UC Berkeley Capital Projects, Stadium Edition

The Wall Street Journal reports on the UC Berkeley administration's disastrous plans for financing the renovation of the football stadium. In short, the brilliant idea was to raise $270 million from the sale of seats, presumably to its hyper-rich, 1-percent alumni. As one might expect, things didn't quite work out as our highly-paid financial managers imagined: only $31 million (about 11 percent of the total) was raised over a period of three years, leaving us about $240 million in the hole.

Wonder who's going to get stuck footing the bill...

Although its $321 million price tag would make it one of the most expensive renovations in college sports history, the university said the project would be funded privately, largely through long-term seat sales and naming rights.

But three years into the fund-raising effort, a projected $270 million from the sale of seats has failed to materialize. At the end of December, the school had collected only $31 million in the first three years of the sale. Now it has become clear that the university will have to borrow the vast majority of the money.

In recent interviews, university officials acknowledge that if revenue projections fall short and won't cover the bond payments, the shortfall "would have to come from campus."

The idea that money for the football stadium could come from campus funds, which include student fees, is an admission likely to stir outrage at a school that's already facing possible double-digit tuition increases. "It is disconcerting that the university may be gambling with student fees and other academic funds to cover a massive financial commitment for a football stadium," said Cal computer-science professor Brian Barsky.

(...)

The nearly half-billion-dollar Cal athletic project encompasses a $321 million renovation of Memorial Stadium that opens Sept. 1 and $153 million for a new multisport training facility. That's far more than Stanford University spent building a new stadium in 2006.

In public pitches for the project starting in 2006, university officials talked about raising hundreds of millions through an "Endowment Seating Program" that was to endow all 29 of Cal's varsity sports and more yet by selling naming rights to various components of the stadium. The official name will remain Memorial in honor of war veterans. But the economic downturn hindered sales and by November 2010, [Sandy] Barbour [Cal's athletic director] had posted online a letter to fans saying she was "heartbroken that the program's intentions will, in all likelihood, not be fully realized."

The total bonded debt for the project, including the training center, will be $447 million. That's apparently an unprecedented amount of borrowing for a college-sports project, far above the $220 million that Minnesota borrowed to build a new stadium in 2009, the $200 million that Washington has borrowed for its stadium renovation and the $148 million that Michigan took out to add luxury seats that opened in 2010.

Another Round of UC Construction Bonds Backed By Tuition Hikes

The Daily Cal reports:

The California State Treasurer’s Office sold $860 million worth of University of California 100-year bonds, which will be used to fund capital projects at the university, to 70 large investors Tuesday.

The money raised from the sale of the bonds — which mature over the course of a century and pay about 4.9 percent semiannual interest rates in May and November — will be used for long-term UC capital projects approved by the UC Board of Regents, according to UC spokesperson Dianne Klein. The bonds will also fund individual capital projects at UC Berkeley, UC San Diego and UCLA, including a portion of the repair of Memorial Stadium, according to Klein.

(...)

UC bond sales are part of standard operating procedure and take place a handful of times each year, but this sale was unprecedented because of its 100-year maturation period combined with the large value of the sale, according to Tom Dresslar, director of communications at the treasury.

The 100-year bonds were designed to appeal to institutional investors, including insurance companies, hedge funds, banks and pension funds, whose interests span multiple generations, according to Klein.

The university is the real world. One positive effect of these bond sales is that they reveal -- if there were still any doubt -- the many and intimate ways in which the UC is tied to the world of Wall Street finance. These ties are the result of a series of conscious decisions made by UC administrators and the Regents to transform the university into a profit-oriented, revenue-generating institution. State funding has decreased, but the shift toward this privatized model, in which the university increasingly generates unrestricted revenues through student tuition hikes (themselves backed by student loans) on one hand and the exploitation of workers on the other, is not, or not only the result -- it is also a cause.

The Daily Cal article unexpectedly pulls a Meister and does a good job of outlining the economics of UC bonds by going back to a 2009 sale of $1.05 billion in construction bonds:

In August 2009, the UC announced that proceeds from approximately $1.05 billion in federal stimulus “Build America Bonds” sold to the public would help fund about 70 capital projects on all ten UC campuses.

In a press release following the 2009 bond sale, Moody’s, a ratings agency, explained the appeal of UC bonds in a shaky economy, since the university has the ability to raise its revenue by increasing student tuition despite state budget cuts.

“In-state tuition has increased dramatically,” the press release stated. “And the out-of-state market remains a comparatively untapped resource that could provide additional growth in tuition revenue should State funding be cut further.”

But they don't look as carefully at the bond report for the current sale, rated AA+ by Fitch. The first thing that becomes apparent is just how happy the bond raters are with the UC's financial managers:

WEAKENED STATE FUNDING: Recent reductions in state appropriations, and the potential for additional cuts through the intermediate term, are mitigated by UC's limited reliance on state operating support. Timely measures consistently taken by UC's 26-member regents and highly experienced management team during times of state fiscal stress provides further rating stability.

As Bob Samuels has been arguing for years, the UC gets its "marching orders" from the bond raters. Fitch is down with the UC's "highly experienced management team" because they've done exactly what Fitch wanted them to do. As students and workers at the UC, however, we aren't so happy with their tenure because we viscerally understand that we're the ones getting screwed. The university is being run for them, not for us.

The other thing that's useful about these bond reports is their honesty. They tell us what the UC administration is really thinking about doing, without funneling it first through an (admittedly flawed) public relations machine. Again, Fitch is happy with the UC's plans for dealing with the likelihood of future budget cuts from the state. In fact, Fitch thinks these budget cuts are a good thing because they increase the university's "operating autonomy." What this means essentially is less restrictions on what the UC can do with its revenue -- while state funds are restricted, meant to cover the university's instructional costs, private funds are not, and can be used for anything from capital projects to paying debt service on previous construction bonds. Fitch tells it like it is:

Appropriations declined a total of $750 million to about $2.27 billion for fiscal 2012, including a mid-year $100 million cut resulting from the state's ongoing revenue shortfall. UC took numerous steps over the past few years to offset the loss in state funds, including significant student fee increases, staff reductions and other cost savings initiatives. On a combined basis, these measures have enabled UC to close about 26% of the total fiscal 2012 budget gap (approximately $1.1 billion).

While the governor's fiscal 2013 budget proposal, currently under review by the state legislature, recommends no further cuts to UC, Fitch believes that state funding for higher education will face continued pressure going forward. The budget proposal is dependent upon various revenue generating ballot measures subject to voter approval. Should these measures fail to gain approval in November, the proposal calls for a $200 million appropriation cut to UC effective Jan. 1, 2013.

The university's management team continues to explore various options to offset reduced state aid, including working with the state on a potential multi-year funding agreement which would provide UC longer term stability in state support in exchange for increased operating autonomy. Options being considered under this agreement include specified general fund increases through fiscal 2016; an increase in the state's share of employee retirement plan contributions, both subject to voter approval of the above-mentioned ballot measures; and more regular, less dramatic increases in tuition.

UC continues to benefit from one of the most diverse revenue streams in higher education, and Fitch notes positively its low and declining reliance on state aid as a revenue source (12.1% in fiscal 2011). The university's other significant funding sources include revenue derived from the operation of its five medical centers (27.1%), grants and contracts generated by its substantial sponsored research activities (24.5%), and student-generated revenues, including tuition, fees, and auxiliary receipts (16.6%).

Straight from Wall Street to the UC: another round of construction bonds, another set of marching orders.

From "Pepper spray nation"

Original post by Paul Rosenberg here.

"Behind the headline-grabbing brutality of the pepper-spray video lies a decades-long story of the gradual privatisation of California's public college and university system - even as resources shifted to building a massive prison system instead. On the one hand, students face skyrocketing tuition costs - up more than 1,000 per cent in just over two decades, if current plans go forward - while tax increases on the wealthy are anathema.

[...]

Exhibit A on the latter point is UC Davis Chancellor Linda Katehi, on whose orders the riot police were deployed. Katehi is both a member of the 1% and an overt supporter of police repression on campus. Although she has tried to disavow any responsibility for the pepper spraying of students, it has quickly emerged that she was a co-author of a report used to justify the recent repeal of a 1974 law, banning the police from Greek universities. That law was passed following the overthrow of a military junta. The repeal came just in time, earlier this year, to help suppress Greek protests against the imposition of harsh austerity measures.

As for her economic status, Katehi was hired in 2009 at $400,000 per year plus substantial benefits. That's the same base pay as the American President, and well more than double the pay of California's governor, who makes less than $175,000. Katehi holds numerous patents and her husband also teaches at UC Davis - more than enough to place her solidly in the 1%. Her salary represented a massive 27 per cent increase over the pay for the previous chancellor - the very same year that student fees were being hiked by 32 per cent, while classes were being cut. The reasoning was... well, it's not reasoning, really. It's just how things are done within the 1% - a procedure based on comparing pay for the heads of various different colleges, public and private, including Johns Hopkins, Yale and the University of Chicago.

[...]

Now UC Davis is a very good school, but even UC Berkeley isn't Yale. It's not so much a question of educational quality - it's a question of founding mission and purpose... which are not very well served by the sorts of people sitting on the Board of Regents, none of whom has a distinctive educational background. The UC system is part of a three-tiered college system - universities, state colleges and community colleges - that according to California's 1960 Education Master Plan is supposed to provide affordable higher education to every high school graduate in the state who wants a public college education. Indeed, technically, it's supposed to be tuition-free. But student "fees" now make a mockery of that. The 32 per cent fee increase mentioned above was just a tiny fraction of the enormous fee increases since 1992 - roughly 1/16 of the 534 per cent total increase in dollars through 2009 - or 1/10 of the total when adjusted for inflation. It's now even higher, and current plans would jack that increase up to more than 1,200 per cent over 1992 levels in just the next few years.

Fee hikes haven't been smooth. They've skyrocketed in stages as public funding from California's state budget has plunged in a series of successive budget crises. But the dynamics are more complicated than first meets the eye, as UC Santa Cruz politics professor Bob Meister explained back in 2009. There are actually incentives for university officials to welcome state budget cuts, explained Meister, President of the Council of UC Faculty Associations. State budget money comes with strings attached, prioritising education. But money from student, ironically, has no such restrictions, and hence is perfect for empire-building, he explained.

"How does UC sell $1.3bn in construction bonds immediately after declaring an 'extreme financial emergency,' slashing funds for teaching and research and cutting staff and faculty pay? By using your tuition as collateral," Meister wrote online at KeepCaliforniasPromise.org. "Higher tuition lets UC borrow more for construction even while it cuts instruction and research." And this is only the beginning, he explained.

"UC's most recent (post-"emergency") construction bonds are just the beginning of a long-term (10-15 year) plan to borrow very much more against very much higher tuition in order to fund individual projects that no longer have to be approved by the state or paid for out of each project's own revenue."

In short, rather than the university existing to serve the students, it's the other way round. From the Board of Regents' point of view, the students are - above all else - a revenue stream to secure Wall Street funding. Hardly a surprise, really, when you consider the makeup of the Board."

Occupy U.C. Animated Bears

Finally Some Honesty In The Media

The Budget Cuts and the Privatization of the University of California

A version of this article was recently published in the UCSC Disorientation Guide. We repost it here because we found it to be a very useful resource: a history of the UC from the perspective of austerity that collects and synthesizes a lot of otherwise dispersed data. Give it a read, and check out the rest of the disorientation guide as well.

As you go from class to overcrowded class this fall, you’ll want to forget that tuition last year was around $1,800 less than you’re paying now. Continuing a 30-year trend, the UC Board of Regents gathered in cigar and gin-soaked boardrooms over the summer to raise our tuition by 17.6% and lay down plans for further increases in January, or maybe just raise tuition 81% over the next 4 years. (Hey, overcrowding at least improves your chances of getting lucky; tuition hikes on the other hand, just increase the probability of working a shitty job in college and plenty of debt after). The UC Office of the President (UCOP) never tires of reminding us that tuition increases are the recession’s fault or scolding us that Californians are just unwilling to spend on education in hard times; this is a strange excuse though, since state funding has been decreasing while tuition has been skyrocketing since the early 1990s. Even while UCOP continues to whine about how poor it is and how unfortunate it is that they need to raise tuition, it’s offering the state of California a billion dollar loan from UC financial reserves. As it happens, in 9 of the past 10 years tuition was raised – well before the 2008 recession began; UCOP’s insistence on the necessity of this recent series of tuition increases has so many logical fallacies that if it were an assignment, it’d get an F (assuming, of course, that the overburdened TA grading it even had time to pay attention to it). Tuition hikes and budget cuts – at all levels of California higher education – are part of the decades-long process whereby the richest assholes in California (and the greater US) intend to make private what few institutions remain in public hands.

Even if you slept through math in high school, UC tuition increases aren’t difficult to calculate – just add a few zeros every few decades: since 1975 tuition has gone up 1,923% or, if you’d prefer to adjust for inflation, 392% (from $700 to over $12,000 per year)! Minimum wage in California, by contrast, when adjusted for inflation, has stayed roughly the same for the last 40 years, while the median family income has continued to fall since 1973. Most people in California make less money today, yet pay much more for education: for families struggling to pay rent, mortgages, car payments, etc., education becomes a luxury good. To make matters worse, financial aid packages meant to help low to middle income students attend the UC, heavily depend on students working part-time in an economy with a staggeringly high unemployment rate and very low entry- level wages; furthermore, it relies on students taking out thousands in loans that, most economic experts agree, will lock us into debt for the rest of our lives. Indeed, many economists believe that student loans will be the next credit bubble to burst, perhaps wreaking more destruction than the recession of 2008. Because there aren’t enough jobs for everyone who graduates, student loan default rates are nearing 10% – but, unlike other loans there’s no way out for student borrowers. Sallie Mae and Bank of America can take your paychecks and your children’s paychecks until they get back all their Benjamins, and then some.

As the pinnacle of public higher ed., UC students should also know that what happens at the UC level is magnified in the CSUs and Community Colleges. CSUs estimate that over 10,000 students have been denied admission this year because of budget cuts; at the same time they’re not repairing facilities, replacing library books, or rehiring lecturers. California Community College systems, however, have been hit the hardest: it’s estimated that 670,000 students who would normally go to Community College this year will be turned away. CCs are facing nearly $400 million in budget cuts this year and will have to cut several thousand classes to make up for budget shortfalls. Given that unemployment for thoseaged 18-24 is over 17%, it’s clear that the cuts to public education will continue to have a devastating affect on an entire generation. California Community Colleges serve over 3 million students, many of those students going on to four-year colleges after they get their Associates degrees. (It seems almost plausible that state leaders actually hope many of these 670,000 end up in prison: as the CSU Chancellor, Charles Reed, said, “It’s outrageous that the prison system budget is larger than UC and Cal State put together.”)

I. AUSTERITY

If you paid attention to the news at all this summer, you likely heard about the budget crises for California and the Federal Government. State legislators, by a twisted interpretation of their constituent’s needs, have not tried to raise revenue, but are instead cutting UC funding for 2011 by $650 million (and tax shortfalls by November are almost guaranteed to cut another $100 million from the UC budget for this year). Community Colleges, like the UC, will also see further midyear multi-million dollar cuts, as tax revenue continues to stay low. During all of this, UCOP’s response was no doubt similar to yours, when you were four: they whine, don’t get what they want, and then take it out on us. For you, these state shortfalls mean that tuition will have to be increased in the middle of the school year – and you’ll be responsible for making up the difference. The recession has hurt: during the 1970-71 school year, the state allocated 7% of its budget for the UC, and it’s sharply declined since then. However, state shortfalls are not simply a result of the present recession; they’ve given the UC Regents a nice story to tell you as they shred quality education and let old UC’s facilities decay while haphazardly building new ones. It’s all built on our rising tuition.

Back When There Were Jobs

"About 50 percent of all undergraduates work an average of twenty-five hours per week. The remaining 30 percent work full-time, more than full-time, or at multiple jobs approximating the equivalent of full-time, averaging thirty-nine hours a week. This means that about 10 or 12 million undergraduates are in the workforce at any given moment. Indeed, if you’re a U.S. citizen under age twenty-five, you are more likely to be working if you are a student than if you are not. Over 3 million persons aged twenty to twenty-four are unemployed. Being a student isn’t just a way of getting a future job—it’s a way of getting a job right now. According to one observer, in 1964, all of the expenses associated with a public university education, including food, clothing, and housing could be had by working a minimum-wage job an average of twenty two hours a week throughout the year. (This might mean working fifteen hours a week while studying and forty hours a week during summers.) Today, the same expenses from a low-wage job require fifty-five hours a week fifty-two weeks a year.

At a private university, those figures in 1964 were thirty-six minimum- wage hours per week, which was relatively manageable for a married couple or a family of modest means and would have been possible even for a single person working the lowest possible wage for twenty hours a week during the school year and some overtime on vacations. Today, it would cost 136 hours per week for fifty-two weeks a year to “work your way through” a private university (Mortenson). In 2006, each year of private education amounted to the annual after-tax earnings of nearly four lowest-wage workers working overtime.

Employing misleading accounting that separates budgets for building, fixed capital expenses, sports programs, and the like from “instructional unit” budgets, higher education administration often suggests that faculty wages are the cause of rising tuition, rather than irresponsible investment in technology, failed commercial ventures, lavish new buildings, corporate welfare, and so on. The plain fact is that many college administrations are on fixed-capital spending sprees with dollars squeezed from cheap faculty and student labor: over the past thirty years, the price of student and faculty labor has been driven downward massively at exactly the same time that costs have soared.

For the 80 percent of students who are trying to work their way through, higher education and its promise of a future is increasingly a form of indenture, involving some combination of debt, overwork, and underinsurance. It means the pervasive shortchanging of health, family obligations, and, ironically, the curtailment even of learning and self culture. More and more students are reaching the limits of endurance with the work that they do while enrolled. One major consequence of this shift of the costs of education away from society to students, including especially the costs of education as direct training for the workforce, is a regime of indebtedness, producing docile financialized subjectivities (Martin, Financialization of Daily Life) in what Jeff Williams has dubbed “the pedagogy of debt.” The horizon of the work regime fully contains the possibilities of student ambition and activity, including the conception of the future."

Marc Bousquet, How The University Works