Sunday, October 21, 2012

On The Cost of Administration Part III

"When I use a word," Humpty Dumpty said in a rather scornful tone, "it means just what I choose it to mean--neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be the master--that's all."
Lewis Carroll, Through The Looking Glass (1871) 

          Added December 30, 2012:
An article that is in many ways complementary to this one has now appeared in the Wall Street Journal - on the front page: "Deans List: Hiring Spree Fattens College Bureaucracy—And Tuition."

On The Cost of Administration Part III

President Kaler recently declared that compensation for persons in positions of "administrative oversight" was limited to 11% ($208,545,279) of the total compensation paid to all University employees ($1.9 billion) in fiscal year 2012.  See the October 12, 2012 report in the Star Tribune.
The headline for the report was What's in a Name?  In this case the answer is hundreds of millions of dollars.
The compensation for those in "administrative oversight" does not include the compensation for the administrative staff who carry out the tasks that are directed and overseen by the administrators.  Here is the breakdown for the compensation for administrative staff for fiscal year 2012:

See p. 17 of the October 11, 2012 report presented by senior administrators to the Regents on Cost Definition & Benchmarking.
The overall cost of administration includes more than the compensation of administrators and their staff.  In fiscal year 2012 the administration spent $131,590,695 on administrative supplies and services and an additional $35,175,423 on equipment for administration.  The administration also spent an astounding $34,815,696 on consulting and professional services.  (Why is the administration spending tens of millions of dollars on outside consultants when it has the expertise of its own faculty at its command?)  These "non-personnel expenditures" (the term used by the administration) add up to $201,581,814. 
Here is the total cost of administration for fiscal year 2012:

In fiscal year 2012 the total expenditures of the University were $3,059,632,119.  So the cost of administration consumes 28% ($852,039,094) of the University budget. 
Is 28% in administrative overhead excessive?  There is no accurate national system for comparing administrative costs at universities so we have to look at the world outside the campus.  With an administrative overhead of 20% American private health insurance companies have the highest administrative costs of any health insurance system in the world.  See T.R. Reid, The Healing of America (New York:  Penguin Press 2009) at pp. 36-38.
The Affordable Health Care Act now requires health insurance companies to send rebates to consumers if the company spends more than 20% of its premiums on administrative costs.  See the July 23, 2012 Star Tribune report on Insurers Sending Rebate Checks.
The U of M administration increased spending from $2 billion in fiscal year 2002 to $3 billion in fiscal year 2012.  The fuel for this billion dollar explosion was skyrocketing tuition that soared from $293 million in fiscal year 2002 to $634 million in fiscal year 2011.  See Ten Year Review of University Inc.
The administration has proposed a freeze on tuition (for undergraduate students only) for the next two years on the condition that the state increase appropriations by $91.6 million.  See the September 14, 2012 Star Tribune report.  The prospect of an increase in state appropriations appears remote with the legislature facing a projected deficit of more than $1 billion when the $2.4 billion state IOU to school districts for K-12 education is taken into account.  See the October 15, 2012 Star Tribune commentary by former governor Arne Carlson.
Substantial reductions in tuition are possible without any increase in state appropriations.  There should be substantial reductions in the cost of administration at the University.  Reducing the cost of administration from 28% to 20% would save $240 million.
The savings should  be used to reduce tuition and the crushing debt that the administration has imposed on students and their parents.  The senior administrators and the Regents must restore public support for the University in the old-fashioned way--they must earn it.   
Michael W. McNabb
University of Minnesota B.A. 1971; J.D. 1974
University of Minnesota Alumni Association life member

Tuesday, October 16, 2012

U shouldn’t pay $800,000

to avoid a so-so foe

Chip Scroggins
 At a time when purse strings are tight, the Gophers are shelling out $800,000 to avoid two football games with North Carolina.
 The Gophers backed out of their home-and-home series with North Carolina in 2013-14 in favor of trying to find a lesser opponent. The kicker is even more of a doozy: The Gophers paid North Carolina $800,000 to cancel the series. That's right, an athletic department that struggles to make budget every year is forking over $800,000 to avoid playing North Carolina.

That would be comical if it weren't so pathetic.

We're not talking about canceling a game against Alabama. Or Southern California. Or even South Carolina.
No, somehow Kill has convinced Teague that for the good of building his program, it's wise if they avoid playing a road game against an opponent that presumably resides in their weight class.

What kind of message does that send to players, fans and alumni? The financial penalty for breaking the contract is bad enough, but it also creates the perception that the Gophers are afraid to test themselves against competent competition before embarking on the Big Ten season. Besides, would a road loss to North Carolina be so detrimental to the long-term plan that it necessitates taking such a significant financial hit?

Good luck selling that one to a fanbase that already has had its patience and loyalty stretched way too thin. The Gophers can't fill 50,000-seat TCF Bank Stadium even for conference games, and they practically beg fans to show up on a weekly basis. They don't give fans much incentive to make that investment, however, when they put together a nonconference schedule that's embarrassingly soft.

Take 2014 for example. Their nonconference schedule features four home games -- Eastern Illinois, Middle Tennessee State, San Jose State and now whatever team they find to replace North Carolina, presumably another pushover.

Teague hopes to plug the hole on the schedule with a pair of "guarantee games" -- a one-time deal with a low-level opponent for a six-figure sum -- because that would enable them to offset the North Carolina buyout cost with revenue generated from a home game. That would cushion the blow, but it still doesn't change perception that the Gophers are ducking legitimate competition.

Teague said university President Eric Kaler gave his approval to spend $800,000 (which will be made in payments over several years) to cancel a football series in an era of tight budgets.

The Gophers probably won't find much support outside of campus. Look, they can build their football program however they choose, but they wrote a big check to avoid playing a middle-of-the-road team in a mediocre conference.

That doesn't inspire much confidence.

University must regain 

Minnesotans’ heartfelt trust

From the Grand Forks Herald:
Published October 14, 2012

It’s a creative effort by the Board of Regents to find a middle ground: If the Legislature raises funding for the University of Minnesota back to the level of 2001 — the actual dollar level of 2001, not the figure adjusted for inflation — then the U will freeze tuition for Minnesota undergrads.
Moreover, the university also will condition some of the funding on accomplishments. So, the U won’t get all of the money unless four-year graduation rates go up, among other improvements.
Sound reasonable?

The Mankato (Minn.) Free Press thought so. The Herald reprinted the Free Press’ editorial Saturday. “The University of Minnesota unveiled an unusual and somewhat innovative plan for its future a few weeks ago that deserves serious consideration by the Legislature and key stakeholders,” the editorial began.
But anybody who predicts smooth sailing for the plan should take at the Star Tribune’s online story about it — specifically, at the comments on the story.
Because as of Sunday morning, there were 27 comments, and 24 of them were bitterly hostile.
“It’s nothing more than a trade off,” said one. “The U is NOT holding down costs. It’s adding more costs to the taxpayer in lieu of the students paying more.”
Agreed a second, “A freeze on tuition in exchange for more money from taxpayers is a joke! Taxpayers are the ones who pay that $12,000 tuition, one way or the other. So why is the U demanding more and more? Cut your tuition, and cut your administration!”
Wrote a third, “There are too many tenured professors and administrators who do very little for their six-figure salaries.” Wrote a fourth, “This is all about protecting cushy jobs with golden benefits and pay not seen in the private sector for comparable work.”
The U’s request (and the U itself) did find some supporters. “The legislators and the whiners happily sucked at the public trough subsidizing them at twice the present rate when they went to college,” wrote one.
“But now that it’s their turn to step up and do what their parents and grandparents did, it’s ‘cut back,’ ‘make them pay,’ ‘the kids need to work harder’ and ‘we pay too much.’”
True, online comments are not representative. They’re a snippet, not a snapshot, of public opinion.
But that would be more comforting if the Legislature itself had come to the U’s defense in recent years. Instead, lawmakers slashed funding to — well, to a point where returning to the funding level of 2001 now constitutes a “raise.”
What happened? Why did so many Minnesotans stop believing in the U?
And what could the university do to regain the public’s trust?
University of Minnesota President Eric Kaler should find the answers to those questions. His model should be “The Changing Shape of Minnesota,” the 2004 report from the university’s Humphrey Institute that remains the most forthright look at the state’s evolving politics:
“Minnesotans are convinced that government is wasteful and inefficient, and squandering hard-earned tax dollars on programs that are not run well or do not benefit all people equally,” the report concluded.
Despite the Regents’ creative approach, the U’s budget likely faces an uphill climb in St. Paul. If Kaler can figure out exactly why Minnesotans’ faith has eroded in their U, he’d do both the university and the state a world of good.