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.

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.

No Limit for Student Debt

Two weeks ago, Congress passed an all-cuts deficit reduction bill, which was ostensibly tied to an increase in the federal debt ceiling. While much of the commentary about this bill, including in the left-liberal press, suggested that the 1.7 trillion in cuts was a result of Republican intransigence and Executive fecklessness, in truth, the austerity was driven much more by the bond rating agencies, who were threatening to downgrade US debt unless our federal representatives carried out an initial round of fiscal austerity. The agencies got their cuts, but S&P went ahead with the downgrade anyway. The other two agencies -- Moody's and Fitch -- are holding their fire for now.

If nothing else, this debt ceiling & debt rating debacle should crystallize for a transnational public the fact that the bond rating agencies determine the parameters of our politics -- a lesson that those of us fighting UC privatization have come to learn over the past couple years. What finance capital wants -- whether that be fee hikes or fiscal austerity -- it gets.

Buried in the debt ceiling bill was a measure to essentially end subsidized loans for graduate students. Under the previous federal loan regime, graduate students were not responsible for paying interest on their loans while they were still in school (and struggling to pay the rent). Starting next summer though, we'll be paying that interest. According to the sage coalition, the shift from subsidized to unsubsidized loans will increase the total loan burden of a six-year grad student by over 25%. And, given the current state of the academic job market, this is another few thousand dollars in debt that we'll have little chance of paying off.



Nevertheless, as the journalistic reports on this measure invariably pointed out, 'there was a bit of good news' hidden in the cuts to subsidized loans. Some of the money saved by the federal government on loans to grad students will go to pay for Pell Grants, which otherwise would have suffered further cuts. So it could have been worse. And yet, it's important to remember that Pell Grants are being funded because of effective lobbying efforts by for-profit colleges, much more so than because of a shared commitment on the part of our political class to educational equity. For-profit colleges receive massive amounts of Pell Grant funding, despite abysmal dropout and placement rates for their students. And they have one of the best-funded federal lobbying efforts of any industry. As Bloomberg reported in April:

For-profit colleges, led by Apollo Group Inc. (APOL)’s University of Phoenix, will be disproportionately hurt by cuts in the $30 billion Pell Grant program for low- income students. Pell Grant aid to for-profit-college students grew almost eightfold in the past decade to $7.5 billion in 2009-2010, and now accounts for 25 percent of the funds, according to the U.S. Education Department.

While there is much more to say about for-profit schools, it's important initially to note that these schools are the apotheosis and inevitable outcome of educational privatization. In California, for example, recent tuition hikes at the UCs and CSUs, coupled with class cuts at Community Colleges, are all compelling low income students and students of color to turn toward for-profit colleges, despite the fact that these schools rarely offer the educational experience that they advertise. In other words, regressive reforms at one node of the educational system reverberate throughout this system, affecting all students.

While the UC student movement has not yet adequately recognized how our fight is linked with fights taking place elsewhere in the educational system -- something on the agenda for the coming year -- the UC Regents are quite aware of these interconnections. After voting for the 32% fee increase in the fall of 2009, Regent Richard Blum directed his investment firm to buy stocks in for-profit schools. From an article in Reclamations 2:

As student fees continue to skyrocket, it is well to keep in mind that Blum is a part owner of a pair of for-profit education companies. Blum Capital Partners owns the largest stake in Career Education Corporation, the world's second largest private “diploma mill” corporation, which runs more than one hundred for-profit schools across the country, while also making tens of millions of dollars in sub-prime loans to its students. Blum Capital also owns a 19 per cent stake in ITT Educational Services, Inc., another for-profit school that makes millions off student loan debt. Blum, the UC Board of Regents' resident siphoner-in-chief of public funds, purchased more than 220,000 new shares in the firm soon after the UC Regents approved the University of California's latest fee increase this past November.

This is why we fight the Regents.