$tate of the U - A Parent's Perspective

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My friend and fellow alum, Michael McNabb writes another important guest post that is well worth reading by parents of prospective University of Minnesota students.  His prior essays on our university have been major contributions to framing the debate on the crucial question: What do we want for our University?

President Bruininks gives the perspective of the administration on the state of the University in his correspondence of June 14 to Regent Steve Sviggum.  Here is the perspective of a parent of four children who have received their undergraduate or professional degrees (or both) from the University since 2004.

(1) The President acknowledges that during the past 10 years the budget of the University has increased by $1 billion.  Yet the administration is cutting courses and faculty positions.  See Three Minutes at http://ptable.blogspot.com/2010/06/three-minutes-of-input-at-university-of.html#links.  And the administration plans to continue the elimination of academic programs and the replacement of professors with part-time instructors without tenure.  See Recommendation No. 4 (Narrow the Scope) at pp. 8, 33-34 of the June 2011 report of the President on Financing The Future at http://blog.lib.umn.edu/pres/news/June2011_TtU_CostProductivity_FINAL.pdf. 

During the same period the administration has displayed no mercy toward the students and their parents as it raised tuition at dizzying rates.  See Stop Using Students as ATMs at http://ptable.blogspot.com/2010/10/stop-using-students-as-atms-university.html#links.   The administration increased tuition so substantially that it more than offset the reduction in state appropriations.  Hundreds of millions of dollars of tuition flowing into the coffers each year together with hundreds of millions of dollars in state appropriations enabled the administration to increase its budget by $1 billion.  (In the current fiscal year the administration will rake in $808.3 million in tuition.  See the President's Operating Budget at p. 26 of the June 20, 2011 report of the Board of Regents at http://www1.umn.edu/regents/docket/2011/june/board620.pdf. )

The administration plans to continue using students and their parents as ATMs with endless reservoirs of money.  A recent report declares that "tuition is the revenue stream with the highest potential for significant, long term growth" and asks "what should tuition pay for when tuition revenue exceeds the cost of instruction."  See the link to the 2009 Report of the Future Financial Resources Task Force in On The Hidden Cost of Research at http://ptable.blogspot.com/2010/12/on-hidden-cost-of-research-michael.html#links; see also Recommendation No. 2 (Grow Tuition Revenue) at pp. 7, 51-52 of  Financing The Future.

This double whammy inflicted by the administration means that students and their parents now pay much more while the scope of the education available is reduced and the actual teaching of students is increasingly assigned to part-time instructors (or, cheaper yet for the University, to on-line instruction).

"The real issue is increasing the value that we the university bring to the state of Minnesota, to its stakeholders and to our students.  Increasing that value, communicating it and demonstrating it will be the major goal of my presidency."

President Eric Kaler in the July 7, 2011 issue of the Pioneer Press at http://www.twincities.com/ci_18423950 (emphasis added).

(2) The President claims:

Net Price for Twin Cities undergraduates has increased an average of 3.4% per year over 10 years.

See p. 59 of his report on Financing the Future (emphasis added). Let us examine the calculation of Net Price: 

The cumulative percentage increase per student, 2001-2010, in Cost of Attendance, grant/gift aid, and Net Price were quite different from the increase in tuition sticker price, Dr. Radcliffe explained.   The cost of attendance increased by 50% during these ten years; the Net Price increased only 34%.  The primary reason that the Net Price is increasing more slowly than the Cost of Attendance is because of significant increases in the size of the mean grant/gift award.  The Net Price, he said, is tuition minus financial aid.   His focus is on the net price; while the sticker price is relevant for some students, it is not for most.

See p. 5 of the June 7, 2011 report of the Senate Committee on Finance & Planning (emphasis added).

The administration includes student loans in its definition of "total financial aid."  See the definition under the heading "Improvements in Financial Support" on p. 12 of the report of the Provost entitled Achieving Excellence at http://www.academic.umn.edu/provost/reports/documents/Achieving_Excellence_2005-10.pdf 

So the calculation of Net Price by the administration does not reflect the economic reality facing the students (and their parents). It subtracts (disregards) the amount of the student loans that the students and parents will be paying off for years to come.

See the response of the Minnesota Daily at Cynical & Deceptive at http://ptable.blogspot.com/2011/03/minnesota-daily-nails-university-of.html#links. 

See also Student Debt at http://ptable.blogspot.com/2009/10/college-of-liberal-arts-dean-vision-of.html#links

(3) The President claims that there will be 74 senior administrators at the end of the 2010-2011 academic year. He defines senior administrators as the president, vice presidents, provosts,chancellors, deans and a few others. See p. 5 of his letter and note 6 in Financing The Future.

The Pioneer Press has a web site for Minnesota Public Salaries.  There is a link to the site in On The Cost of Administration at http://ptable.blogspot.com/2011/03/on-cost-of-administration-at-university.html#links.  The web site lists 9 provosts, 18 chancellors, 40 vice presidents, and 112 deans.  The site identifies the persons who hold those senior positions.  The number claimed by the administration is not even close to being accurate.  There are scores of administrators who receive hundreds of thousands in dollars in compensation each year.

In his letter the President does not discuss the compensation of the senior administrators. At the legislature he defends the compensation as within market range for such positions. This is the same justification used to pay tens of millions of dollars in annual bonuses to Wall Street executives. The President and the Regents may have an unwavering confidence that the market always makes the correct determination in economic matters. Alan Greenspan did when he was chair of the Federal Reserve, as did the "Masters of the Universe" who were the chief executive officers of the Wall Street firms. Their misplaced confidence combined with greed to bring our national economy to the brink of chaos.

The law restricts the pursuit of personal wealth by the leaders of a tax-exempt organization (such as a non-profit institution of higher education). Among other measures, the Internal Revenue Code imposes an excise tax on excessive compensation paid to senior executives. See the Postscript below. Is the annual compensation of hundreds of thousands of dollars to scores of senior administrators at the U of M reasonable when students must incur tens of thousands of dollars in debt that will take years to repay in order to support that level of compensation?

Conclusion

Our system of higher education has contracted a malady that plagues our health care system.  The cost of health care in the United States is much higher than it is in any other country (whether measured as per capita spending or as a percent of GDP).  A major reason for this high cost is that our for-profit health insurance companies have by far the highest administrative costs in the world.  See T.R. Reid, The Healing of America pp. 34-43, 229  (New York:  Penguin Press 2009).

Each year hundreds of billions of dollars flow through each system.  The issue is not a lack of funds.  The issue is the allocation of those vast sums of money.  See University Inc. Part II at http://ptable.blogspot.com/2011/02/draft-as-university-transforms-itself.html#links .

Postscript

The law restricts the pursuit of personal wealth by the leaders of a tax-exempt organization (such as a non-profit institution of higher education):

No part of [a tax-exempt] organization's net earnings may inure to the benefit of an insider.  An insider is a person who has a personal or private interest in the activities of the organization such as an officer, director or key employee.  This means that an organization is prohibited from allowing its income or assets to accrue to insiders.  An example of prohibited inurement would include payment of unreasonable compensation to an insider.  Any amount of inurement may be grounds for loss of tax-exempt status .

See pp. 2-3 of the IRS Compliance Guide for 501(c)(3) Public Charities (Publication 4221-PC) at http://www.irs.gov/pub/irs-pdf/p4221pc.pdf (emphasis added).

Section 4958 of the Internal Revenue Code also provides for an intermediate sanction that may be imposed on executives of tax-exempt organizations who receive excessive compensation:

Congressional hearings in 1993 produced several outrageous instances of excessive compensation.  Though the existing federal law could penalize an organization by removing recognition of its tax exempt status, the IRS rarely, if ever, imposed such a penalty, for the removal of exemption was like hanging someone for stealing a loaf of bread.  It was too draconian for the wrong, and it hurt the organization rather than the individual who engaged in the private inurement.  In response to this problem, Congress adopted the approach of the private foundation rules, imposing a graduated excise tax on "excess benefit transactions" involving 501(c)(3) and 501(c)(4) organizations other than private foundations, a so-called intermediate sanction that replaced the ultimate penalty of revocation of tax exemption.

Fishman, Wrong Way Corrigan and Recent Developments in the Non-Profit Landscape, 76 Fordham L. Rev. 567, 585 (2007) at http://ir.lawnet.fordham.edu/flr/vol76/iss2/3. (Click on download in the right hand column.)

In 2005-2006 the IRS conducted a compliance check on executive compensation in tax exempt organizations.  Although high compensation was usually determined to be appropriate, the IRS did assess $21 million in excise taxes against 40 executives in 25 organizations on the basis of excessive compensation.  See p. 1 of the March 2007 IRS Report on Exempt Organizations Executive Compensation Compliance Project at http://www.irs.gov/pub/irs-tege/exec._comp._final.pdf.

In October 2008 the IRS commenced a compliance check on tax-exempt colleges and universities.  Executive compensation was a major area  of inquiry.  The IRS requested information on the compensation of the six highest paid officers, directors, trustees, and key employees (ODTKEs).  The IRS survey included 91 large universities.  The average compensation of the highest paid ODTKE at large universities was $428,000 while the median compensation was $361,000.  See Figure 65 on p. 55 of the May 2010 IRS Interim Report on Tax-Exempt Colleges and Universities Compliance Project at http://www.irs.gov/pub/irs-tege/cucp_interimrpt_052010.pdf. 

Over the past several years the compensation of President Bruininks was an annual salary of $455,000 plus an annual contribution of $150,000 to his retirement account.  The compensation of President Kaler will be an annual salary of $610,000 plus an annual contribution of $50,000 to his retirement account starting in his second year. 

Michael W. McNabb
University of Minnesota B.A. 1971; J.D. 1974
University of Minnesota Alumni Association life member

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University Enterprise Laboratories (UEL)

Declared Dead by MedCity News

The fiasco that is University Enterprise Labortories has been discussed before on this blog.  For background, please see:  University Enerprise Laboratories - A Wild Success or a Failure?

Finally time to stick a fork in it?

From MedCity News:

Minnesota ‘biotech incubator’ UEL has failed. It’s time to admit it

During the past six years, UEL has portrayed itself as a biotech incubator helping the University of Minnesota’s technology transfer efforts. But, for the most part, the university has been propping up what is a textbook case of how not to start an incubator.

UEL picked too big of a space in the wrong kind of building. It carried large debt from inception. And when the university didn’t create enough startups, UEL gave space to anyone in order to stay afloat. What’s more, UEL never tracked key metrics, like job creation, from startups that did flourish under its care.

It failed from the start 

UEL started in 2004 with $13.8 million in debt and an expectation that companies created from University of Minnesota’s technology would rent much of its 126,000 square feet.

But the university didn’t produce enough startups. So there were few renters and little revenue. In fact, in 2008, as UEL’s very survival became a question, it laid off its general manager and an administrative employee. It saved itself by renting to whatever company would take space.

“We were left scrambling to fill this building in one way or another so as to service the debt that we were up against,” said Anthony Carideo, UEL’s chairman.

Now, many of UEL’s roughly 30 tenants have nothing to do with biotech or life sciences.

It’s on welfare

... cash on hand ($378,806 as of December 2010) would be wiped out if the university enforced a requirement for UEL to pay a fine if it did not provide space to school startups. The university has waived that every year since 2006 — the first year the payment was due.

The cumulative tab to date? $500,000.

“At a time when that whole operation was just getting off to a start, it would have been I think (unfair) for us to say we hold you responsible for the fact that we didn’t spin out enough companies to locate there,” said Tim Mulcahy, vice president of research at the University of Minnesota.

Over the years, the university and its foundation provided $3.75 million to UEL, with the foundation also extending a $750,000 line of credit, Carideo said.

It didn’t do the math

George also said the success of an incubator shouldn’t be defined by operational cash flow. That’s because the goal of the incubator is to provide subsidized facilities and services to startups — not in generating profit.

Instead, success should be defined by the number of jobs the incubator has helped to create, George said.

UEL has had four graduates — Segetis, Twin Star Medical, Harland Medical Systems and OrthoCor Medical — but it has never tracked jobs it helped create.

University support is inconsistent

Last year, the school’s Medical Devices Center was teaming up with UEL to create what would be tentatively known as the Medical Devices Center Launch Pad. The space would house early stage companies created through a fellowship program at the Medical Devices Center.

But the head of the university’s technology commercialization office apparently shot the idea down. “It was an innovative, collaborative idea developed by good-hearted folks, implemented in start-up speed, without buy-in from U of Minnesota leadership,” stated Marie Johnson, the former director of the Medical Devices Center’s Innovation Fellows program.

In the future, could it become a biotech incubator? Yes. If it manages to lower its rent, kick out some tenants and bring in someone with tech transfer expertise to run it. But Carideo did not seem particularly open to the idea of throwing tenants out even though Mulcahy, a supporter of UEL, said that having an exit strategy for tenants is important for any incubator.

In the end it was Mulcahy who best captured the essence of UEL.

“UEL was a great experiment in public-private partnership,” he said. “I think it has fulfilled some of its promise. I think it’s a different entity than it had been originally intended to be.”

The University of Minnesota's

Public Relations Deception 

From the Minnesota Daily:

In a letter [2] published in today’s Minnesota Daily (7/27/11), Provost Tom Sullivan writes that total financial aid has increased from $81 million in 2004 to $152 million in 2010. At first glance, this seems like a large improvement, increasing by 87.6 percent over 6 years. But while this statistic is technically true, it is intentionally deceptive.

Over this same period of time, tuition has risen [3] 48 percent (by 69 percent if one starts counting from the 03-04 school year, but at least 48 percent). Furthermore, the size of the undergraduate student body has [4] grown [5] 6 percent during this period of time and inflation has gone up [6] between 15 (beginning of 2010) and 19 percent (end of 2010). These three factors account for a large portion, if not all, of the increase in the total dollar amount of financial aid. The lack of context in Sullivan’s letter gives readers a false impression.

The Daily Editorial Board has criticized [7] the University administration for using these factually true but misrepresentative figures before. The nature of public relations communications is spin, misrepresentation, and lying by omission, especially when the facts don’t fit one’s desired narrative, but we expect a better, more honest discussion from our University leaders. Kaler is still in a transitional period in his administration, but this is an unequivocal instance of a problem of the Bruininks regime persisting under new leadership.

Kaler and the rest of his administration must stamp out the use of these deceptive statistics wherever they find it. Because the rosy hue they see emanating from the University is actually just the tint of their glasses.

--Eric Murphy

Unethical Behavior at the University of Minnesota?

By Carlson School Students?

Is this Surprising?

For background on the ethically challenged attitude of one of the Carlson School faculty please see: Greed is Good.

"It's one thing if you're bringing in a criminal to speak. But if someone's under investigation, that's fair game," he [Parente] said.

Stephen Parente, director of the Medical Industry Leadership Institute in the Carlson School of Management at the University of Minnesota

From the Star-Tribune

A Missouri start-up is accusing students in a University of Minnesota class of copying its idea for a business. The university has said some of the students' behavior was not acceptable and that their lesson will help future students.

Last year, a Missouri start-up received calls from University of Minnesota business students who asked for help on a class project.

The business owners were happy to help. They provided sales and marketing data. They spent time on the phone telling the students about their product, a device that lets people open bathroom doors with their foot.

Then, a couple of months later, they discovered that the students had created a rival company with a similar product.

"To do it the way they did it, it's just not right to be taught that in school," said Ron Ely, a co-founder of the company, StepNpull. "That's almost plagiarism, and they got the whole school backing up the knowledge and marketing."

Enter Arndt, Toepener's CEO. He was a student in the U's Entrepreneurship in Action class, which began in September. The class challenges undergraduate students to create companies.

Arndt, a self-proclaimed germaphobe, says he came up with the idea for Toepener independently last fall, but didn't provide a specific date. StepNpull's records show he purchased one of its products on Sept. 27.

Around that time, the students contacted the company.

"You have a great product on your hands," Arndt e-mailed StepNpull in October. Arndt then asked if he could do work for StepNpull in the future.

On Dec. 7, student Mike Wesely e-mailed StepNpull. Wesely said his parents remodeled their bar's restrooms and he had "stumbled" across their product. He wondered whether StepNpull was compliant with federal disabilities regulations. StepNpull sent over more information. Wesely didn't disclose he was part of Arndt's team.

On Dec. 28, the students incorporated their business, Forge LLC.

 Kirk O. Hanson, executive director at Santa Clara University's Markkula Center for Applied Ethics, said he thinks the U should give any money it gets from Toepener back to StepNpull because it's "tainted."

"If I were in the university's shoes, I would hesitate before [promoting] this firm as an example."

John Stavig, who teaches the Entrepreneurship in Action class, is the guarantor of Toepener's $15,000 loan. He is also the professional director of the U's Gary S. Holmes Center for Entrepreneurship, which is the lead sponsor for the Minnesota Cup's student division. Stavig facilitates the judging for that division.

Since the division began in 2006, all five student winners have been connected to the Carlson School.

"We're trying to help students move forward with their businesses. Do they always make the right decisions? No," Stavig said. "Should we crucify a couple of entrepreneurs trying to build a business? That seems foolish to me."

Disgusting.  Maybe the Carlson School should go private...

Is College Worth It? 

Answer May Depend on Accurate Net-Price Estimate
 

Latest post on Brainstorm blog at the Chronicle of Higher Education 

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Gov. Mark Dayton's shutdown announcement

By Gov. Mark Dayton

Remarks of Governor Mark Dayton — As prepared for delivery
Thursday, June 30, 2011

I deeply regret that the last week of intense negotiations between the Republican legislative leaders and Senator Bakk, Representative Thissen, and myself have failed to bridge the divide between us.

Our major difference remains the same.  It is the difference between my balanced approach of significant spending cuts combined with income tax increases only on the very wealthiest Minnesotans, versus the Republicans’ “all-cuts” budget.

In recent days, I proposed to reduce state spending by an additional $1.6 billion. It brought my total amount of spending cuts to over $1.9 billion.  Those cuts reduced my proposed budget to $35.7 billion, slightly lower than the $35.8 billion I offered as a half-way compromise six weeks ago.

Republicans have offered only to forego their $200 million tax cut and add that amount of spending.  While welcomed, $200 million is only a small step toward resolving a $5 billion deficit.

Unfortunately, despite many hours of intense negotiations, the Republican legislative caucuses remain adamantly opposed to any additional tax revenue.  Therefore, a $1.4 billion gap remains between our last respective offers.

For the past six months, I have proposed that remaining gap be resolved by raising taxes on only the wealthiest 2% of all Minnesotans.  Republicans have adamantly opposed it.  Today, Representative Thissen, Senator Bakk, and I made two proposals which contained revenues to be raised by increasing taxes only on people who make more than $1 million per year.  The Department of Revenue reports that there are only 7,700 of them, less than 0.3% of all Minnesota tax filers.

The Republicans rejected those two proposals, as they have every proposal that involves raising tax revenues from any source whatsoever.  Instead, they would prefer to protect the richest handful of Minnesotans at the expense of everyone else, even at the expense of a state government shutdown.  As one Republican legislators told a member of my staff, “We’re friends with some of those guys.”

Instead of taxing their friends, they would prefer very damaging cuts to health care, K-12 and higher education, state and local public safety, mass transit, and other essential services.

The “billion dollar revenue increase” they now claim to have offered consisted principally of two big loans.  The first was from our schools; borrowing $700 million by delaying school aid payments.  The second was borrowing from future tobacco settlement payments.  This does not add revenue, it adds debt.  And it’s what got us into this budget mess in the first place.

It is significant that this shutdown will begin on the 4th of July weekend.  On that date, we celebrate our independence.  It also reminds us that there are causes and principles worth struggling for – worth even suffering temporary hardships to achieve.

Our American Revolution was very much about fair and just taxes, where the middle-class was over-taxed while the very rich went tax-free.  In the absence of fair taxes, the basic services people relied upon for their health and well-being were denied them.

I cannot accept a Minnesota where people with disabilities lose part of the time they are cared for by personal care attendants, so that millionaires do not have to pay one dollar more in taxes.

I cannot accept a Minnesota where young people cannot afford the rising tuitions at the University of Minnesota or a MnSCU campus, so that millionaires do not have to pay one dollar more in taxes.

I cannot accept a Minnesota where elderly widows are denied the at-home services that permit them to remain healthy and able to live in their own homes, or a Minnesota where local governments have to further slash their firefighters and police forces, or a Minnesota where special education is being cut, so that millionaires do not have to pay one dollar more in taxes.

That is not Minnesota.  That is not why the people of Minnesota elected me their Governor: so that millionaires could continue to avoid paying their fair share of taxes for the benefit of everyone else in our state.  Some of them are my friends, too.  However, unlike the Republican legislator, I believe in putting the people of Minnesota first.

We are One Minnesota.  Our state’s greatness has been forged by generations of people who also worked hard for their money, yet willingly paid their fair share of taxes so that our entire state could prosper.  It was once called “the Minnesota Miracle.”

It wasn’t a “miracle,” however.  They earned it.  They spent to achieve it by building excellent schools, colleges, and universities; good roads, highways, and public transit; and an exceptional quality of life helped by collaborations between the private and public sectors throughout Minnesota.

Now, all of that is at risk.  All of it is being underfunded while, at the same time, middle-income Minnesotans are being over-taxed.  Will the Republicans insist that inequality continue, so that millionaires do not have to pay one dollar more in taxes? 

So far they have.  It will take the people of Minnesota to persuade them otherwise.
I will continue—tonight, tomorrow, and however long it takes—to find a fair and balance compromise.  I welcome Republicans to join with me – my door is always open.  I believe the people of Minnesota are with me.  I ask them to join me in standing up for our State’s future.

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