Monday, October 20, 2008

Driven to Dissemble

Executive summary:

If no state funds or tuition money are being used, then apparently Our Administration can do whatever they wish with the U's money? Or, money from the state has stayed about the same (in constant dollars) and the endowment income is about four percent in real terms. The only major source of revenue that has experienced significant real growth is tuition.

Ask not for whom or why the tuition bill rises...

From the Daily:

10/15/2008, Robert Katz

The present administration of the University has demonstrated a persistent pattern of evading accountability for its actions. Had the University given due weight to the interests of its students and had it been held responsible for its spending, tuition would not have more than doubled over the last ten years.

A few examples should make clear the basic features this evasion of responsibility takes.

Let’s go back to the year 2003.

Tuition at the University is $7,200.

Due to an economic downturn, most states are experiencing major fiscal crises. In order to balance their budgets they have to make drastic, painful spending cuts. Some newly elected governors, acknowledging this environment of fiscal austerity, curtail their inauguration festivities. The governor of New York’s inauguration cost only $30,000. The University of Iowa’s president is being inaugurated for about $10,000. But here at the University, the newly installed president is throwing himself a $100,000 plus bash.

A responsible administration would have addressed this issue in one of two ways: The president would have accepted responsibility for the decision and either provided reasons defending it, or he would acknowledge that they had made an error in judgment.

When called to account for its actions, the response that the administration made was that none of the cost was paid for with tuition or state money; it all came from private donors and the University endowment.

One technique for evading accountability is to deny that any problem exists. “No tuition money or state funds were spent on this party — so what’s the problem?”

Never mind that most contributors to the University intend their donations to be used to promote quality, affordable education for their children and their neighbors’ children. It may be true that the University Foundation accounts were debited for the amount of the party’s cost, but these monies could have been used to decrease tuition.

Flash forward to the year 2005.

Tuition is now $8,800.

The administration is spending $6.5 million constructing a landscaping project it calls “The Scholars (sic) Walk.” Here is the administration’s response: The Scholars Walk is being funded by a gift from the University Gateway Corporation.

By this time, the use of the half-lie has become more sophisticated — almost baroque. Reading the fine print in the University’s Annual Report for 2005, we do, in fact, find a contribution to the University for $6.5 million from the University Gateway Corporation.

But who is this generous donor?

It turns out that this is a dummy corporation set up by the University Foundation to issue revenue bonds to fund the construction of the McNamara Alumni Center.

The revenue to service these bonds comes from the rents received from the building’s occupants: mostly administrative and Alumni Association offices. Since the Foundation is a creature of the University, the University is, in effect, paying rent to itself. So we are none the wiser as to the source of this money.

The year is 2007.

Tuition is now $10,000.

The administration unveils a further refinement in its techniques for evading accountability. This time they go further than simply denying that a problem exists. This new refinement might be called the “lipstick on a pig” technique.

In quick succession, two highly paid athletic coaches are relieved of their duties. But, due to the contracts that were signed with them, they must be paid $3.5 million to buyout their contracts. Here is the administration response: The Athletics Department will have to borrow the money from the University and pay it back with interest. “We’re just like a bank,” an administrator is quoted as saying (this probably sounded better in 2007).

So not only is there no problem — the athletic department will pay back the money — but the University will actually benefit: The money will be paid back with interest. This situation is not an instance of mismanagement, it is an investment opportunity.

What wasn’t said was that the Athletics Department has run deficits and been subsidized by the University for, at least, the last 20 years. Last year’s subsidy was around $4.9 million, and it has gone as high as $10 million. In addition, they are receiving some $100 million from taxpayers and $23 million from students for the new stadium. The administration may not be the best teacher of fiscal accountability.

The important point to notice about these examples is not so much the particular spending decisions, but the manner in which they are justified. Any large organization will always make decisions that others find questionable. But when an organization consistently attempts to justify its actions with explanations that do not even stand up to the most cursory scrutiny, then something has gone fundamentally wrong.

If the administration has evaded responsibility for its actions, who pays the price?

Other things being equal, any increase in expenditures must be matched by an increase in revenues.

Over the long term, money from the state has been just about constant in real terms. Income from endowments has resulted in only a 4 percent increase in real terms to the University’s total revenue over the past 10 years.

In fact, only one major revenue source has consistently shown significant real growth: tuition. Therefore, the next time the University announces a new spending initiative, when all the administration’s explanations are done, “Send not to know from whose billfold.”

This is a great piece. I am in awe of Robert Katz.

This University of Minnesota administration seems to think that as long as money does not come from the tuition pot or from the state, that funds can be used for whatever they feel like doing. Just to raise another example, how much money has been spent for MoreU park and where did it come from?

Should we really be spending University money, regardless of the source, for a development project in the middle of nowhere when we can't even fulfill our responsibilities as an urban public university to the cities of Minneapolis and St. Paul and the State of Minnesota? I understand we have already spent more than five million dollars on UMore park. Is this accurate, Bob and Tom?

Driven to Dissemble, indeed.

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