Vim and Vigor on UC Online Higher Ed

From the Sacramento Bee Capitol Alert blog:

Jerry Brown says UC, CSU leaders pledged to pursue online ed 'vigorously'

Gov. Jerry Brown said today that he vetoed his own budget proposal to earmark $20 million for online education at the University of California and California State University systems only after leaders of those institutions assured him they would pursue online course offerings on their own.
"I had an agreement from both the segments that they would carry out online vigorously," Brown told reporters at an event in Sacramento. "As the leader of both governing boards, I'm actively engaged with both the University of California and the Cal State."...

Full story at http://blogs.sacbee.com/capitolalertlatest/2013/07/jerry-brown-says-uc-csu-leaders-pledged-to-pursue-online-ed-vigorously.html

Wow!  All that vigor!

No Mandate for Online Ed at UC: Let's Pretend!

Our post last night that the governor line-item vetoed his own $10 million mandate in the new state budget for online courses at UC is correct in a literal sense. But what appears to have happened is that UC - which doesn't like overt mandates which challenge its constitutional autonomy - agreed that it would spend $10 million on online ed anyway if the governor would just remove the mandate language.

From Inside Higher Ed today: ...“We’ve made a commitment to provide the $10 million, so it’s not going to affect our plans,” said Steve Montiel, a spokesman for the UC president's office...

Full story at http://www.insidehighered.com/quicktakes/2013/06/28/california-governor-removes-strings-money-ed-tech

In effect, without the mandate UC can pretend to decide freely to do what the governor wants. So in the spirit of the deal, let's pretend:

Online Ed Earmarked Money Line-Item Vetoed

Michael Meranze, in commenting on the previous post, noted that among the items vetoed by the governor was language that earmarked $10 million at UC for online ed courses.  As readers will know, that earmark was in the budget bill at the request of the governor.  Other quasi-earmarks were also vetoed.  The actual language doesn't delete dollars from the UC budget - which is why I missed it in the prior post.  It just deletes specifications for how dollars are to be used.  The veto language reads:

Item 6440-001-0001

—

For support of University of California. I revise this item by deleting Provisions 6, 8, 10, 11, 12, 13, 14, 15, and 16. I am deleting Provisions 6, 8, 10, 11, 12, 13, 14, and 15 because the requirements included in these provisions that the University of California expend funds for various purposes create cost pressures and unnecessary restrictions. Eliminating these earmarks will give the University greater flexibility to manage its resources to meet its obligations, operate its instructional programs more effectively, and avoid tuition and fee increases.
----

UPDATE: The Sacramento Bee Capitol Alert blog has the story at:
http://blogs.sacbee.com/capitolalertlatest/2013/06/jerry-brown-vetoes-own-budget-proposal-on-online-education.html

----

As it turns out, the governor conferred with UC president Yudof about his (the governor's) mercurial behavior concerning online ed.  We have obtained a kind of transcript of the gubernatorial explanation:

Budget Signed: Smile But Then Scroll Down

It was generally all smiles and laughter at the state budget signing this morning as the photo above shows.  Contrast that photo with the one below at the 2011 budget signing when the governor had to sign a budget - after getting no GOP support for putting a tax measure on the ballot - that assumed a phantom $4 billion in revenue to make things seem in "balance."  No smiles there.

In any case, there appear to be no surprises for UC in the budget. [But see the updated post above on the governor's veto of his own online education proposal.]  The governor line-item vetoed a small appropriation for a building at UC-Merced but the veto message says the funds are contained in another bill.  UC gets an addition to its budget of $125.1 million with stipulations about reporting certain performance measures and not raising tuition.  There are supposed to be some kind of limits on the capital budget but what appears to be involved are state-funded projects.  Such limits seem unlikely to affect projects such as the UCLA Grand Hotel which are funded initially by non-state sources but may lose money in the future that will have to come from somewhere.

The official budget figures are as below (in billions of dollars - figures may not add up due to rounding):

                2012-13      2013-14
-------------------------------------
Reserve
at beginning
of year           -$1.7        +$0.9

Revenue &
transfers*        $98.2        +97.1

Expenditure       $95.7        +96.3

Surplus**         +$2.5        +$0.8

Reserve
at end of
year              +$0.9        +$1.7   
-------------------------------------
*Note: "Transfers" = a term of art that can hide mischief.
**Difference between inflow and outflow.   

Note that the current year (soon to end) shows a bigger surplus than the coming one. There is some borrowing from the cap and trade program in the upcoming year assuming the governor's May Revise proposal is still intact.  Without counting such borrowing as de facto revenue, the upcoming surplus and reserve would be in more razor thin than they are.  Any economic bump in the road could derail this train.  So hold your applause until next June.

In short, to continue our mixed metaphors, the rainy day fund reserve won't protect us from much more than a sprinkle.  We will have to rely on the smiles in that case:

Budget Enacted - Details & Vetoes to Come

The legislature has passed a state budget which now goes to the governor for signature (he will) and line-item vetoes (some will likely be made).  Thereafter, there should be formal releases of the details by the Dept. of Finance and the Legislative Analyst's Office (LAO).

In the meantime, the Sacramento Bee has a summary of highlights.  It includes for higher ed:

Proposes an average 5 percent general fund increase to California State University, the University of California and community colleges. No fee increases are envisioned through 2016-17. Authorizes scholarships, beginning in the 2014-15 academic year, for UC and CSU students whose families earn as much as $150,000 a year. Rejects governor's January proposal to cap the number of credits students can take at the resident tuition rate.

Read more here: http://www.sacbee.com/2013/06/16/5500148/california-democrats-wrap-up-state.html#storylink=cpy

The full article/summary is at http://www.sacbee.com/2013/06/16/5500148/california-democrats-wrap-up-state.html

Gov. Jerry Brown's university plan is left unfinished in budget

That's what the headline in the LA Times says.  It goes on to say: [excerpt]

The final spending plan does not include the governor’s proposal to tie new money for public universities to specific requirements like improving graduation rates and increasing the number of transfer students from community colleges. Nor will the plan automatically cut funding if tuition is increased. The changes emerged after negotiations with lawmakers and officials at the University of California and California State University, who resisted much of Brown’s proposal. For now, universities will simply be required to track nine different benchmarks...

Full story at http://www.latimes.com/news/local/political/la-me-pc-jerry-brown-california-universities-20130612,0,6175034.story

Some background music while you read the full article is conveniently provided below:

Want a Riverside Med School? Legislature Says (Commands?) Do It Yourself

There has been ongoing agitation from UC-Riverside and UC for the state to put up money for a med school.  As bits and pieces about the state budget leak out, it appears that the legislature has not provided extra money but instead has told UC to take it out of its general allocation.  Apparently, the legislature doesn't view this matter as a suggestion; more of a command.

From the Riverside Press-Enterprise:
The Legislature’s budget conference committee late Monday altered the funding mix for a school of medicine at UC Riverside, eliminating a $15 million augmentation but directing the UC system to allocate money to the school from its budget. The compromise means the school will finally get the state money it has sought unsuccessfully since 2010. It effectively saves the state general fund $15 million. And most importantly, it has the support of the Brown administration, which did not include any money for the medical school in its January spending proposal or May revision...

Full story at http://blog.pe.com/2013/06/10/medical-school-no-new-money-but-uc-told-to-allocate/

Of course, the Regents and UCOP could assert their constitutional autonomy but the legislature might object:

Deal Reportedly Reached on the State Budget Between Legislature and Governor

From the governor's website:

Governor Brown Issues Statement on Budget

6-10-2013: SACRAMENTO – Following action from the Joint Legislative Conference Committee on the Budget this evening, Governor Edmund G. Brown Jr. issued the following statement:
 
“The Legislature is doing their job and doing it well. It looks like California will get another balanced budget and, very importantly, educational funding that recognizes the different needs of California’s students.”

Source: http://gov.ca.gov/news.php?id=18087

The Sacramento Bee indicates that a) the deal is based on the governor's more conservative revenue estimates as compared to the Legislative Analyst's numbers* and b) there is (some) money for higher ed scholarships.  Although the article doesn't say so, we have noted in prior posts that there appeared to be no difference between the governor's May Revise and the legislative proposals when it came to the basic UC budget.  Apparently, some minor points have yet to be resolved.  But based on the info so far, it seem as though there won't be what we called in a recent post "Saturday Night Fever" - this coming Saturday night being the constitutional deadline for the legislature to enact a budget.

The Bee article is at http://www.sacbee.com/2013/06/11/5486878/gov-jerry-brown-democratic-leaders.html

It's always a good idea to await the budget numbers.  However, it is likely that the folks in the legislature will have a more enjoyable Saturday night than if they had to stay late to do the budget:

*Note that the rejection of the estimates from the Legislative Analyst's Office (LAO) is something of a blow to that office.  The initial budgets of the assembly and senate were based on LAO figures, as we have noted in earlier posts.  On the other hand, thanks to Prop 98, if in fact more revenue comes in than projected by the governor, a good bit will end up in K-14.  It won't all be tucked away in the reserve.

Legislative Deadline for State Budget is Saturday

This week is deadline week for the legislature to pass a state budget.  The formal deadline is midnight, Saturday, June 15.  As we have noted in earlier postings, there is unlikely to be any budget surprise for UC.  Possibly, there could be some funding beyond the governor's May revise proposal for student scholarships and Cal Grants.  As previously noted, most of the inconsistencies between the assembly and senate budgets involve K-14 and social programs.  The two houses are using a more optimistic projection of revenues than the governor. 

Nonetheless, as negotiations proceed, they could reach a fever pitch by Saturday night:

Cheap, Cheap

Poll results from today's LA Times:

...Among the registered voters who participated in the survey, 59% said they agreed with the idea that increasing the number of online classes at California's public universities will make education more affordable and accessible. However, 34% expressed fears that expanding online classes will reduce access to professors, diminish the value of college degrees and not save money...

The poll found substantial opposition to another possible campus change: increasing the share of students from other states and nations. Even though non-Californians pay much higher tuition, 57% of the poll respondents said that adding out-of-state students will squeeze out Californians and make UC and Cal State less affordable. Just 33% agreed with the position that more non-Californians will help support state universities without raising taxes...

Full story at http://www.latimes.com/news/local/la-me-poll-higher-education-20130606,0,1579824.story

So will online ed be cheap, cheap or not?  So cheap that revenue from non-state students won't be needed?  Let's ask a poll respondent:

The Three State Budgets

Last Friday, there was a legislative hearing on the current three versions of the state budget for 2013-14.  There is the governor's "May Revise" proposal and two separate proposals by the state assembly and the state senate.  The two legislative versions rely on a revenue forecast by the Legislative Analyst's Office (LAO) which projects higher tax receipts than the governor's Dept. of Finance (DOF).  However, the two legislative proposals use the extra revenue differently.

From the UC perspective, there is no significant direct effect on the operating budget regardless of which budget is enacted.  However, the assembly version provides for additional scholarship and Cal Grants funding so students have an interest in the final outcome.  The hearing was not exactly a clash of the titans but you can hear testimony I extracted by the Chief Deputy Director of DOF and the Legislative Analyst (excerpt) explaining their differences at the link below.

Not quite

A key point is that due to Prop 98 - which earmarks funding for K-14 by formula - extra revenue (such as seen by LAO) tends to be sopped up by that sector.  The governor's position is that the state should be cautious since revenue projections depend heavily on capital gains tax receipts which in turn reflect the volatility of financial markets.  Maybe the extra revenue that seemed to appear recently will prove to be a temporary blip, etc.  The Legislative Analyst acknowledges that concern but he notes that the risk that the extra revenue will evaporate is largely dealt with in the two legislative proposals by making K-14 spending partly contingent on the actual arrival of the funding and by putting some of the money into the reserve.  It might be noted that if there were an outright economic downturn, none of the proposals would avert a return to a budget crisis.

The governor has a line-item veto and so could trim spending if the legislature enacts a budget he considers excessive.  He could also veto the entire budget and throw the issue back to the legislature.  In theory, the Democrats in the legislature could override such actions using their two-thirds supermajority.  Whether all Dems would go along in that situation is uncertain.  Minority Republicans now support the governor's cautious approach.  The legislature must enact a budget by June 15 or forfeit pay for each day thereafter that they haven't done so.  However, it is essentially up to the legislature to determine what defines an enacted budget.  So there will surely be something by June 15 although there may be loose ends to tie up beyond that date.

You can hear the DOF and LAO testimony below:

The LAO prepared a summary of the three budget proposals for the hearing available at:
http://lao.ca.gov/handouts/Conf_Comm/2013/Conference-Overview-53113.pdf

UCLA: It's Tufts to Get Into

The University of California system remains a popular destination for incoming freshmen – and getting into UCLA is now as hard as getting into Tufts and Cornell, at least for California students...  UCLA reported an in-state admission rate of 17.4 percent, Becker said, a level comparable to Cornell and Tufts, two of the nation’s most selective universities. Overall, the 10 campuses accepted 82,850 freshman, for an average acceptance rate of 59 percent. Berkeley and San Diego campuses were more exclusive than the average... But the prestigious public U.C. system is changing in one profound way: out-of-state students increasingly make up more of its enrollment. About a third of the 14,100 freshmen admitted at Berkeley, for instance, come from a state other than California. These out-of-state students pay premium tuition for being nonresidents.  At current tuition rates, they would bring in $112 million for UC coffers...

Full story at http://www.scpr.org/blogs/education/2013/05/20/13735/uc-schools-draw-record-application-numbers-ucla-as/

Entrance is getting harder:

Pension Promises and the UC Budget

One of the issues facing UC is pension liabilities.  As we have noted in prior posts, although it may seem paradoxical, liability for the pension is a young person's issue.  Old folks tend to worry about whether they will get their promised UC pension when the issue is raised.  However, the actual issue is that because they and everyone else will get what is promised, the UC budget going forward has to meet the promise in future years.  Dollars that will go to the pension won't go to something else.

Although you may read about this or that jurisdiction that is attempting to undo past pension promises, the law doesn't allow it.  For example, in Calpensions.com today (at the moment, the piece seems to be misdated 5-13-13 but it was circulated today), we read:

One of the first local ballot measures aimed at cutting public pension costs, a cap on Pacific Grove payments to CalPERS approved by voters three years ago, was ruled unconstitutional by a Monterey County superior court judge last week. Judge Thomas Wills ruled Friday that Measure R violated the contract clause of the state constitution, reaffirming the view that pensions promised on the date of hire are a “vested right” that can’t be cut without providing a new benefit of equal value...

Full story at http://calpensions.com/2013/05/20/pension-measure-wave-crests-court-slog-remains/

It is clear, therefore, that public jurisdictions (including UC) can't walk away from past obligations.  It is also clear that lesser promises can be made to new hires.  There is a fuzzy area about reducing the benefit formula going forward for incumbent employees.  UC has not gone down the fuzzy route.  The Regents did create a lower-tier pension plan for new hires in 2010 (which has yet to go into effect).

There are two key aspects to the pension issue for UC:

1) The legislature is only gradually acknowledging that the state has a liability for the UC pension.  CSU is under CalPERS which the legislature does acknowledge.  So UC has been arguing that we should get at least what the state gives CalPERS for CSU. 

2) Administrators, particularly at the campus level, tend to take a short-run perspective.  As the employer contribution is scheduled to ramp up, they resist putting in the money since they won't be in charge when the consequences of underfunding occur.  The UC pension assumes a 7.5% return on investment.  So the liability for dollars not put in today grows at 7.5%. Borrowing at 7.5% in the current low-interest climate makes no sense - unless you think you won't be around in the long run to pay off the loan.  See our earlier post on this issue at http://uclafacultyassociation.blogspot.com/2013/05/ignorance-may-be-bliss-but-ignoring.html.

The Regents understand Point #1.  It is not clear they fully understand Point #2.

From the viewpoint of current younger faculty, therefore, particularly those who expect to make a career at UC, the pension issue is primarily a matter of the potential squeeze on the UC budget.  When the lower-tier goes into effect, younger faculty hired thereafter face the budget squeeze plus the reduced value of pension benefits.  Total compensation is the sum of salary plus value of benefits.  So in theory the lesser pension could be offset by more cash pay.  But the budget squeeze works against that solution. 

We have made these points before but it is useful, from time to time, to make them again.

New LAO Report on (More) State Revenues

The Legislative Analyst's Office has released a commentary on the governor's May Revise budget proposal.  It's headline feature is that LAO expects higher revenues than the governor projects.  That extra money is not pure gravy since it interacts with the Prop 98 formulas for K-14.  Nonetheless, the report will become part of the legislative process and negotiations which will go on between the governor and legislature.  The governor wants to be cautious and his way of doing it is to tilt toward less optimistic revenue projections.  LAO has a lot of cautionary notes in its report - things that could happen which would cut into revenues - but does not choose, as the governor did, to convey that message via its best guess on revenue projections.

One thing that may help UC in its attempt to pry more pension fund contributions out of the legislature is some combination of the governor saying there is a "wall of debt" that needs to be paid off (including pensions) and the legislature getting a message that there is more money around.  In effect, other things held constant, the more that the legislature puts into the UC pension, the more there is effectively in other resources for UC.

You can find the LAO report at:
http://lao.ca.gov/reports/2013/bud/may-revise/overview-may-revise-051713.pdf

The contrast between the revenue and transfers forecasts for the governor and LAO can be seen below (in $billions):

Fiscal Year | Governor    LAO
------------------------------
2012-13     |   $98.2    $98.9
2013-14     |   $97.2   $100.0
2014-15     |  $104.5   $107.0
2015-16     |  $110.2   $112.3
2016-17     |  $116.1   $118.9
------------------------------
Source: Page 12 of the LAO report.

The official response

If you are wondering about the official UC response to the governor's May Revise budget proposal, here it is: 

Patrick Lenz, the University of California system's vice president for budget and capital resources:  

With this proposal, the governor is continuing his multi-year funding commitment to increase the University of California by 5 percent in the 2013-14 fiscal year and then 5 percent, 4 percent, and 4 percent in the subsequent fiscal years. In addition, the administration is continuing its support for UC restructuring debt to achieve $80 million in annual savings. Those savings will provide not only the additional fiscal stability to meet UC mandatory costs, but also funding to re-invest in the quality initiatives that will support the governor's plan for additional performance outcome measures.
 
Source: Capitol Alert blog of the Sacramento Bee: http://blogs.sacbee.com/capitolalertlatest/2013/05/post-36.html

Or, put another way:

Read more here: http://blogs.sacbee.com/capitolalertlatest/2013/05/post-36.html#storylink=cpy

A Quick Review of the May Revise and an Inadvertent Lesson on Online Education

As per our previous post this morning, the governor’s May Revise budget was released today in a presentation by the governor and his finance director.  But before we get to the numbers and issues relating to UC’s budget, yours truly cannot resist the following observation:

There is nothing per se about online education in the latest summary document that accompanies the May Revise.  (More budget details will come out in the days to come.)  However, the online transmission of the news conference was a fiasco of jerky images, frozen audio, and total breaks in the transmission.  The effort in real time to tune in online finally ended with the message below. Yours truly was using a reasonably fast connection.  Apart from the image failure, also below is a link to how the audio (didn’t) come across.  We can assure the governor that whatever UC does online, it is better than what was provided by his office today.  Folks in the legislature might also take notice.

And here is a sampling of what the live-stream of the media conference sounded like:

OK.  With that matter out of the way, below in a table are the summary budget numbers.  Despite the $4+ billion in apparently windfall money that came in(see earlier posts), the estimates of the reserve in the general fund at the beginning and end of the current fiscal year 2012-13 and the coming year (2013-14), are about the same as in the governor’s January budget.  The surpluses shown for each of the two years are about the same.  So that means that the $4+ billion dissipated somewhere.  Much of the dissipation presumably went to K-14 under Prop 98.  When asked, the director of finance said some of the windfall was allocated to different years.  Since no one seems sure exactly how the $4+ billion arose (i.e., what made taxpayers up their estimated income tax payments), exactly how one would know what years to which is should be allocated is an interesting question.

As far as I know, most of the questions put by the media reps to the governor and finance director focused on higher ed.  (I say "as far as I know" because – as noted above – the transmission was broken and failed.)  There was much more interest in the governor’s proposal for formulas to allocate funding to K-12 and what exactly happened to the $4+ billion.  (There was a question on the dropping of the limit on student credits in higher ed.)

Below is a general summary of the budget proposal in billions of dollars.  Note that revenue and “transfers” (transfers is a word that permits budget mischief) drop next year because – in part – the $4+ billion was a one-time event.  The governor also suggested that the underlying general economic forecast has been made less optimistic than it was in January because of sequesters and slowdowns in foreign economies.  A less optimistic economic forecast produces fewer dollars.

             2012-13     2013-14

- - - - - - - - - - - - - - - - -

Starting

Reserve        -$1.6       +$0.9

Revenue &

“Transfers”    $98.2       $97.2

Spending       $95.7       $96.4

Surplus*       +$2.5       +$0.9

Ending

Reserve        +$0.9       +$1.7

- - - - - - - - - - - - - - - - -

Note: Details need not add to total due to rounding

*Surplus = Revenue & Transfers minus Spending.

===

The document released summarizing the budget has the following excerpt on UC and CSU:

Multi‑Year Stable Funding Plan

[pp. 23-24 of http://www.ebudget.ca.gov/FullBudgetSummary.pdf]

—

University of California and California State University. The May Revision builds upon the multi‑year stable funding plan for higher education proposed in the Governor’s Budget. It prioritizes higher education by providing new funds to begin reinvesting in the public universities, with the expectation that the universities will improve the quality, performance, and cost effectiveness of the educational systems.

The plan is rooted in the belief that higher education should be affordable and student success can be improved.

• Funding Stability

—

The Governor’s Budget increased the General Fund contribution to each institution’s prior‑year funding base. Each segment will receive up to a 20‑percent increase in General Fund appropriations (about $511 million each) over a four‑year period (2013‑14 through 2016‑17), representing about a 10‑percent increase in total operating funds including tuition and fee revenue.

[Editorial note 1 from yours truly: Tuition and state appropriations are roughly equal nowadays.  So a 20% increase in state funding and a zero increase in tuition end up being something like 10% in the core operating budget.]

[Editorial note 2: The change in the budget occurs over 3 years, not 4.  Ten percent over 3 years is a little more than 3% per annum.  Exactly what inflation rate is assumed in the budget over that period is not clear.  But we are probably talking about a real (inflation adjusted) increase of 0.5-1.0% per annum.]

• Affordability

—

The plan includes a freeze on UC and CSU resident tuition from 2013‑14 to 2016‑17 to ensure that the universities stay affordable for students and their families, and to a void high student debt and tuition levels.

• Student Success

—

The plan expects UC and CSU to achieve the following priorities: improve graduation rates; increase the number of transfer students from community colleges; increase the number of degrees completed, particularly by low‑income students; and reduce the cost per degree. The multi‑year funding plan increases funding and strengthens accountability to encourage UC and CSU to become more affordable and to maintain quality and access over the long term. The Administration will continue working with the Legislature, the segments, and other stakeholders to strengthen the accountability plan.

To improve student success, the Governor’s Budget proposed capping the number of units students can take while receiving a state General Fund subsidy at UC, CSU, and the community colleges.

Given concerns that were raised, the Administration is withdrawing the proposal for this year and focusing on alternative incentives to increase cost‑effectiveness.

===

A reminder is in order: What the governor proposes is not necessarily what the legislature enacts.  And what the legislature enacts is not necessarily the final budget because the governor has line-item veto powers.  Under the current budgetary rules in the state constitution, the legislature must enact a budget by June 15 or lose a day's pay for each day it is late.  Finally, a budget can be based on assumptions that don't work out as the year progresses.  The ex poste budget is not necessarily the same as the ex ante budget.
===
UPDATE: When we talked about mischief in the budget, here is an example.  The budget includes borrowing from the cap and trade fund.  Borrowing is thus being treated as if it were revenue.  Note that if borrowing were revenue, no budget would ever be out of balance.  Why was this done?  Probably for cosmetic reasons so that the reserve at the end of the coming year in the May Revise would not be lower than it was in the January proposal.  For info:
http://www.capitolweekly.net/article.php?_c=11flw7hmtugpbnm&xid=11fjqnp52905zjj&done=.11fly5yyh9gjw9n
===
UPDATE: Here is an easy to use audio recording of the news conference just below the two photos from the event: