Tuesday, December 03, 2013

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.


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.


 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. 


W.C. Varones said...

Fortunately, no one has to actually pay back all that student debt.

Just get a slacker government job for 10 years and make minimum payments, and it's all forgiven.

Don't worry. Ben and Janet can always print more.

Cinco-X said...

Rob Dawg wrote:
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.

Federal deficits and debt actually serve a useful purpose. They resulting bonds and bills function as currency for the banks. Since state debt doesn't serve as well in this function, carrying it is less acceptable. Certainly funding certain infrastructure improvements is an acceptable reason, but to fund continuing operations with such should carry a prison sentence.

Cinco-X said...

The college-for-all model isn't working: After years of disfavor, vocational education is being transformed for young people seeking jobs that require more than high school but less than college.

Cinco-X said...

"Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be "cured" against one's will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals." -- C.S. Lewis

Rob Dawg said...

"Certainly funding certain infrastructure improvements is an acceptable reason, but to fund continuing operations with such should carry a prison sentence." ~ Cinco-X

QFT. I wish there were some simplified budget language that couldn't be distorted they way it is now. There are any number of old sayings that are useful. "Eating your seed corn." "Mortgaging your future." "Investing for your grandchildren." Even "casting bread on the water." Plus and minus. There's even "dipping for emergencies" and "precipitating change" but as you say preserving bad habits is criminal.

Rob Dawg said...

"Don't worry. Ben and Janet can always print more." ~ WCV

I just cannot get the Rocky Horror Picture Show out of my head. Not that she ever looked like her. [mind bleach]