Balanced Budget Math, College Edition

Isn't this just the coolest representation of California?

There's a rumor going around that with the passage of Prop 30 and a recovering economy California is nearly back to a balanced budget.  Okay, the rumor is that State officials will "claim" we are almost back to even.  Set aside that we have a Constitution that forbids deficits.  Set aside enough wiggle room for dynamic budgeting, optimistic projections, etc.  What's the real story?  It's an old story, you may have heard it before.  Borrow, lie and spend.

Despite very low interest rates (remember this) the portion of revenue dedicated to debt service continues to grow. That is not necessarily a bad thing.  It is only bad when at it comes at the expenses of ongoing obligations.  And guess what?  Yup, at the expense of ongoing payments.

With wickedly low interest rates why would you enter into a variable loan?  Because your Wall Street advisors said it was good.  And what if it was not good?  Why then your Wall Street advisors have an answer; Swaps.  Uh oh.  You know where this went.  It gets worse.  Say you are a CS or UC campus and "need" a new building.  How to get it as cheap as possible meaning as gold plated as you can get away with?  One way is with cheap credit.  How to make credit cheaper?  Your Wall Street advisors have a solution.  Just like companies; issue preferred debt.  That means every dollar every semester every year goes to paying off bondholders and finance charges before everything else.  Getting this now?  The money doesn't pay teachers or anything else until the debt is serviced.

Even With Tuition Hikes, Public Universities Can’t Keep Up

For years, state schools have used tuition increases as a crutch to bolster revenue in the face of declining state support. Now, however, about four in 10 public universities report tuition revenue is not keeping pace with inflation, according to a new report by Moody’s Investors Service. In putting together its report, Moody’s surveyed 114 four-year public universities and 173 four-year privates and found that negative trends — inability to raise prices, declining enrollments and heightened regulatory and political pressure to keep down tuition — are “now buffeting public universities with greater intensity.” Revenue from tuition is projected to grow at a rate below inflation at 44 percent of publics and 42 percent of privates surveyed by Moody’s. Conditions at colleges and universities outside the survey could be even worse because Moody’s rates colleges that are in a position to borrow money.

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As student loans grow, so does university leadership pay

There's plenty of dispute about why college costs so much today. As The Times notes, it could be that colleges got caught up in big spending when economic times were good to attract the best and the brightest students and faculty. Maybe education is just inherently pricey as universities try to keep up with higher health care costs and new technologies. But one important factor is being overlooked: Pay packages at the top. While students languish in debt, many university presidents enjoy lofty paychecks. Since 1991, salaries of university presidents at at public and private universities have roughly doubled, says Andrew Hacker, co-author of Higher Education? How Colleges Are Wasting Our Money and Failing Our Kids – and What We can Do About It. At public universities, the median compensation for presidents was $375,442 in 2009-2010, according to The Chronicle of Higher Education's latest figures. The top 10 highest paid boasted compensation ranging from $1.8 million to $728,350, with Ohio State University president E. Gordon Gee at the top, followed by former University of Washington president Mark Emmert with $904,004 (he's now president of the National Collegiate Athletic Association), Francisco Cigarroa of the University of Texas System with $813,892 and John Hitt of the University of Central Florida with $800,703. That's way more than what many of today's most high-profile public servants earn.

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 So there it is.  While education should be getting cheaper the same problems that hit US corporations a 40 years ago and the FIRE sector 20 years ago are arriving in academia at the same time, now.