase until they peak at $37 million per year in 2039, then subside again in 2051 before Berkeley will owe $81 million in 2053. After that, the school is on the hook for $75 million more and will have six decades to pay it off. The stadium might not get paid off until 2113, by which time, who knows, an earthquake could send the stadium back into the earth or football as we know it might be dead.

Cal has a historically strong athletics program across the board, with several teams competing for national championships every year, multiple Bears winning Olympic medals every few years, and many high-profile pros in the NBA and the NFL. The school’s 30 teams are the second-most in the Pac-12, and even though Berkeley is more famous for its strong record of academic success, no other public school can stand up to Berkeley’s combination of elite academics and big-time sporting success. However, the current budgetary crisis brought on by the stadium debt is an existential threat to athletics at Cal.

The debt financing plan relies on athletics revenues going up, which is not encouraging given that ticket sales declined next year, the TV rights bubble might be popping, and the football team does not look like it will be worth a damn in the foreseeable future. Austerity measures have been broached before, and in 2010 Cal Athletics almost lost five teams, including its iconic rugby team. Last-ditch donor efforts saved those teams, but the budget is still mired in horrifying amounts of debt. The program ran a $22 million deficit last year, and a new apparel deal and a new naming rights deal for Memorial Stadium’s field will only take small chunks out of that gap. A new task force was formed by the school in August 2016 to find solutions to the budget crisis, and as co-chair Robert O’Donnell told Bloomberg, “Everything is on the table.”

Tensions between Cal’s athletics and academics are nothing new, and this situation isn’t helping. The stadium debt is so large that funding may have to come out of the school’s non-athletics budget soon. The school’s largest donors donate to both the school and the athletics programs, and any disruption of sports could decrease the overall amount of donations. The task force issued a report on its findings this week—you can read it below—and while they did not mention any specific remedies, things look incredibly dire.
  • Given its magnitude, it is virtually certain that interest expense will exceed IA’s operating income for the foreseeable future no matter what actions are taken regarding program scope in IA.
As the task force made clear, cutting sports might save money, but could also dry up the donor well that the school relies on to pay teachers.
  • If the scope of the program were reduced, what would be the potential savings? To bound the problem, we received estimates that reducing the number of intercollegiate sports from 30 to the NCAA minimum of 14 might produce an initial annual savings on the order of $9- 12 million. In addition, total IA annual capital spending of $7-8 million might decline to $3-4 million. Substantial uncertainty surrounds both of these estimates.
  • Set against these savings is the effect that reducing the number of sports would likely have on philanthropy, not only to IA but also to the entire campus. Development staff estimates that the initial annual impact could be on the order of $25 million. While this estimate is consistent with that made in the 2010 report, this number, like the estimated cost savings from reducing sports, is subject to great uncertainty. Notwithstanding this uncertainty, any recommendation must consider the net cost of scope savings after taking into account the potential reduction in philanthropy.
The task force noted that cuts and changes must be made but stopped just short of any prescriptions. Tighter budgetary control is a given, but the school simply owes too much money to avoid taking any drastic measures. The other shoe will drop soon for Cal, and it’s not going to be pretty when it does.


Report of task force at:

Friday, July 21, 2017

70% Issue Postponed to November Regents

Sources say that the issue of the 70% floor on retiree health care that was taken off the July Regents' agenda has been postponed to November - as opposed to September. This later date means that the floor can't be removed for calendar year 2018. 

Money for UC Law Schools

UC Law Schools Win Bid to Intervene in Case Awarding $45M for Botched Mortgage

Karen Sloan, The Recorder, July 20, 2017

University of California law schools and two consumer rights legal organizations have won a bid to intervene in a lawsuit where they stand to receive a collective $40 million in punitive damages from Bank of America. U.S. Bankruptcy Judge Christopher Klein of the Eastern District of California found that the law schools and consumer protection groups acquired standing in the suit when they were unexpectedly made third-party beneficiaries of the total $45 million in punitive damages awarded in a case where Bank of America severely botched its handling of a Sacramento-area couple's mortgage.

Klein ruled in March that a large damage award was necessary to garner the attention of the bank's board of directors and spotlight its poor treatment of mortgage holders. He also ruled that the bulk of the $45 million in damages should go to groups—such as the five law schools affiliated with the University of California—that can help prevent banks from taking advantage of consumers. It's an unorthodox provision and unlike the more common cy pres award, whereby entities such as law schools receive funds from class action lawsuits.

"If the punitive damages award is later reduced or disapproved, then [the intervening entities] will be adversely and pecuniarily affected within the meaning of conventional understandings of standing," Klein wrote in his July 13 opinion allowing the schools and the National Consumer Law Center and National Consumer Bankruptcy Rights Center to intervene in the suit...

Full article at

Hoping to Waive Him Goodbye?

Berkeley's new chancellor can't be looking forward to this event, whenever it occurs.

UC Berkeley Offers to Waive Venue Fee for Right-Wing Speaker

US News, 7-20-17
University of California, Berkeley is now offering to waive a venue fee for former Breitbart editor Ben Shapiro to speak on campus on the date Berkeley College Republicans requested, school officials said Thursday afternoon. New UC Berkeley chancellor Carol Christ made the decision out of a commitment to free speech, university spokesman Dan Mogulof said.
Campus Republicans requested a room that could accommodate 500 people for guest speaker Shapiro on Sept. 14, Mogulof said. He said earlier Thursday that all venues large enough and free of charge to student organizations were already booked for Sept. 14, the only proposed date the group offered.
"The event will either take place in a smaller venue or the university will foot the bill for a larger venue that's available," Mogulof said. "All the details will have to be worked out with them, but I'm optimistic."
Berkeley College Republicans vice president Naweed Tahmas did not immediately respond to a telephone message seeking comment Thursday evening. The waived fee depends on which venue the two agree to.
Despite the waived fee, the student group will still need to pay for basic security costs per university policy, school officials said...

Thursday, July 20, 2017

Details, Details

Along with the budget, the legislature passes various requirements, i.e., things it wants recipients of funding to do. The $50 million for UC conditioned on meeting the terms of the recent state audit is an example. But there seems to be a (bad) case of micromanagement in the request below:

Item 6440-001-0001—University of California

1. University of California—Contracts With Medical Laboratories. On or before January 1, 2018, the University of California (UC) shall report to the Legislature on the following issues: (a) the number of outside medical laboratories for which UC currently contracts; (b) the value of each contract; (c) a summary of any efforts UC has made to date to consolidate its contracts with outside laboratories; and (d) a summary of Vizient’s recommendations to UC on consolidating contracts with outside laboratories.

page 22.

Vizient - the organization named above - seems to be a consulting firm in Texas dealing with the medical area. Yours truly first thought the provision was an attempt to discourage outsourcing. But on its face, it seems instead to favor more efficient outsourcing.

Wednesday, July 19, 2017

Despite removal of 70% retiree health care floor from July regents' agenda, issue isn't dead

Letter below reproduced by permission:

July 17, 2017

Dear President Napolitano,

The UC Berkeley Emeriti Association (UCBEA) is very troubled about the proposal to rescind the 70 percent floor for the University’s aggregate annual contribution to the retiree health benefit program.  Our concerns have been well articulated by our colleagues from other campuses.  Essentially, they are centered on two general themes: 
  • Governance: The agenda item was added without prior notification or consultation with the Academic Senates or the Councils of Emeriti and Retiree Associations.
  • Financial: There were no details as to the fiscal necessity of this proposed change, no analysis of the financial burden on retirees, and no mention of the impact this would have on recruiting and retaining faculty and staff.
While we appreciate the removal of the proposal from the July agenda, it apparently will be on the agenda for the September Regent’s Finance and Capital Strategies Committee.  In the interim, UCOP must be more sensitive to the long tradition of shared governance and consult with the various stakeholders such as the Academic Senates and the various emeriti associations.  Further, UCOP must be more transparent about the underlying data and analyses that led to this agenda item in the first place.

The emeriti of our wonderful university make an enormous contribution to scholarship and pedagogy.  I draw your attention to John Vohs’ “Eleventh Campus” (see link: and the contribution of UC Berkeley’s emeriti to our campus (see link:

By placing such an important item on the Regent’s agenda without prior consultation and discussion is, at best, disrespectful to our emeriti.  The following recent communication (with his permission) by Professor Emeritus Richard Mathies captures the frustration we have been hearing from many of our colleagues: “Hmmm--- So I have been writing grants, doing research, and advising students and postdocs for free since July of 2013, just brought in a $3M grant from NASA that will support a lot of people at Berkeley (and hopefully lead to putting an instrument on Enceladus and or Europa) brought in many millions of dollars of royalty payments into the campus over the years, and the Regents want to secretly reduce their support for my retiree health care!  Its insulting to see how they respect and reward 40 years working for this institution. I am changing my will terms.  Not your fault but perhaps you can use this message to influence someone.”

We look forward to your acting on our concerns before this issue is brought to the Regents.

On behalf of UCBEA, sincerely yours,

John Swartzberg

President, UCBEA

Tuesday, July 18, 2017

Update: Explainer on Blue Shield/Blue Cross Mix-Up

Yesterday, we noted that retirees were having health care bills sent to former carrier Blue Shield when the current carrier (since Jan. 1) is Blue Cross.* Apparently, the work-around is for retirees to ignore communications coming from Blue Shield.

Here is a further explanation from a reliable source:

Some of our Medicare members continue to receive Explanation of Benefits (EOBs) from Blue Shield of CA (denials) for claims incurred in 2017.  The reason for this is due to CMS/Medicare’s “crossover” process, by which the claimants’ secondary plan (such as the UC Medicare PPO and High Option plan) receives claims directly from CMS once Medicare has adjudicated the claim.  CMS is informed of the retiree’s supplemental plan via an electronic feed from the carrier.  Unfortunately, CMS still has Blue Shield’s crossover in place and Blue Shield has not been able to correct the information electronically. 

Therefore, Blue Shield is manually updating UC retirees’ records to correct the crossover and anticipates these updates will be completed by next week. After that, CMS will still have to update their system which usually takes about 2 more weeks, after which the issue will be resolved.

The good news is that Medicare also has Anthem’s crossover in place (along with Blue Shield’s) so the 2017 claims are being processed twice – once under Anthem where the claims adjudicate correctly and also under Blue Shield where the same claims are (correctly) denied.  The result is that two EOBs are sent to the member, causing confusion and concern. To date, there are 947 members affected.

If you receive a call from a member about this, please share with them that claims are being sent to both Blue Shield and Anthem now and that Anthem is processing these claims correctly.  For 2017 claims, members should disregard the Blue Shield denial EOBs. 

Anyway, if you are getting stuff from Blue Shield, now you know how to deal with it: