Wednesday, February 13, 2013

Grading the LAO Report on Higher Ed

We summarized the Legislative Analyst's report on higher ed funding in a post yesterday and provided a link to the document.  One thing that faculty do is evaluate and give grades.  In this case, the grade for the report would have to be an "incomplete."

Pensions: The LAO continues its assertion that the state has no legal liability for the UC pension.  It wants the legislature to say so.  The legislature can say the Moon is made of green cheese if it wants.  But the Moon will be what it is.  The question of state liability is a legal matter and no legal analysis is provided.  It is a legal matter that extends beyond the state into the federal constitution.  If the LAO wants to be serious about this issue, it could start with the history of the UC pension written by the UCLA Faculty Association's Executive Director, Susan Gallick, and then get some outside legal advice from constitutional experts.  As the governor and the legislature continue to discover about the state prisons, it is the courts that ultimately decide issues of constitutionality, regardless of state pronouncements.

What is odd is that after its assertion of no liability, the LAO goes on to say that someone is going to have to fund the pension and says the legislature should do so.  It suggests that the UC pension should be compared to the recent state pension enactment for other public pensions and then the legislature should pay in some sense what the others get.  UC's pension was omitted from the pension bill because the legislature and governor were persuaded that the pension changes enacted by the Regents in 2010 approximated what was later proposed for other public pensions.  What the cost implications are will vary from plan to plan, even with the same provisions.

Costs.  In loose terms, UC and CSU get comparable amounts from the state.  But UC has fewer students so the dollars/student ratio is going to be higher - which is what you expect in a research university.  There is little analysis in the report of what California gains by having a research university.  There is no analysis of what other states such as Michigan and Virginia have done once they concluded that they couldn't afford, or didn't want to afford, a research university. 

Pay for Performance.  As personnel directors can tell you, this is a slogan - maybe even a concept - but specifics are needed as to how you do it.  Is this year's budget going to be based on a formula?  Transfers - dropouts + course loads + completion in Y years = X?  What?  Personnel directors can also tell you that you can get perverse results.  Quantity over quality is a prime example, but only one.

Capital Costs.  There is concern in the report about the handling of capital costs but the concern seems to be confined to state-paid capital costs.  At UC, as we have noted repeatedly on this blog, the Regents - members of a part-time unpaid board - are routinely asked to approve large and expensive capital projects which are said to be paid for from future revenues.  But the Regents have no independent capability to review such projects or to follow up on whether the promised revenues actually materialized.  If the revenues prove inadequate, like the pension, somehow the deficiency will be paid; the campuses don't default.  The issue of Regental oversight and governance needed to be discussed regarding all capital projects, not just state-paid.

The rule at UCLA is that if you get an incomplete, you have one quarter to finish the work or the grade goes from incomplete to F.  There is an out from that rule in this case, however.  LAO can join us in what we have recommended in prior posts.  It is clear that we have arrived at a point in California where a new Master Plan needs to be developed to deal with the issues above and others.  To get there, we need to set up a review of the three segments - a process in other words rather than off-the-cuff "solutions" from the governor, the LAO, or anyone else.  The annual budget cycle doesn't work when a fundamental review is needed.  It was done before under Pat Brown and it can be done again.
Of course, we'll have to wait.  A process takes awhile to complete.  But in the meantime, we have just the selection to go with an incomplete report:

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