Friday, October 30, 2009

Cutting Slack, Cutting Budgets

October 30, 2009, 8:30 a.m.

Regents, University Presidents, Deserve Some Thanks and Credit
(brought to you by*)

The sound of one shoe dropping.

The Iowa universities' presidents have presented their budget-cutting plans to the Regents, and the Regents have taken some votes.

Those who comment on newspapers' online stories are not always known for their civility and graciousness, and they've offered little toward the decisions reported in the stories about yesterday's [Oct. 29] Regents' meeting in Cedar Falls.

I've never hesitated to provide free blog advice to the Regents and the UI administration. (See, e.g., the blog entries linked from "TARP Lessons for Iowa's Budget Cutters," October 23, 2009.)

But on this occasion, without agreeing with everything they've done, I think we need to cut the Regents and the three university presidents some slack, and give them thanks and credit for a creative effort at fairness and equity in their execution of the thankless task of deep budget cuts.

Presidents' Bonuses. In those linked prior blog entries I've called for the important symbolism of the presidents' rejection of the $155,000 in potential bonus payments promised by the Regents. In the case of UI President Sally Mason, the $80,000 bonus was as much as a 15% increase above her regular salary -- mere symbolism for the UI community and people of Iowa, perhaps, but no small amount of pocket change for an individual State employee.

Yesterday she passed up the money, saying "“This year our budget difficulties are extraordinary. I too must do my part.” ISU President Gregory Geoffroy said, “I don’t expect one, nor would I accept any kind of performance bonus under these economic circumstances.”"Mason Turns Down Bonus Pay," Daily Iowan, October 29, 2009.

ISU's President Geoffroy went further, and "called the bonuses bad public policy. 'I think that they create enormous public relations issues for us. I would urge you to think about other ways to structure compensation.'" Staci Hupp (with contributions from Jason Clayworth, Gunnar Olson and B.A. Morelli), "University employees spared from layoffs," Des Moines Register, October 30, 2009.

Geoffroy's bonus would have been a 12% salary boost; UNI's President Ben Allen was in line for an 8% bonus.

Nor is this all. Both Geoffroy and Allen were offering to sacrifice 12 days' pay -- a not insignificant contribution at their salary level.

Fairness and Equity. I've also called for basic fairness, hoping that those with the least power and pay would not end up bearing a disproportionate share of the burden, while the relatively powerful at the top of the salary scale escaped unscathed. The model I urged we avoid was that of Wall Street, where bonuses in the multi-billions continue to flow to the wealthy, while the homeless and unemployed are ignored. It's a matter of substance as well as symbolism.

Here again, I think the Regents and the presidents have made significant strides in that direction.

Although Geoffrey and Allen are taking furloughs of 12 days, ISU employees earning under $60,000 a year will only lose 4 days pay. Note that 12 days is both three times the number of unpaid days suffered by those at the bottom of the pay scale, and given the presidents' salaries a much greater total cash loss per day for the presidents as well. "Senior administrators will take 10 days." [Staci Hupp's story, linked above.]

The cut in State contributions to individuals' retirement programs also has an equitable impact. At the UI the TIAA-CREF program involves a 5% of salary contribution from the employee, and a 10% of salary contribution from the University.

The proposal is that the 10% from the State be reduced to 8%. (Regent Michael Gartner and others thought it would be better to reduce it to the IPERS 7% level -- which would have made it even more equitable.) This has been described as a "2% reduction" ("a temporary 2 percent reduction," B.A. Morelli article, linked below). That may be a good public relations characterization in selling it to the beneficiaries who are being cut. But it's bad mathematics, and poor public relations in selling it to the people of Iowa, parents and students.

To cut a contribution from 10% of salary to 8% is a 20% cut, not a 2% cut.

I think a 20% cut in a benefit program is a significant cut; though I don't think it's unreasonable (especially since employees under this program are still getting slightly more than those with IPERS).

But my point for now has to do with equity. For a university president earning $450,000, 10% represents $45,000; 8% represents $36,000. That's a $9000 reduction -- what by my standards is a significant cut.

For an employee earning $40,000 the 10% is $4000; the 8% is $3200 -- an $800 cut. That's still significant for someone earning that salary. But the point is: those who earn the most lose the most; those who earn the least lose the least in the absolute dollar contributions they would otherwise receive into their retirement fund.

The $100 Student Surcharge. In the context of the presidents' self-imposed cuts in their own pay and benefits, and the effort to spread the burdens in accordance with employees' ability to bear them, the $100 surcharge for students doesn't seem outrageous.

I opposed the surcharge, as did four of the nine Regents, both as a matter of principle and of public relations. I believe in the 21st Century a college education in 2009 is a necessity that is the functional equivalent of a high school education in 1909 -- as I have laid out from time to time in this blog. It is internally inconsistent today to provide high school education at no cost to parents, while charging them a half or more of the full cost of college. Either we should charge for high school (which I would hope no one would advocate) or we should make "K-16" the modern standard for "public education." (Ditto for one of the greatest returns on public investment: the "K-prep" programs for those age 2 to 4.) Consistent with that position, I did not support the surcharge.

From a public relations perspective I simply posed the benefit-cost question: Is the benefit (the revenue from the $100/student) worth the cost (in student-parent hostility at a mid-year $100 add-on).

However, in the necessary spirit of compromise in putting together a package that spreads the burden among the beneficiaries, a $100 contribution, that is a surcharge rather than a permanent increase, and one that enables the Regents to reach the universities' $59.8 million share of the necessary State-wide budget cuts by putting 10% of it ($5.7 million) on students, it really can't be dismissed as an unreasonable part of the package. My position is not dissimilar to that of Regents' President Miles: "“I do not favor the idea of a $100 surcharge for our students at this late a date,' Miles said. 'But I think it’s reasonable.'” "Regents support surcharge," Daily Iowan, October 29, 2009.

Capital Expenditures. I have also noted the difficulty of imposing salary and benefit cuts, and layoffs, while continuing capital expenditures at the UI that cost roughly as much as all the required budget cuts for the three universities combined ($60 million for a UIHC computer system that has had a bad track record at other institutions and requires a $250,000 administrator to watch over it; a $47 million refurbishing of the Carver Hawkeye Arena). Here again, President Mason is proposing to cut some $5.1 million in building proposals as a part of her total budget cutting efforts. "Mason outlines cuts for UI," Daily Iowan, October 29, 2009.

Lest we be too happy about yesterday's meeting we need to recall that after this year's $600 million cut in State funding comes next year's projected $1 billion cut. So long as the federal government refuses the only surefire way to increase consumer spending (in an economy 70% driven by consumer spending) -- keeping home dwellers in their homes, and starting a federal WPA-CCC-style jobs program -- unemployment/underemployment will continue to increase or, best case, hold steady, this "recession" will continue, Iowa's tax revenues will continue their decline, and the economic pain for all will only increase. Javier C. Hernandez, "Day After Rally, Stocks Retreat on Consumer Weakness," New York Times, October 30, 2009 ("On Friday [Oct. 30], the Commerce Department reported that consumer spending in September dropped by the largest amount in nine months, a dreary data point that . . . reinforced the slow, halting recovery of the United States economy.").

There are many more rewarding investments for that multi-trillion-dollar debt Washington is passing along to my great grandchildren than handing it over to the guys who created the problem -- but then, I guess the two-year-old really has been rather miserly with his campaign contributions.

I suffer no illusion that any of the decisions made by the State universities presidents, or the Board of Regents, came about as a result of entries in this blog. But given the extent to which what was done was consistent with what I was urging be done, the only decent option open to me at this point is to give all of them some credit for an exceedingly difficult job relatively well done -- along with a "thank you."

Yesterday the Regents dropped the soft, cloth house slipper. When "the other shoe" drops it, and we, may make a little louder sound.

My sources:

Staci Hupp (with contributions from Jason Clayworth, Gunnar Olson and B.A. Morelli), "University employees spared from layoffs," Des Moines Register, October 30, 2009;

B.A. Morelli, "Regents approve UI tuition surcharge; Layoffs not totally off the table," Iowa City Press-Citizen, October 30, 2009;

"Mason turns down bonus pay," Daily Iowan, October 29, 2009;

"Regents support surcharge," Daily Iowan, October 29, 2009;

"Mason outlines cuts for UI," Daily Iowan, October 29, 2009.

[When this entry was written the online Daily Iowan for today was not yet available. Now that it is, the following should also be listed:

Emily Busse, "Board of Regents Approve UI Budget Plans," Daily Iowan, October 30, 2009, p. A1;

Editorial, "UI Admins Should Share the Budget Burden," Daily Iowan, October 30, 2009, p. A6;

Tom Moore, "Students Must Take Some of the Burden with Budget Cuts," Daily Iowan, October 30, 2009, p. A6.]
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson
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Anonymous said...

No UI employees should believe that the sacrifices are real until the Presidents sells off her country club. The purchase should have never been made. It didn't make sense back then and it certainly doesn't make sense now. Now we have lifeguards and tennis coaches with salaries and benefits that are much greater than before. How much money has been dumped into the remodel? Sacrifice? My ass.

Anonymous said...

The disingenuous PR statement of a 2% cut to retirement should be emphasized and humiliated. AS Nick point out, it is a 20% University cut to retirement bennies. Overall, it is an effective a 15% cut in retirement bennies.

One can talk about percentages, however real money is not handed out in percentages. If the 450,000 University President and the 40,000 University instructor take 10% pay cuts -- equal equal equal...the President walks away with 405,000 a year, while the instructor now has to survive with 36,000. Who suffers the most? (It isn't the person living in the free mansion)

Obviously any statement that this helps the economy is BS. The instructor is going to come up with that extra 4000.00 (which could be house payments or rent) from exactly where? Does she reduce hours to get an outside job? Does she cut back on food? No and maybe.

That University President is going to suffer ALMOST NO impact. Will she reduce her fine dining and entertainment on a budget of 405,000? No.

Lets take this out over 5 years to examine the magnitude...saying these are permanent The University President will make $2,025,000 dollars in which to squeeze out a few hamburgers and eggs having lost $225,000.

The instructor may work harder for $180,000, having lost "only" 20,000. That 20,000, although much smaller than the sacrifice of 225,000 for the President may prevent a family from buying a house.. a very significant affect on the economy.

University Presidents are quite generous sounding at this point, because they understand the gravy train, and that a temporary setback isn't really going to affect their lifestyle. Before we go anointing them for sainthood let's understand that this may mean they cannot pay off the second home in Cape Cod earlier than thought.

An across the board 100 tuition increase is REGRESSIVE. Live with that poor students.

Anonymous said...

It is priceless that Michael Gartner and Ruth Harkin wanted further reductions to retirement accounts.

Harkin doesn't even live in the state, and makes about 400,000-500,000 (minimum from Conoco Phillips).

Gartner wasted millions on his failed presidential coup at the Univ of Iowa.

These two are Vilsack political appointees who are in touch with the universities about as much as they are in touch with poor people (or in Gartner's case, with assaulted women, whose names he wants to publish in his newspapers)

anyman13 said...

One additional note on TIAA/CREF contributions. The University side of the contributions are capped at $32,666 for employees hired prior to 1/1/96 and 24,500 after 1/1/96. Therfore President Mason will be going from 24,500 annually to 19,600 for a decrease of $4900. This is per information at:

under Maximum Eligible Salary. Still a sacrifice but not quite as large of one.

anyman13 said...

Sorry that the entire IP address does not print out. It would be

Hopefully this makes it.

Anonymous said...

The other thing that has not been published is that these cuts are not over. ISU's plan leaves 55% of the cuts up to the separate colleges. So, the big ax has not fallen, yet.

ISU's faculty, as a whole, are paid the least of their cohort. The committee on compensation's report (download here:
says that ISU faculty were paid less in 2008, compared to faculty at peer institutions, than in 1998.

The Humanities folks, the ones who teach writing and other mandatory courses, are paid 17% less than the peer group. Salaries are not keeping up with the cost of living.

And these people are supposed to give up pay and 20% of the retirement benefits because of mismanagement? UI at least did a better job of managing the money last year than ISU or UNI.

At ISU, the president did not pull jobs directly, probably a PR move. He is going to make the deans and the department heads do that dirty work.

Anonymous said...

A reader needs to be astute to understand the ax cuts. Layoffs and firings are hedged in different terms furloughs.

There is so much story here that never comes out. For instance the UIHC wanted to start laying off nurse, with the most senior. It took the nursing union to challenge the management on that pathetic policy.

You wonder if administration actually reads the contracts, or if t hey read it, pays any attention to them.