Governor Uses Market Numbers to Set CalPERS Contribution Rate

Extra $$$s for CalPERS from State; zero for UCRP!

Governor uses market numbers to set the CalPERS contribution rate!

Governor to give CalPERS more funds than it asked for.

Dale Kasler,

Sacramento Bee, Dec. 06, 2009

With the State facing a $20.7 billion deficit over the next year and a half, Governor Schwarzenegger is willing to raise the State’s annual CalPERS contribution to $4.8 billion in the next fiscal year, even though CalPERS officials only asked for $4.1 billion.

Why give more? Because the Governor thinks it is more prudent to pay the CalPERS tab as quickly as possible and not allow “smoothing”  of the numbers to mask the extent of the problem--a huge unfunded liability.

Gov.Schwarzenegger, who has been trying to overhaul employee pension systems in the State, does not believe in allowing a smoothing mechanism to lower the cost of contribution and thereby “pass the buck to our kids.” Instead, he is willing to pay what he owes now, but start the process of creating a more sustainable pension system for the future.

See http://www.sacbee.com/arnold/story/2373499.html for the complete article.

Can Calpers keep its promises?

Can CalPERS keep its Promises?

San Francisco, Reuters, Oct. 23, 2009

Jim Christie, Reporting and Analysis

This article reports that CalPERS lost more than $56 billion in its most recent fiscal year. Most likely contributions will increase significantly, at least by 2011-12. 

But the choices are hard: 

      increasing contributions by public workers to their retirement plans, potentially by up to 50% for some employees; 

      raising taxes to cover higher contribution rates absorbed by government agencies, which may also jump by 50%;

      cutting public services and payrolls to shift money to retirement plans;

      a combination of all of the above because existing pension benefits are "vested rights" guaranteed no matter their cost.

And none of these options will be popular with public employee unions or taxpayers.

State Treasurer Bill Lockyer told Reuters that "local entities have to accept some of the responsibility for benefit increases they voted for," because "We have an obligation to keep the promises made to those employees."

Read the entire article at   http:/www.reuters.com/article/newsOne/idUSTRE59M23U20091023

The Troubles at UCRP

1. Under normal circumstances, 17.02% of covered compensation (your base salary) is the annual contribution required to maintain a healthy pension fund. For all of UC, this amounts to $1.3395 billion. The Regents’ 2010-2011 proposed budget funds UCRP at just over one third this amount. Thus, the Regents’ plan will underfund UCRP by $867 million in the academic year 2010-2011.

2. Circumstances are not normal: UCRP is no longer a fully funded pension plan. Part of this problem arose because of poor market returns, but most of the shortfall can be attributed to the 20 year hiatus in contributions: there were no contributions into UCRP for a period of 20 years up to and including today. Contributions will resume on April 15, 2010. As of September 30, 2009 (after a spectacular rise in the domestic and international stock markets in the third quarter of 2009), UCRP had a shortfall of $10.19 billion. This shortfall must be attended to via additional contributions over and above the 17.02% noted above. Otherwise, the shortfall will grow, and sometime in the not so distant future the pension plan will extract enormous sums from the UC operating budget and from employee wages.

3. Circumstances may never return to normal: on Nov. 18, the CA Legislative Analyst’s Office opined that no additional state contributions to UCRP would be forthcoming between 2009-10 and 2014-15.

To obtain a clear picture of the magnitude of our problem, observe that the now planned $867 million underfunding for 2010-2011 is larger than the state funded budget cut UC experienced in 2009-2010 (when the state cut our budget from $3.3 billion to $2.5 billion). On top of this, an additional and even larger contribution of $1,154 million needs to be made in each of the next 15 years to amortize/eliminate the current $10.19 billion shortfall.

The FA wants to encourage the Regents, the administration, and the faculty to get out of denial mode and make proper plans to fund UCRP. They need to step forward now and address this significant issue before it dwarfs all other issues at UC.

A new report by the Legislative Analyst is out:

http://www.lao.ca.gov/2009/bud/fiscal_outlook/fiscal_outlook_111809.pdf

Apart from the general grim outlook for the state, there is a section on higher ed and UC.  However, the pension issue is not covered in that section.  Rather, it appears on page 38 in a section on state retirement costs.

No Additional State Payments for UC Retirement Programs Assumed. Consistent with past funding practices, our forecast assumes no additional state contributions between 2009‑10 and 2014‑15 to cover costs of UC’s pension and retiree health programs. Both have unfunded liabilities, and currently, no significant contributions are being paid by UC or its employees to the pension program. Unless UC identifies non-state funding
sources for these programs soon, their costs will escalate significantly over the long term.

While this is consistent with LAO's position, this version is more explicit that the state has no responsibility for the UC pension and somehow the regents should pay for it.  It is not clear what non-state sources would pay for the 1/3 of the liability that belongs to the state.  Putting in a dollar of state funds gets you another 2 dollars, i.e., 2 for 1.  LAO seems to want 3 for 0.  
Dan Mitchell, FA Executive Board Member

What are the risks in UC turning to the federal government for funding?

Is UC Davis really a national university?

Read on….

 “As California tightens purse strings, UC turns to Uncle Sam”

by Laurel Rosenhall

Tuesday, Oct. 06, 2009, Sacramento Bee

This article outlines what the federal government has given to UC to help bail the system out of the current budget crisis and what UC wants in the future. In the current budget year, $700 million in federal stimulus funds went to UC to fill the gap in state funding as well as millions of federal dollars that fund scientific research every year at UC.

But UC leaders want to turn the temporary stimulus money into permanent funding. University leaders have sought out members of Congress and U.S. Education Secretary Arne Duncan to pitch the idea of the federal government playing a bigger role in funding higher education than they have done in the past, when individual states were up to the task. 

 "There never has been an integrated national strategy in this country for higher education. There needs to be one now," said Mark Yudof, UC President. "The mission is simply too important to leave to state governments that seem disinclined or unable to pursue it."

This new strategy does not mean that UC has given up on the state of California even though it has cut funding to the 10-campus system by 20 percent over the past year and a half. And it doesn't lessen UC's immediate need to raise student fees by 32 percent over the next year. In response to the budget crisis, the university is furloughing professors, raising fees and cutting classes, which has led to campus protests and walkouts last month.

Some Chancellors have taken action. In an opinion piece in the Washington Post a few days ago, UC Berkeley Chancellor Robert Birgeneau suggested that President Barack Obama create a national network of the country's top public research universities. If Washington provided sufficient additional funding for operations and student support, then some part of these federal resources would ensure broad access and continued excellence at these public universities for both in-state and out-of-state students.

The status of many of the great public universities as “land-grant” universities, those founded on land the federal government gave the states. makes them essentially national universities, said UC Davis Chancellor Linda Katehi. "The impact of these institutions grew beyond the border of the states,” she noted. “So now it's the time maybe for the federal government to step in and say, 'This is a national treasure.' "

This push comes at a time when other countries, like South Korea, Singapore and Saudi Arabia, are looking to the US for leadership in creating public university systems.

"Around the world - they understand that to keep their nations competitive, they have to be knowledge factories," Yudof said. "The states and the federal government should be partners in doing this."

So far, federal education officials are noncommittal on the UC proposals, saying they plan to stick to Obama's agenda for higher education.

"The president's higher education agenda is focused on increasing access, quality and affordability for all Americans," said Justin Hamilton, deputy press secretary in the U.S. Department of Education. "We're developing policies that will help us meet that goal."

Read the full article at http://www.sacbee.com/ourregion/story/2233520.html

“UC Berkeley to pay consultant to find cost cuts”

San Francisco Chronicle,

Monday, October 5, 2009

The San Francisco Chronicle published an article today written by Nanette Asimov in which she reported that UC Berkeley has agreed to pay a consultant $3 million to help the university save money.

UCB is facing a $150 million budget deficit for the 2009-10 year. Through short-term measures like cutting faculty pay through unpaid furlough days, laying off employees, reducing course offerings, fund raising, and increasing fees, the campus has whittled that deficit down, but there is still a long way to go to deal with what looks like permanent budget reductions.

To fix that problem, the University has hired Bain & Co., the Massachusetts-based consultant with offices in San Francisco, to do the job. UC Berkeley Vice Chancellor Frank Yeary, who will oversee the project, said that the outside consultants will advise a core group of administrators and faculty members charged with finding long-term savings in how the university does business, such as in its purchasing practices or technology needs.

Many faculty have opposed this move to hire outside consultants when faculty are picking up part of the bill out of the their 8% pay cut. They feel that UC Berkeley should utilize the services of in-house experts at its own Haas School of Business to do the work. Chancellor Birgeneau disagreed, saying “Not only do employees not have time for such an endeavor, we recognize that 'self-diagnosis' is not always impartial (and) that fresh ideas from outside our campus may have a role in helping us improve."

Some faculty approved of the plan. Law Professor Chris Kutz, the chair of the Berkeley Faculty Senate, likened the situation to a homeowner who wants to save money on the heating bill and invests in a new furnace.

Read the full article at http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/10/05/BAJ41A0EVD.DTL

A Medical School at UC Merced

“Loose Lips: How about a shorter name, please”

by Merced Sun-Star, Friday, Oct. 02, 2009

The Merced Sun Star published a short article last Friday on the process that appears to be leading to the building of a medical school at UC Merced.

Campus leaders said that with funds already received from the federal government, the next step is to establish an undergraduate program that “lays the groundwork for the medical school.” The name is the highly descriptive “Center of Excellence for the Study of Health Disparities in Rural and Ethnic Underserved Populations.”

The article pokes fun at the proposed name for this undergrad program but does not address the issue of building another medical school in this time of budget crisis both in the state and UC.

 Sept. 23, 2009

More About Cal Grants

On the FA Blogspot (www.uclafacultyassociation@blogspot.com) , we posted an interview with Tom Campbell, who is running for Governor. He is a former state legislator, former congressman, with a Ph.D. in economics from the University of Chicago who graduated magna cum laude from Harvard Law School. He taught economics at Stanford U and was dean of the UC Berkeley business school. 

He proposes using Cal Grants to improve funding to UC.

Cal Grants are awarded by the State to high school seniors to cover the costs of fees, tuition, and living expenses. There are several different kinds (www.calgrants.org) , but the one of primary interest to Campbell covers the cost of tuition and fees and can go up to $7,788 at UC. Cal Grants do not need to be repaid. They are based on financial need and require minimum GPA requirements.

Campbell recommends allowing tuition to rise to market rate, but increase the Cal Grant program at the same time. UC would need to guarantee the minimum number of classes to recipients of Cal Grants because if they do not enroll in the minimum number, they lose their Cal Grant.

In this system, those who could afford to pay the tuition and fees would be paying for it. The tuition would go to the University and to the system to be a source of revenue. But it would not be unfair to low income students, who would receive Cal Grants. The Cal Grant is particularly beneficial because it doesn’t operate as “you qualify or you don’t” but on a sliding scale depending on your income.

There would be an additional cost to increase the Cal Grant program, but if tuition moved to market rates, then UC would have enough extra funds to offset the increased costs of the Cal Grant program. UC could either return some funds to the State Cal Grant program or devise a way of supplementing the State Cal Grant Program at UC.

This idea would improve access of poorer students by collecting market rate tuition and fees from those who can pay. Of course, the issue of raising UC tuition is highly political. In addition, Cal Grant funding is political, with legislative proposals to increase or decrease the income ceilings for Cal Grant programs, couple or decouple the UC award amount from the UC student fee levels, and reduce Cal Grants for students attending non public institutions.

AAUP Response to the letter from Henry Powell & Daniel L. Simmons

AAUP general secretary Gary Rhoades and AAUP president Cary Nelson respond below to the Sept. 9, 2009 letter (http://senate.ucr.edu/An%20Open%20Letter%20to%20UC%20Faculty%20From%20the%20AAUP.pdf) from Henry C. Powell, Chair, UC Assembly and Academic Council, and Daniel L. Simmons, Vice-Chair, Academic Council:

September 21, 2009

Henry C. Powell, Chair
Assembly and Academic Council, University of California
henry.powell@ucop.edu

Daniel L. Simmons, Vice-Chair
Academic Council
daniel.simmons@ucop.edu

Dear Professors Powell and Simmons,

Thank you for taking the time to provide an extensive response, as Chair and Vice-Chair of the UC Academic Council, to our open letter (to University of California faculty, entitled “Faculty Taking the Lead at UC.”  Let us start by indicating that there is more common ground between us than you may realize or than perhaps was evident in our letter. Such common ground is essential to the future not just of the UC system, but of public universities writ large. For the University of California is arguably the signature, most successful example historically of what public research universities can be, in their academic work, and in the faculty’s role in shaping that work and the institution at large.

As you say, the prominent nature of the faculty role in governance at the University of California is a model. As we noted in our letter, it has exceeded the role of faculty in most U.S. universities and colleges. It is precisely because of that role that the Office of the President's recent actions with regard to implementing furloughs, were, as you put it, “wrong-headed and ha[ve] led to unfortunate consequences and disillusionment among faculty.” The wording in our letter was not so very different in speaking to an “at best unwise” and “at worst dismissive” decision. I think you must grant us that a unanimous vote is, after all, a unanimous vote, regardless of what debate preceded the vote. I think you must also grant us that although a President is not obliged to accept the faculty’s advice, in a situation of this magnitude, in which the faculty had worked so hard, in some of the ways you detail, to fashion a position in concert with the administration, and in a situation in which their advice was unanimous, the President’s actions no doubt have their rationale but were nevertheless, in your words, “wrong headed.” Indeed, many other faculty members in the UC system share that view, which was also articulated in a September 1 open letter to President Yudoff by the Chair of the Davis division of the Academic Senate, Robert Powell.

Here, we would reiterate what is not addressed in your letter, and which we would hope would be common ground. What confronts the University of California, as with so many public research universities nationally, is (a) a long standing and problematic set of financial and resource allocation trend lines, (b) a choice about what direction to pursue in the future, and (c) the role of an independent faculty voice in shaping that choice and future.

With regard to the first point, the issue at hand in the UC is not simply furloughs, but long term patterns of reduced shares of institutional funding from the state (shifting greater burden to the students), reduced monies per student over time, and shifting greater shares of institutional resources within the system to administrative expenditures relative to educational ones. The first two patterns are connected to state level decision making that the UCOP obviously cannot determine, but certainly can speak to. The latter pattern is an internal one, that has played out in good times and bad in U.S. higher education. Such patterns are not idiosyncratic to the UC or to any particular president; they are national trend lines. At a descriptive level, the Delta Project has compiled national data on this; but there are also numerous scholarly analyses of higher education finances and governance (from scholars ranging across the theoretical and ideological spectrum) that point to these patterns. Such patterns are being accelerated by the current responses to the current economic environment. Thus, we cannot agree with your statement in regard to shared governance surrounding the implementation of furloughs: “Sometimes we agree, sometimes we disagree. At the end of the day, we must respect each other’s exercise of judgment and decision making authority and move on to the next issue based on our collective judgment of what is good for the institution, and for the good of our students.” We believe faculty members need to take the lead in highlighting and addressing the long-term issues, which are the enduring issue.

With regard to the second point, what direction to pursue in the future, there are several examples of faculty members in the UC system, individually and collectively, critiquing the direction being contemplated for the future, which in various forms is referred to as privatization of the University of California. By way of example, the Chair of the UC Davis Division of the Academic Senate, the officers of the Council of University of California Faculty Associations (CUCFA), and scholars such as Chris Newfield (of UC Santa Barbara), George Lakoff (UC Berkeley), and a group of faculty at UC Irvine (including Glenn Levine, Mark LeVine, Jack Miles, and Jane O. Newman) are all critical of the newly created commission on the future of the University of California, in its composition (in regards to faculty representation), in the direction it is taking, and in its failure to challenge longstanding patterns of state funding of the UC. We believe that the faculty of the UC are identifying a fundamental challenge that public higher education faces, and that they are articulating a commitment to not further reducing the public support and role of the UC. Indeed, they see this moment as crucial to educating the public about the profound importance of those roles. We support those faculty voices, as does a large body of empirical work that points us to a three-decade-old pattern of public universities becoming more private, and indeed more businesslike in their funding streams and in their practices. Such work also points to the profound public costs of such a model, articulated a few years ago in a report by the Education Trust entitled, “Engines of Inequality: Diminishing Equity in the Nation’s Premier Public Universities." It is not simply a matter of not going down the road of privatization; rather, it is a matter of needing to reverse a pattern of having already gone a good ways down that road. And faculty voices will be crucial in accomplishing that.

Finally, with regard to our third point, the role of an independent faculty voice, we believe it is the appropriate role of the faculty to take a greater lead in these matters about the core mission and character of a university. Our aim was and is not to attack a particular president, chancellor, or provost. You state in your letter that, “We as faculty can do as much damage to this precious institution by throwing sticks and stones at our administrators, as they may do to us by ignoring the unique principles of our shared governance.” Let us reiterate: our aim was and is to address a systemic pattern. We encourage a strong faculty voice because currently, nationally, presidents and provosts are not taking this lead, and because historically, as in the UC, the greatness of our institutions, and the strength of their commitment to public purposes, has, as you have noted, been grounded in a strong faculty role in shared governance. Part of that voice involves educating a public about the fact that at some point, you cannot keep doing more with less.

We would be very happy to work with you in the future along the above lines. Indeed, we are shortly coming out with an important report on academic freedom and shared governance, speaking to the profoundly important matter of protecting faculty speech about institutional matters. Like you, we are deeply committed to the value of shared governance, and we admire and support your commitment to that work. In our view, as strong as that role has been in the UC system, it is time for faculty to take the lead in defining the university’s future. We support our colleagues in and outside the various structures of shared governance (e.g., campus divisions of senates and the system academic council) and faculty representation (e.g., CUCFA) who are exercising their voice to challenge existing patterns that are threatening a truly great system of public higher education, and who are working to shape the future direction of their university.

Yours,
Gary Rhoades, General Secretary, AAUP
Cary Nelson, President, AAUP

Tom Campbell, a long-shot Republican candidate for governor, former state legislator, former congressman, lays out his plan for increasing public college enrollment without increasing public spending. He has a Ph.D. in economics from the University of Chicago and graduated magna cum laude from Harvard Law School. He taught economics at Stanford U and was dean of the UC Berkeley business school. 

Tom Campbell Q&A Pt. 1: Taxes and fixing the economy, Sept. 17, 2009

Part 1         http://totalbuzz.freedomblogging.com/2009/09/17/tom-campbell-qa-pt-1-taxes-and-fixing-the-economy/22063/

Campbell Q&A Pt. 2: More college students, smaller classes, Sept. 20, 2009

Part 2         http://totalbuzz.freedomblogging.com/2009/09/20/campbell-qa-pt-1-more-college-students-smaller-classes/22165/

excerpt:

The method I would use for adding funding to CSU and UC is to go to market rate on tuition, but increase the Cal Grant at the same time. And guarantee, which we presently don’t, that you can get enough courses to qualify for a Cal Grant, because you have to be a full-time student.

That way, those who could afford it would be paying for it. The tuition would go to the school and to the system to be a source of revenue that we haven’t used. But it would not be unfair to folks of low income. The Cal Grant is particularly beneficial because it doesn’t operate as “you qualify or you don’t” but on a sliding scale depending on your income.

NEW FUNDING IDEAS NEEDED

Friday, Sept. 18, 2009, Editorial, San Francisco Chronicle

excerpt:

"Here's some ideas to consider carefully:

-- Differential pricing. Tier tuition, with the campuses with the most name-brand clout, Berkeley and UCLA, at the top; Davis, San Diego, Santa Barbara and Santa Cruz at mid-range, and Irvine, Merced and Riverside at the low end.

-- Go overseas: Foreign students already pay premium tuition for a UC education. Recruit more.

-- Levy an oil severance tax - projected to bring in $1.2 billion a year - and dedicate it to UC and CSU."

For the complete article, go to

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/18/ED7B19OR19.DTL

Walkout at UC

What could happen to strikers at UC?

The statute that regulates collective bargaining at UC, HEERA, is copied in many parts from federal labor law. However, unlike federal law, HEERA does not protect "concerted activity" by employees including faculty. Since Yudof et al say furloughs can't be on teaching days, and since concerted activity is not explicitly protected, there is an interesting question of what action could be taken against faculty who "strike" on Sept. 24 if they happen to be scheduled to teach or who otherwise take furlough days on teaching days.

Who knows the answer?

Walkout called over UC budget cuts

Nanette Asimov, San Francisco Chronicle Staff Writer, Wednesday, September 16, 2009

“Hundreds of faculty, students and staff from the University of California's 10 campuses are calling for a systemwide walkout Sept. 24 to protest UC's handling of its budget crisis.

The protest is intended to disrupt classes to call attention to the deep impact of millions of dollars of budget cuts on the quality of education throughout the UC system.

What began in recent weeks as a proposed faculty walkout coinciding with the first day of school next Thursday at some campuses - including UCSF, UC Davis and UC Santa Cruz - has grown to include graduate and undergraduate student groups, and labor unions representing thousands of employees.”

For the full article, go to http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/16/BAKV19N5S5.DTL