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Follow the Pay Cuts at UC

by Charles Schwartz, UC Berkeley

• One University or None (July 9)

• Yudof Makes Some Changes (July 12)

• Looking Ahead (July 12)

ONE UNIVERSITY or NONE (July 9)

Tomorrow morning Mark Yudof, the President of the University of California, will publicly announce his decisions on how to administer salary cuts throughout UC in order to meet the steep budget deficit in State funding for the coming year.

His original proposal was based upon a principle of “equity”, namely that all University employees should share the same burden (he proposed an 8% cut in pay) regardless of whether their salaries came from state funding, external research contracts, medical or other enterprises run by the University.  He invited all faculty and staff to respond with their opinions about this plan.

He has gotten plenty of feedback. I haven’t seen it all, but a sample of responses from the faculty, now published online from the Academic Senate divisions on some campuses, gives a sharp picture of opposition to that idea of “equity.”

From a Medical School one sees the claim that most of their money comes from other than State sources (federal research grants, the practice of medicine at the hospitals and clinics) and therefore they should not have to pay into this hole in the State budget. Elsewhere, faculty with large external research contracts and grants similarly claim that the budget burden should not fall upon those sources of funding.

It should also be acknowledged that, amidst this apparently self-centered focus, one also finds the generous critique that Yudof’s original plan should be made more progressive, bearing more lightly on lower income employees and more heavily on those at higher levels of compensation. There are also tensions between the choice of a simple pay cut or a furlough (unpaid days of no work): different employees understandably have different preferences.  And there are other detailed issues, like how this affects retirement benefits, etc.

But the central contest, as I see it, is over this principle of “equity,” a sharing of the financial pain throughout all of the University.

Will President Yudof stand by his initial philosophy or will he cave in to the pressure of a large portion of the faculty?  And, if he does stand with that principle (and assuming the Board of Regents supports that stance), will the faculty accept that or will they rebel and/or depart in large numbers?

We shall see what happens.  I believe that this is a crucial watermark in the history of the University of California, with implications for much of higher education throughout the country.

If the principle of “One University” is maintained, then there is hope that the long term financial problems can be worked out and there will be a positive future for this wonderful public institution, something of great quality and democratic purpose in America.

If not, then we shall degenerate into a squabbling series of fiefdoms, copying the narcissistic ways of private universities: priding themselves of the exclusiveness of their student enrollments rather their inclusiveness.

Stay tuned.

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YUDOF MAKES SOME CHANGES (July 12)

On July 10, President Yudof released his final Plan for Pay Reductions/Furloughs http://universityofcalifornia.edu/regents/regmeet/jul09/j2.pdf , which he will take to the Board of Regents on July 15 for their approval.

He writes (on page 9):
“For fairness and equity, the Plan applies to as many University faculty and staff as is legally permissible and operationally feasible. As described in detail below, certain categories of staff and faculty will be exempted from the Plan.”

Let us see how fair and equitable it is. Here are the major changes.

I. Steps Forward:
(a) Graduated pay reductions – from 4% for those earning less than $40,000 to 10% for those earning over $240,000;
(b) Some flexibility on furloughs;
(c) Retirement plan credits will not suffer due to the salary reductions;
(d) The plan will go into effect September 1 instead of August 1.

II. Steps Sideways:
(a) Exempting all employees paid entirely from federal and other external research funds;
(b) Similarly exempting employees at Lawrence Berkeley Laboratory.
(These are all restricted funds that could not be used for other purposes.)

III. Steps Backward:
(a) Basing pay reductions on “Base Pay” only, not Gross Earnings.
(b) Exempting income from clinical practice. (These are unrestricted funds that are under the Regents’ authority to designate.)

The changes I, were called for by many faculty and staff and Yudof responded positively.

The changes II and III were strongly advocated by a number of faculty, and Yudof acquiesced even though he had to substantially abandon his earlier call for “equity” without exemptions.

Change III(a) means that a number of the most highly compensated people throughout the university will be provided a big loophole through which they can avoid a full “sharing of the pain”.

Change III(b) is a major concession to the very richest group among us: those faculty members at the Medical Schools who take home much more than their academic salaries through the Health Science Compensation Plans. (I estimate that this is a giveaway amounting to around $60 million.)

I have a concern that the particular interests of the top ranking people who advised President Yudof in shaping this plan may have unduly influenced this generosity toward faculty at the Medical Schools. The Chair and the Vice-Chair of the Academic Senate are both Medical School faculty members, and so is UC’s Executive Vice President for Academic Affairs.

With these modifications, Yudof says, “The proposed Plan is expected to generate an estimated $184.1 million in General Funds ($515.5 million in total from all fund sources) to assist in absorbing the State budget reduction.”

This brings us back to my original critique: How will all that other money ($515 million – $184 million = $331 million) be used, and who will decide that?

Yudof discusses this question briefly on page 9 of his document.

First, he mentions that the savings from externally funded research contracts and grants must stay with those projects; that is nothing new and it amounts to a smaller figure after change II(a).

Next, he says some of that extra money coming from campus auxiliary enterprises can be used to supplement campus general fund budgets. Good, but there are no numbers and no assurances.

Finally, he has a discussion about money collected from employee paychecks at the University’s five Medical Centers. Everything there is unrestricted money. Yudof does not say how much of that money they will get; but I estimate that they will take in about $150 million from employee pay reductions and their expected General Funds deficit is only about $10 million.  Now you need to read what Yudof says about this $140 million windfall.  This is amazing stuff!

“The savings generated by the medical centers will allow them to address the need to fund the recent collective bargaining agreements, which are not paid for by the State and must be paid for from operating income. In addition, the savings will assist the medical centers in preparing to fund their share of the contributions to the UC Retirement Plan commencing in April, 2010. For the medical centers alone, this expense will be well over $200 million per year, is not state funded, and must be paid from medical center revenue, and would completely erase the current year’s projected margin. In addition to these cost pressures, the University’s medical centers will be facing potential revenue shortfalls due to the economy and changes in the state and federal budget landscapes. Notably, the Medical Centers are concerned about adverse impacts from the suggested changes in the Medi-Cal program being discussed by the State ($20 million was cut in FY 2008-09 alone) and the proposed health care reform efforts being discussed at the national level. “

All that money, collected under the Extreme Financial Emergency predicated upon the deficit in the state budget, will be used by the Medical Center management to meet business challenges that have little or no connection to the state budget crisis. They make concessions to raises for employees under collective bargaining agreements and then they turn around and cut all employees’ pay in order to meet that obligation!  The management has an up-coming obligation to pay employer contributions into the pension fund and so they dock employees’ pay to meet that obligation! (The employees will, of course, have to pay their own share of contributions to the pension fund on top of this.) There are clouds on the horizon concerning federal and state money for health care, and so the Medical Center executives will squeeze their own employees (under cover of a University budget crisis) to meet that financial challenge. And if that double cross, triple cross operation is carried out successfully, the top managers of the Medical Centers will be rewarded with salary bonuses, on top of their huge salaries, for their outstanding leadership.

Putting aside that focused look at the Medical Centers, there remains something approaching $200 million in windfall cash, which is taken from the non-state-funded paychecks of employees and ends up in the hands of the University President and Chancellors.  There are no guidelines on how that money is to be used.  It is a big slush fund.

On the web site of the University of California Office of the President, one finds this:  “Budget cuts will exact a toll on students, faculty and staff. But great leadership being provided.”

Great leadership, indeed! It looks to me like Mark Yudof took a lesson in financial management from Bernie Madoff.

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LOOKING AHEAD (July 12)

In the first part of this post (One University or None) I pointed out the conflict between many faculty members’ focus on their narrow financial/professional interests and the overall well being of the University of California. President Yudof has found a compromise position, which only postpones the resolution of that conflict.

He has made major concessions on the faculty’s noisiest issues – exempting the money in research grants and in medical practice – while maintaining a semblance of “equity”. By doing so, however, he has established a precedent-setting fracture in the ideal of One University, a split mapped along certain professional lines.

There are other noteworthy lines along which there are seismic pressures. A letter from some prominent faculty members at the San Diego campus promotes the idea of abandoning the 10 campus system, keeping only a few as leading research campuses with the rest of them abandoned to some dismal future.

The immediate focus will be on the Regents’ meeting on July 15. It is hard to imagine that they will not approve Yudof’s plan (with appropriate crocodile tears); but it will also be interesting to observe the breadth and depth of the protests from many quarters.

Also announced in Yudof’s paper is ”the creation of a Regental Task Force to review some of the fundamental questions facing the University, including the educational delivery model, the University’s student fee and financial aid policies and the expectations of the Master Plan.” They have done that a few times before, trying to make sensible plans for the long-range financial future of the University of California.  A handful of big shots, going off to a series of private meetings, blah, blah, blah, achieving nothing.

My own best idea is that all concerned people in and around the University need to convene their own public forums for ongoing study and debate of this same question.  The drama of this Pay Reduction proposal has at least gotten many people awake and agitated. Let’s see if there is a way to make some real educational hay out of this mess.