from Huffington Post
Distinguished Professor, University of Illinois at Chicago
Crains Business Chicago carries an interesting story pointing out that the University of Illinois is $16 million dollars in the black. While this may be cause for celebration among faculty and students of this beleaguered system, it will strike many as bittersweet news. The faculty at the University of Illinois has been forced this year to take a mandatory furlough day each month, amounting to a five per cent pay cut. Students were told that their tuition would rise dramatically in September. So while the news is good, the patient may be close to death.
Many of us who teach in this system are wondering why strict and draconian measures were taken when there was clearly no need. Indeed, a privately commissioned faculty report indicated the health of the university system six months ago. When faculty tried to confront the administration with this evidence, it was rebuffed and subjected to pay cuts.
The reality is that most university faculty have little or no power besides the power of persuasion. Administrators act in arbitrary, sometimes benevolent and sometimes destructive, ways. The result in this case was unnecessarily punitive measures against professors and students.
The answer to this power differential seems obvious. University faculty need to organize. But professors have been notoriously reluctant to form unions. Rather than seeing themselves as oppressed workers, academicians like to think of themselves as professionals. They think it demeaning to be associated with the likes of teamsters, automotive workers, or (worse) high-school teachers.
Now the consequences of this parochial vision become obvious throughout the United States. As state university systems flounder on financial ruin, faculty and students become the excess baggage thrown off the boat to save the ship. But what kind of university is it in which the interests of those who teach and those who learn take second place to those who administer?
In universities where faculty are unionized, negotiated contracts prevent sudden and impulsive acts on the part of administration. When the crunch comes, I’ve never seen an administrator who fired himself or herself. Rather than taking measures to trim their own budgets, administrators tend to cut the low-lying fruit–so students pay more and professors get less. You don’t have to be a rocket scientist to take this approach, you just have to be the Dean of one.
from the Chronicle for Higher Education
June 24, 2010
Senators Vow to Crack Down on ‘Bad Actors’ in the For-Profit Sector
By Kelly Field
Senate Democrats took aim at for-profit colleges at a hearing on Thursday, promising to crack down on “bad actors” in the rapidly growing sector to protect federal student aid dollars from being wasted through fraud and abuse.
“This is taxpayer money,” said Sen. Tom Harkin, the Iowa Democrat who is chairman of the Senate’s education committee. “We have to seriously question the profit margins and how much is going into actual instruction.”
He added that “those that know how to game the system are pulling a lot of good schools into the vortex” of bad practices. “That compels us to do something about it and stop it before it goes too far,” he said.
Mr. Harkin didn’t say what he had in mind but promised additional hearings on for-profits, with the next to come in July.
“We’re going to be delving into this,” he said.
Thursday’s witness list was stacked with critics of the for-profit sector, including a former California deputy attorney general who prosecuted cases against for-profit colleges and a student who said she was defrauded by a for-profit college.
The most critical—and most controversial—witness was Steven Eisman, a hedge-fund manager who, as a short-seller, would profit from a drop in the value of stocks of for-profit colleges. Mr. Eisman made his reputation (and a fortune) betting against subprime mortgages, and in his prepared testimony, he likened for-profit education to the real-estate market before the collapse, with easy credit driving prices ever higher and large defaults looming.
“Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime mortgage industry,” he said. “I was wrong. The for-profit education industry has proven equal to the task.”
He accused for-profit colleges of peddling false hopes to “the most vulnerable of society,” much as mortgage issuers did with low-income home buyers.
“We just loaded up one generation of Americans with mortgage debt they can’t afford to pay back,” he said. “Are we going to load up a new generation with student-loan debt they can never afford to pay back?”
Mr. Eisman predicted that students of for-profit colleges would default on $275-billion in student loans over the next decade, and suggested that for-profit colleges be required to bear some of the loss when their students default.
Meeting ‘an Enormous Unmet Need’
The task of defending for-profits was left to Sharon Thomas Parrott, the only representative of the sector to testify at Thursday’s hearing. Ms. Thomas Parrott, who is senior vice president of government and regulatory affairs and chief compliance officer for DeVry Inc., said that for-profit colleges “empower students to achieve their career goals” and serve students who have been underserved by nonprofit colleges.
“Institutions like ours grow for a reason,” she said. “There is an enormous unmet need, especially among nontraditional students.”
She got some tepid support from Republicans on the panel, who acknowledged problems in the sector, but cautioned against a rush to regulate.
“In combating this behavior, it is essential that we use a scalpel and not a machete,” said the panel’s top Republican, Sen. Michael B. Enzi of Wyoming.
Thursday’s hearing comes amid increased federal scrutiny of the for-profit sector, which educates a growing share of students and is highly dependent on federal student aid. Enrollment at for-profit colleges has grown by 225 percent over the past 10 years, with most students borrowing to pay for their education. While for-profits enroll fewer than 10 percent of American college students, they accounted for 23 percent of Pell Grants and federal student loans in 2008, and for 44 percent of defaults among borrowers who entered repayment in 2007, according to a report issued by Sen. Harkin’s office.
Congress, which recently provided billions of dollars in additional Pell Grant aid, wants to be sure that taxpayer dollars are being spent wisely. Last week, the education committee of the House of Representatives held a hearing to examine whether accrediting agencies are doing enough to ensure that students studying online are getting adequate instruction for the degrees they earn.
But weeding out the “bad actors” in the sector won’t be easy, as lawmakers acknowledged at Thursday’s hearing. Though the federal government and accreditors collect reams of data from colleges, there are still significant gaps in information about for-profit colleges’ success rates.
“There is much that we don’t know,” said Mr. Harkin. “We don’t know how many students graduate, how many get jobs, how schools that are not publicly traded spend their Title IV dollars, and how many for-profit students default over the long term. More broadly, we don’t know exactly what risk we are taking by investing an increasing share of our federal financial-aid dollars in this sector.”
When Ms. Thomas Parrott said she would be “happy to share” DeVry’s data on its graduation and placement rates, Mr. Harkin expressed doubt about how the numbers are calculated.
“Statistics can be self-serving when they’re produced by the entities that are getting the taxpayer dollars,” he said.
During the first half of the Senate hearing, lawmakers heard from Kathleen S. Tighe, inspector general of the Education Department, who said that 70 percent of her agency’s postsecondary investigations center on for-profit colleges. She described cases in which colleges have falsified students’ eligibility for aid, exploited loopholes in a ban on compensating recruiters based on enrollments, and failed to return federal aid money when students withdrew.
She praised the Education Department’s proposed new rules on for-profits, which would tighten the ban on incentive compensation, among other things, and called for stricter rules on distance education. She also suggested that the government track student-loan borrowers all the way through repayment, to get a better measure of how many students default. The government now tracks loans through only two years, though it will soon switch to three.
Later Thursday, Harris N. Miller, president of the Career College Association, expressed frustration with the hearing, saying it failed to provide a big-picture look at the issues facing higher education.
“Rather than being insightful and providing information,” Mr. Harris said in a conference call with reporters, the hearing “led to a certain amount of confusion. There was no attempt to offer any context or balance.”
For more coverage of the hearing, see The Chronicle’s live tweets.
From WCIA3 also with video: http://illinoishomepage.net/fulltext/?nxd_id=154415
Students and professors are scrambling to save their research.
They were forced to leave the natural history building at the U of I.
“You’re just in shock. This is not something you expect to have happen,” Professor Bruce Fouke said.
Students and professors grabbed what they could.
They hurried up and got out.
“Everyone you speak to it’s basically a feeling of shock. It’s not something you’d expect,” Fouke said.
A termite problem at the natural history building led to a bigger discovery.
The concrete floors can give out at any moment. That meant evacuation of 40-percent of the building
“This is kind of a disaster for us,” Geology Director Stephen Marshak said.
A disaster because every major geology lab is now closed.
“This event will completley shut us down,” Fouke said.
Students and professors finished up experiments and waited for answers.
“What we’re trying to do now is scramble and find a new home,” Fouke said.
Now students worry if research stops–graduation could be delayed.
“There’s a serious problem,” student Samantha Dwyer said.
Their life’s work is in limbo and emotions are high.
“It ranges from very concerned, but knowing that will handle it, to completly panicked and knowingly that we’ll handle it,” Fouke said.
Now they wait for a new home–and hope for the best.
“This is on a scale that we’ve never approached before,” Fouke said.
Banks Paying Colleges For Students Who Rack Up Credit Card Debt
Some of the nation’s largest and most elite universities stand to gain millions of dollars from selling the names and addresses of students and alumni to credit card companies while granting the companies special access to school events, the Huffington Post Investigative Fund has found.
The schools and their alumni associations are entitled to receive payments that multiply as students use their cards. Some colleges can receive bonuses when students incur debt.
The little-known agreements have enriched schools and some banks at a time when young women and men already are borrowing at record levels, raising questions about whether such collegiate and corporate alliances are in the best interests of students.
“The fact that schools are getting paid for students to rack up debt is a disgrace,” said congressman Patrick Murphy, a Pennsylvania Democrat and former professor at the U.S. Military Academy at West Point. He said that banks’ payments to schools amount to “kickbacks.”
Our examination of affinity agreements involving some of the nation’s largest and most prestigious colleges revealed that schools and alumni associations:
Sell students’ personal information: Many are contractually obligated to share students’ names, phone numbers and addresses with banks.
Earn royalties: Banks typically pay schools $1 for each student who keeps a credit card open for 90 days. When students carry a balance, some schools can collect up to $3 more per card.
Cash in each time a student uses plastic: Many schools are entitled to receive 0.4 percent of all retail purchases made with student cards.
Benefit from marketing incentives: When a university or alumni association agrees to market cards to students itself, the payoff is greater — sometimes up to $60 for each card opened through a school’s own marketing.
Offer special perks: Banks sometimes gain special access to athletic events. Cornell University must provide Chase Bank with tickets and “priority” parking passes at football, basketball, hockey and lacrosse games.
Landmark credit card legislation signed by President Obama one year ago curbed some marketing tactics on campuses but didn’t prohibit the arrangements between colleges and banks, known as “affinity” agreements.
The substance of these deals had been secret. A provision in the law, authored by Murphy, requires their disclosure. But even now, few schools post the contracts online or publicize their existence. Obtaining a copy can take two weeks or more.
Thus it’s unclear how many of the nation’s 2,700 four-year colleges have such agreements, or how many allow credit card companies to target students in addition to graduates. Bank of America, which dominates the market, said it has affinity contracts with some 700 schools and alumni associations, where marketing practices vary. At least 100 schools are believed to have affinity agreements with other financial institutions.
Seventeen contracts obtained by the Investigative Fund from schools and their alumni associations detail the special access granted to banks, such as allowing them to set up booths at football games. All of the agreements call for colleges to provide students’ names, phone numbers and addresses.
For granting such access and information, schools can receive royalty payments based on the number of students opening accounts and the amount they spend, the contracts show.
Most of the schools are entitled to earn more whenever a student carries a balance from year to year.
Some consumer advocates question whether colleges participating in affinity agreements are failing to safeguard the young people in their care.
“Universities should place the welfare of their students as their highest priority and shouldn’t sell them off for profit,” said Ed Mierzwinski, consumer program director for the federation of state Public Interest Research Groups, or PIRG.
Three schools, after being contacted by the Investigative Fund, stopped allowing banks to market to students. Seven other schools and alumni associations, including alumni organizations at Brown University and the University of Michigan, said they have abandoned the practice, even though their contracts appear to require it.
The contracts call for a range of minimum payments by banks. At Brown, Bank of America agreed in 2006 to pay $2.3 million over seven years. At Michigan, the bank in 2003 agreed to pay $25.5 million over 11 years.
The bank says it’s not taking advantage of students; it’s amassing new customers whose loyalties can span a decade or more.
“Our objective in serving the student market is to create the foundation for a long-term banking relationship,” Bank of America spokeswoman Betty Riess said in an email, adding that the bank offers reasonable rates and low credit limits on student cards, and that it primarily solicits graduates and sports fans.
Many schools have renegotiated contracts with the bank to limit marketing to students, she said.
Schools still engaging in the practice defend selling access to students and their contact information. Colleges say the money helps them plug holes in budget shortfalls and shrinking endowments. Some say they use the money to grant more scholarships to students.
Some colleges and alumni organizations also argue that students need to learn fiscal responsibility–and how better to do that than by having a credit card?
The University of Michigan alumni association, facing growing scrutiny from consumer groups, says it reached an agreement with Bank of America to stop marketing to students in early 2008. Jerry Sigler, chief financial officer of the alumni association, said he made the decision begrudgingly.
“Managing credit is as much a part of education and maturation as anything else going on campus,” he said. “Credit isn’t bad, it’s a reality.”
The benefits are not always so obvious for students whose families already face soaring tuition costs and hefty loan payments. College seniors graduated in 2008 with average credit card debt of more than $4,100, up from $2,900 four years earlier, according to data compiled by student lending company Sallie Mae.
On their own for the first time, young credit card users can quickly fall behind on payments.
Despite not having a full-time job or much in savings, Lisa Smith easily found her first credit card on campus–from bank marketers stationed outside her freshman dormitory. Once she racked up charges, new card applications poured in from other companies.
By the time she graduated in 2005, she had the average number of credit cards for a college student – four – as well as $15,000 in credit card debt. Now 28, Smith is still paying $500 monthly in credit card bills, some dating back to purchases from her college days.
“I know that I brought it on myself,” said Smith, who attended High Point University in North Carolina, which says it now prohibits on-campus marketing. “But I really felt like I was preyed on. I didn’t understand how long it was really going to take to pay them back.”
Students ‘Hugely Important’
On May 22, 2009, President Obama signed sweeping new consumer credit card protections into law. All too often, Obama noted at the time, Americans used credit cards as an anchor rather than a lifeline. Students were no exception.
The Credit Card Accountability, Responsibility and Disclosure Act prohibited banks from using some of their most aggressive marketing practices on students. For instance, banks can no longer require students to apply for a card to receive promotional gifts such as pizza or sweatshirts.
Nor can banks supply credit cards to anyone under age 21–most college underclassmen–unless the customer has a cosigner. The law requires only that the co-signer be over 21. The co-signer needn’t be a parent or guardian.
The law does not prevent credit card companies from paying schools for special access to students.
Chase Card Services, a division of JPMorgan Chase & Co., has a handful of such agreements, but Bank of America dominates. It became the market leader in 2006 when it acquired credit card giant MBNA, a pioneer in affinity agreements that often involved pro sports teams and professional associations.
Soon after the acquisition, Bank of America set its sights on colleges. At a March 2006 conference hosted by Goldman Sachs, Bank of America executive John Cochran described students as “an emerging market that we could really capitalize on,” according to a transcript.
From a bank’s perspective, students represent an important demographic: Not only do many first-time cardholders hunger for credit; they are likely to stay customers for quite some time – up to 15 years, according to a 2005 study by Ohio State University researchers.
“Student credit cards are hugely important to a bank,” said Kerry Policy Groth, who negotiated collegiate affinity agreements as an MBNA account executive from 1998 to 2005. “Your first credit card is usually the one you keep.”
Although Bank of America does not disclose how many student accounts it has or what it earns from student credit cards, Cochran, at the 2006 conference, characterized the collegiate affinity market – students, faculty, alumni and sports fans – as “an over $6 billion portfolio.” The portfolio may have declined in recent months as the bank’s entire credit card business has suffered from rising default rates.
Bank of America spokeswoman Riess emphasized that the bank primarily targets alumni and fans as prospective customers, with students accounting for about 2 percent of all open collegiate accounts – likely representing thousands of young consumers.
‘Students as Commodities’
Affinity agreements vary from school to school.
The University of Pennsylvania’s agreement with Bank of America required the school to compile an initial list of 233,000 potential customers, including students, alumni, faculty and staff, to offer the bank. If requested, the school removes potential customers from the contact list.
When Princeton University signed its affinity agreement with Bank of America in 2004, it agreed to provide the names of at least 4,000 students and 75,000 graduates.
After a bank obtains the information, it can send an agreed-upon number of solicitation letters and emails. A 2008 PIRG survey of more than 1,500 undergraduate students found that about 80 percent received mailings from credit card companies.
Some affinity agreements also permit banks to advertise at school sporting events. Banks often have booths at football and basketball games where students 21 or older, alumni and fans can sign up for a card.
Colleges and alumni associations are entitled to rewards for providing special access and information. Bank of America typically pays schools $1 for each student who opens a credit card account and keeps it open for 90 days, according to contracts reviewed by the Investigative Fund.
Some schools also can earn more as students rack up charges–and debt. The University of Oklahoma, among other schools, is entitled to receive 0.4 percent of all retail purchases made with student cards. Most of the 17 contracts obtained by the Investigative Fund entitle schools to extra compensation–up to $3 a card–when students carry a balance from year to year.
“Essentially, contracts with credit card companies are using students as commodities to earn revenue for the universities from companies who don’t necessarily have the students’ best interest in mind,” said PIRG’s Mierzwinski.
As part of many agreements, banks also pay for rights to use school trademarks -mascots, logos and emblems – on their advertisements.
Banks often brand their cards with the familiar images. This marketing tool, known as co-branding, has its critics. Irene Leech, associate professor of consumer studies at Virginia Tech, said the practice leads some to believe that universities have negotiated favorable credit card rates for their students.
“Alumni and students both think that it’s the best deal out there that [the school] could get for me,” an assumption that is not always correct, she said.
Nor do students necessarily get the lowest rates. At Princeton, alumni cards carry an annual percentage rate of 11.9 percent, compared to 14.9 percent for student cards, according to the school’s seven-year affinity agreement, signed in 2004. Rates may have changed since then.
Bank of America currently charges a 14.24 annual percentage rate on its Student Visa Platinum Card, the primary product it markets to students. Students are not locked in; the rate varies depending on the market’s prime rate. The bank said it doesn’t increase rates on students for reasons such as falling behind on their payments. Nor does it impose an annual fee.
“We take a conservative approach to lending to young adults,” Bank of America’s Riess said, noting that the bank limits a student’s exposure to debt. The bank offers credit lines for students that “typically” start at $500 and are capped at $2,500, she said.
The bank, Riess said, also seeks to educate students. “We also provide a number of tools to help young adults better manage their finances,” she added, including free identity theft protection, a student financial handbook and an online educational brochure about building good credit, called “The Essentials.”
“Building a future customer–that was really the goal” of affinity agreements, said former MBNA executive Groth. “You’re not out to gouge them; you want a positive experience.”
This spring, Columbia University, the Iowa State University alumni association and Michigan State University all amended their affinity agreements to prohibit any marketing to students. They did so within a week of receiving phone and email inquires from the Investigative Fund. School officials said they had been working on the amendments for months.
The Investigative Fund requested Columbia’s contract on March 22. Columbia officials signed the school’s amended agreement two days later. The timing was “mostly coincidental,” according to Michael Griffin, executive director of Columbia’s alumni association. He said that the school had never allowed marketing directly to students.
Seven other schools contacted by the Investigative Fund said they no longer allow marketing to students, even though their affinity contracts would appear to obligate them to. School officials said they had no documentation backing up their assertions.
“A lot of schools have student access in their agreements” – but don’t necessarily allow it anymore, said Peter Osborne, who managed the collegiate credit card business at Bank of America until 2007. Schools sometimes informally “just request that marketing stop rather than reopening their entire contract.”
For instance, according to an affinity agreement between the University of Texas alumni association and Bank of America, the association is expected to provide the bank with students’ names and addresses. But the alumni association says it has abandoned that practice.
“We are not marketing to students at this time and we haven’t for some time,” said Bill McCausland, chief operating officer for Texas Exes, the ex-students’ association. “Whether the contract allows us to or not, we are not doing so.”
He acknowledged that students could still sign up for credit cards without the school’s involvement. Bank of America, he said, is “still marketing our card and they are doing a very good job of it.”
At Harvard, the alumni association is supposed to provide a subsidiary of Barclays PLC with “as complete a list as possible of all Harvard alumni and students,” according to the association’s affinity contract. But Harvard spokesman Kevin Galvin said the card was never marketed to students. “We view this card as a service to alumni,” he said.
Other schools acknowledged to the Investigative Fund that they release students’ contact information. These schools staunchly defend their affinity agreements as important sources of revenue. And some royalties benefit students, according to school and bank officials.
“The revenues from this go to vital services that otherwise might not be free and otherwise might not be offered,” said Osborne, the former bank official who now advises universities as they negotiate affinity agreements. Osborne said the revenues “support alumni programs, student scholarships and preserve jobs within alumni associations.”
Some of the royalties from Penn’s contract go to scholarships and helped pay for the development of Campus Express, an online system where students can order textbooks and manage their dining plans, according to university spokesman Ron Ozio.
Princeton uses its profits “to support alumni activities,” school spokeswoman Emily Aronson wrote in an email.
Catherine Bishop, vice president of public affairs at the University of Oklahoma, said affinity agreements are beneficial because they limit the amount of marketing that goes on. “The contract that we have in place,” she said, “is designed to keep multiple companies from soliciting on campus.”
This story was reported in partnership with the Stabile Center for Investigative Journalism at Columbia University. Protess is a staff reporter with the Investigative Fund. Neumann graduated from the Stabile program in May. Amanda Zamora, Lauryn Smith and Joseph Frye also contributed to this story.
Thursday, May 20,2010
UI audit shows holes in the hull of state’s flagship school
Poor spending control and documentation revealed
Released May 13 by Illinois Auditor General William Holland, the 392-page routine audit found 47 issues among UI schools at Chicago, Urbana-Champaign and Springfield. They include inadequate control of procurement cards, undocumented payroll and fringe benefits for school employees and inaccurate accounting procedures. On Wednesday, university officials announced that newly-hired president Michael Hogan, former president of the University of Connecticut, would be offered a base salary of $620,000, with a $225,000 raise if he stays five years. The university currently has $376 million in unpaid bills owed to it by the State of Illinois.
The university has 5,700 credit cards, issued to certain employees for procurement purposes, according to the audit. Expenditures must be reconciled by the cardholder and approved by a supervisor, but the accounting system tracking procurement is set to automatically approve expenditures if no action is taken for seven days. Of the 40 procurement transactions totaling $42,586 examined in the audit, seven lacked proper authorization, two lacked any documentation at all, and one raises questions of misuse by showing a tax charge even though the university is tax-exempt. One of the improperly authorized purchases, totaling $1,356, was made by someone other than the cardholder, and four transactions totaling $659 were made and approved by the same person. Forms authorizing eight cardholders to use procurement cards could not be located, auditors note. The university’s procurement card transactions totaled $108.1 million in Fiscal Year 2008, the audit shows.
“In discussing these conditions with university personnel, they stated that the errors were the result of oversight and employees and their supervisors being unfamiliar with university policy,” Holland wrote in the audit. “Failure to properly review and approve procurement card transactions could result in erroneous or fraudulent transactions being recorded in the general ledger system.”
University officials acknowledged that “erroneous charges can and do occur” under current procedure, but added “… the university employs careful oversight and review to ensure these errors are minimal, and it takes immediate action when errors are discovered.”
The audit also noted that payroll and fringe benefits for employees at the Chicago and Urbana-Champaign campuses were improperly documented, meaning the federal government was charged for work that may or may not have been done. Any university projects sponsored by federal funds require “effort certification” – which essentially proves the salary charged for a project is reasonable for the effort required. The two campuses charged a combined total of $45.9 million to the federal government for payroll and fringe benefits without the required documentation.
Many employees at all three campuses did not fill out required time sheets, the audit notes. Of the 125 employee files examined in the audit, 99 did not file time sheets.
“Based upon inquiry of university management, employees classified as board members, faculty and academic professionals generally track their time using a ‘negative’ timekeeping system whereby the employee is assumed to be working unless noted otherwise,” the audit notes. “…Failure to follow the time reporting requirements of the Act results in noncompliance with state statute.”
To read this and other audits, visit http://www.auditor.illinois.gov.
Contact Patrick Yeagle at email@example.com.
U. of I.’s new president to earn at least $620,000 a year
Base pay is $170,000 more than what his predecessor made
The University of Illinois is owed $380 million from the cash-strapped state, incoming freshman are looking at a likely 9.5 percent tuition hike and 11,000 university employees were required to take furlough days this year.
Stepping onto this troubled stage is Michael Hogan, who was introduced as the 18th University of Illinois president on Wednesday.
“I feel I’m ready for this and I’m looking forward to it,” Hogan, 66, said on the University of Illinois at Chicago campus. “It wouldn’t be any fun if we didn’t have any challenges.”
Hogan, who is leaving the top spot at the University of Connecticut, will be paid a $620,000 base salary. If he stays for five years, he will be paid an additional $225,000, said Tom Hardy, university spokesman.
That’s less than the estimated $745,000 annual compensation he was eligible to receive for the 2009-2010 school year at the University of Connecticut, where he has served as president for three years.
Michael Kirk, University of Connecticut spokesman, was unsure if Hogan actually accepted the entire amount. Hogan twice turned down $100,000 performance bonuses because of Connecticut state and university budget issues, Kirk said.
Hogan’s predecessor at the U of I, B. Joseph White, received a $450,000 base salary before retiring in December 2009 in the wake of a controversy over some admissions procedures.
Hogan’s contract, which needs Board of Trustees approval, comes six months after the university asked 11,000 employees to take unpaid days off to save $17 million for the cash-strapped school.
Despite the six-figure salary, “I’m not here for the money,” Hogan said, calling the school “one of the world’s jewels.”
He said his first challenge was assessing the state’s finances and the university’s role in them.
Born and raised in Iowa, Hogan’s academic career has been rooted in the Big Ten, where he served as dean of the arts and sciences at The Ohio State University and executive vice president and provost at the University of Iowa.
At Connecticut, one of his major initiatives was to craft a plan to expand the university’s hospital. Plans to expand the University of Illinois Medical Center are on hold because of budget issues.
Though a version of his hospital plan was approved last week, Hogan faced considerable blowback on the proposal, said Mary Ann Handley, a Connecticut state senator who is co-chair of the legislature’s higher education committee.
Hogan worked with hospital and medical administrators but “forgot it was a public affair and there were bills to be paid and legislators to talk to,” Handley said.
“I think he was surprised by considerable resistance to what he thought was a wonderful idea,” she said.
Repost from HuffingtonPost Online
April 20, 2010
To explain why costs always go up at American research universities, one has to understand how these institutions spend their money. Surprisingly, virtually no one has examined university budgets in a detailed and careful way, and so it has been easy for schools to claim that tuition never covers the true cost of education. However, if we look closely at the numbers, we shall see that there is practically no relation between what universities charge and what they spend. Moreover, even though many of the top universities continue to make large sums of money, most of them have used the recent downturn in the economy to cut classes, eliminate teachers, increase class size, and inflate student tuition. To understand why this happens, we have to look at how university budgets work.
Looking Under the Budget Hood
Like many other schools, the University of California divides its revenue budget into four main parts: instruction, research, services, and fund-raising. For example, in 2009, 28% of the UC’s total operating revenue of $20 billion was dedicated to instruction and research, and the main source of this money was student tuition and state funds. Another 20% of the budget was generated out of external research grants, and most of these came from the federal government and the state of California. It is important to stress that the largest sector (42%) of the budget was based on revenue generated by medical centers, extension programs, and services, like parking, dining, and housing, that are sold mainly to students, faculty, and staff. Finally, 10% of the UC revenue came from donated gifts (the endowment), and at private universities, this sector is much larger and usually helps to make up for the absence of direct state funding.
One of the first things to notice in this general revenue structure is that instruction only represents less than a third of the total budget, and this includes undergraduate and graduate instruction and related research and administration. Furthermore, even though UC is a state school, in 2009, less than 16% of its total budget came from the state and under 8% came from student fees and tuition, and this means that from a budgetary perspective, instruction and related research is only a small part of what the university does.
Inside the Pay Raise System
Another way of examining a university’s budget is to look at the actual pay of the employees and see who is making what and how much their salaries are increasing. In order to pursue this analysis, I utilized a database with the salaries of 240,000 people (including students) working in the UC system in 2006 and 2008. Since I had read that most of the raises in the UC system go to people making over $200,000, I wanted to see who was making this much, what were their raises, and what jobs they did. The first thing I did was to break these employees into six basic groups: administrators, medical faculty, athletic coaches, business school professors, academic professors (non-business and non-law school professors), and law professors. These six categories accounted for over 95% of the revenue of the over $200,000 club, which had a total gross pay of over $1 billion in 2008 (out of a total university payroll of $9 billion). It should also be pointed out that none of these highly compensated employees are unionized, and so the myth that unions are driving up the costs of higher education can be dispelled by this example.
According to my analysis, the top group was the medical faculty, which had 2,296 people making a total of $680 million in 2008. This same group in 2006 had 1,748 employees with total earnings over $502 million. In other words, over a period of just two years, the UC added 550 new people from the medical field into the over $200,000 club for an additional cost of $178 million.
Another big group of high earners was the administrators and staff. In 2008, there were 397 staff and administrators in the over 200k club making a collective total of $109 million, and in 2006, the same group had 214 members for a collective gross pay of $58.8 million. This group and its collective salaries, then, almost doubled in just two years. Likewise, the third biggest group, the academic professors outside of law, medicine, and business, also experienced large increases in members and salaries of the over 200K club. For 2008, there were 415 academic professors making over $2000,000 for a collective gross pay of $96.6 million; however, in 2006, this same group had 215 employees at $49 million. In other words, the number of academic professor’s outside of the professional schools making over $200,000 basically doubled in a two-year period. I want to add that during this time, the university claimed that faculty salaries in the UC system continued to fall beneath the national average, but what was really happening was that there was an incredible widening of faculty salary inequality: the rich professors were getting richer and the other professors were losing ground.
In the case of the business school faculty, in 2008, there were 372 professors making more than $200,000 for a collective gross pay of $93 million, while in 2006, there were 193 in this group for a total of $46 million. Once again the pay of this group doubled in two years: I guess they do not call themselves business faculty for nothing. Likewise, in the case of law professors, we find that in 2008, there were 85 making over $200,000 for a collective pay of $21 million, and in 2006, this same group consisted of 57 employees making a collective $13 million. For some reason, this group did not double its earnings, but it still showed a healthy increase.
The final group I examined was the athletic coaches, which in 2008, there were 24 coaches in the UC system making over $2000,000 for a collective payout of $12.8 million. In 2006, this same group had only 11 members with collective earning over $5 million. So athletic coaches in this category more than doubled their earnings in two years. What all of these statistics tell us is that this university does not have a funding problem; it has an out-of-control compensation problem. Moreover, it is the people at the top, just 1.5% of the employees who make 11% of the total compensation, and this group increased its wealth by close to 40% in just two years.
The Rise of the Administrative Class
It is clear from the data presented above that one of the driving forces for the constant increase in university expenses is this expansion of the number and cost of staff and administrators, but we are still left with the question of how and why this group of employees continues to expand. To answer this question, the retired Berkeley Physicist examined employment data covering a ten-year period (1997-2007), and he found some remarkable statistics. One thing that Professor Schwartz did was to compare the rate of administrative growth in the UC system to the rate of growth at other universities: “In 2006, in public universities across the country, 49% of the professional full-time employees, excluding the medical school, were faculty members. At UC that percentage was about 25% . . . ” According to this study, faculty now make up less than half of the employees at public universities, and in the UC system, faculty represent only 25% of the total number of employees. Moreover, Schwartz shows that the increase in the number and percentage of administrators really took off in the ten years between 1997 an 2007: “in 1997, there were almost 2 faculty to every Executive and Senior Manager; by 2007 the numbers are nearly the same for both groups, while the Middle Manager group steadily grows higher.” These statistics show that management is growing at double the rate as the increase in the number of faculty, and so while the UC enrolled more students during this period, it had fewer people to teach the students but more people to manage the teachers and run the business.
In looking at what particular job categories grew the most, Schwartz discovered that computer analysts and budget analysts had the highest rates of growth: “Computer Programming & Analysis – from 2,084 to 4,325 for an increase of 108% and Administrative, Budget/Personnel Analysis from 4,692 to 10,793 for an increase of 130%.” It is interesting to note that this growing class of administrators represents people whose primary job is to produce and analyze data for other administrators. In fact, Schwartz argues that one way of explaining why administrators multiply like rabbits is to show how top managers increase their power and control by hiring more people to work under them: “administrators and executives tend to make work for each other, and that because executives prefer to have subordinates rather than rivals, they create and perpetuate bureaucracies in which power is defined by the number of subordinates.” The problem then is not only that the number of top administrators continues to grow; rather, administrators increase their power and influence by hiring people to work for them.
Of course, it would be easy to reply that universities have become so complex and diversified that you need an army of bureaucrats to make sure that everyone is following state and federal laws and all books are being balanced. Schwartz’s response to this claim is to show that while the total number of employees increased 38% during the 1996-2006 period, the rate of growth of middle management often increased by over 100%; therefore, it is hard to imagine why the university suddenly needed so many more analysts to provide information and data to upper management. Furthermore, the increase in bureaucrats often reduces the knowledge of each employee, while it expands the number of workers who have no connection to instruction. In other terms, the increased expense of administration not only takes money away from the instructional and research budgets, but it also gives power to people who have no connection to education.
Budgets Represent Priorities
Like many other research universities, the University of California spends more than half of its budget on compensation, and that does not even include health benefits or pension contributions. Since so much of the revenue of universities goes into compensation, a good way of understanding how a university functions is to see how it determines pay; furthermore, we can read budgets as a set of implicit priorities, and as my salary analysis above shows, the UC system emphasizes professional schools and administration over instruction. In fact, virtually none of the top three thousand earners in the UC system have anything to do with undergraduate instruction, and so it should be no surprise to anyone if the institution only gives lip services to providing quality undergraduate education.
Ironically, many of the budgetary forces in the university work to drive up tuition costs and lower educational quality, and most of the reasons for this strange combination have to do with compensation. Like the rest of America, universities have moved to a system where profits are privatized and costs are socialized; in this structure, the poor end up subsidizing the wealthy as income gets concentrated at the top. Not only do middle-class students subsidize the financial aid of the wealthiest students, but the lowest paid faculty subsidize the low workload and high pay of the top faculty, coaches, and administrators.
By understanding this budgetary system in higher education, we also begin to understand other institutions in American, like the healthcare system. Just as in the case of higher ed, all of the forces in the healthcare system work to lower quality and raise the cost, and in both cases, the key to changing the system is to rein in the compensation of the people at the top. Of course this type of change is the hardest thing to do because all of the people who make the most money are also the people in control.