Iowa's Economic Foundation? Graduate Education & Research

May 5, 2014, 3:30 p.m. [with related subsequent additions as the story evolved]

What is it with the Regents and the University of Iowa?

If you think education's expensive
Just wait 'til you start paying for ignorance

-- bumper sticker

Executive Summary: It costs much more to educate graduate students, especially those entering the professions, than to educate undergraduates. (For example, in allocating money to the University of California, the State's formula provides appropriations for dental students that are five times those for undergraduates). In the past, although the Regents have not formally recognized these disparities as such when allocating appropriations among the State's three universities, the formula it has applied had the effect of going part way in that direction (see paragraph 5 of text, below).

A Regents' committee is now recommending that (a) the disparity be removed entirely (providing the same amount, per student, for professional and graduate students as for undergraduates), and (b) that the allocation be provided only for students who are Iowa residents.

The effect of this proposal is to substantially underfund, and thereby weaken, the State's flagship, nationally recognized research university, the University of Iowa. Thus, if this new formula is adopted by the Regents, not only will it necessitate reducing the quantity and quality of education received by Iowans (and others) at the University (including undergraduates), it will also reduce the economic contribution of the University to the economy of Iowa -- currently estimated to be in the range of $6 billion a year.

There are five major sub-heads below, in bold. Scroll down to those that most interest you if you wish:

What the Regents' Committee is Proposing

What's Wrong With This Proposal? Its Adverse Impact on Quantity and Quality of Education

Weakening the University of Iowa Necessarily Reduces Its $6 Billion Annual Contribution to Iowa's Economy

What is the Economic Impact of the University of Iowa -- Now Threatened by the Proposed New Budget Formula?

Conclusion

And see Note, below.

A column drawn from this blog essay appeared in the Iowa City Press-Citizen May 16, and is available below: Nicholas Johnson, "What Is It With the Iowa State Board of Regents?!" Iowa City Press-Citizen, May 16, 2014, p. A7 (along with links to related material on that day's page of the paper).

And on another allegation: Are UI's entering students sufficiently "welcomed" and "comfortable"? Regents' president Rastetter charges they're not.

Finally, for some serious comment about the economic and other value of fully funding higher education -- set in an editorial cartoon format -- don't miss "Silhouette Man Wonders WTF Is Wrong With Americans." _______________

Now that we're producing more dirty oil in the U.S., and moving it with tanker cars poorly designed for the journey, every once in a while they leave the tracks, causing massive fires and rivers polluted with “blobs of black glue” (in this case from highly toxic and explosive Bakken Crude from North Dakota). Paresh Dave, "Oil tanker train derails in Lynchburg, Va., triggering fire and spill," Los Angeles Times, April 30, 2014 ("Wednesday’s fire is the latest in a series involving trains carrying crude oil as the nation’s drilling boom fuels a surge in oil transportation"). [Photo source unknown.]

What the Regents' Committee is Proposing

That's kind of what happened last Monday [May 5] when the Board of Regents budget model committee jumped the tracks. The difference is that an oil spill and polluted river can be cleaned up -- sort of. The kind of economic damage to be done by the committee's budget model will still be hurting Iowans decades from now.

What the committee thought, or at least said it was doing is "performance-based funding" -- higher education's "flavor of the month" these days. I will leave to others an evaluation of this philosophy in general and what some may view to be the committee's application of it to 40% of the State's appropriations for Iowa's three Regents' universities in particular.

What I want to address is the 60% of what it did that is not, by any standard, "performance-based funding."

In the past, legislative appropriations for the three universities were divided 42% for the University of Iowa, 42% for Iowa State University, and 16% for University of Northern Iowa. The new formula will allocate 40% of the money according to "performance" regarding such things as graduation rates, degree progress, and job placement. [Former Dean Fethke asserts that "Taking cost differences into account, if the annual regent allocation to the UI, ISU and UNI were based on their reported relative costs per full-time student, the budget split would be 45-29-26, respectively." Gary Fethke, “One Size Doesn’t Fit All for Regent Schools,” Des Moines Register, May 9, 2014, p. A15.]

However, the Register reports, "The budget model the group proposed would consider above all the enrollment of Iowa residents in full-time degree programs in each of the three universities." That is, "60 percent [of the entire legislative appropriation would be allocated among the three universities on the basis of their percentage of the total number of Iowans enrolled in all three schools combined, including] resident full-time students in undergraduate, graduate and doctoral/professional degrees." Sharyn Jackson, “University funding plan focuses on Iowa students,” Des Moines Register, May 6, 2014, p. A7.

What's Wrong With This Proposal?
Its Adverse Impact on Quantity and Quality of Education

It's self-defeating; economically an assault rifle in the foot. Face it, Iowans make up roughly 1% of our nation's population. Our universities benefit from the higher tuition paid by international and out-of-state students. To the extent the Regents' universities are provided incentives to admit more Iowans, total tuition revenues will decline, ultimately leading to upward pressure on in-state tuition rates.

Iowa's economic growth requires immigration. "'For us as a state, not to have a strategy to continue to try to attract top global talent, we are not putting ourselves in a strong position for the future,' said Jay Byers, chief executive officer of the economic-development agency Greater Des Moines Partnership. 'We are a nation, we're a state, we're a region of immigrants, but (had it not been) for immigration over the last decade, the state of Iowa would have lost population. "Stemming the Shortage of Highly-Skilled workers in The Corridor, Nation; Immigration Already Has Hit Its Cap for H-1B Visas for the Year," The Gazette, August 25, 2013; updated March 28, 2014.

Diversity helps prepare Iowa's young for today's global economy. Exposure to a wide variety of individuals is a significant part of a young Iowan's education at our universities. Students from other countries and regions of our country, various socioeconomic levels, different races, ethnicities and languages, among other things, enrich education. Funding limited to Iowa residents provides incentives to our universities to cut back on the admission of out-of-state and international students.

This narrow world view of what's relevant for Iowans is illustrated in a "Non Sequitur" cartoon published the week following this blog essay.

[Cartoon credit: Wiley Miller, "Non Sequitur," May 12, 2014, gocomics.com/nonsequitur.]

The Board of Regents' equivalent to the parochial view of New Yorkers would be a worldview represented by a wall of clocks displaying the time in Sioux City, Des Moines, and the Quad Cities.

Aren't the Regents interested, at least in large measure, in promoting Iowa's economy by increasing the number of well educated Iowa residents who can help create jobs, or at least fill those going wanting for lack of highly skilled applicants? If so, would they rather the University educate native-born Iowans who then leave the state for more lucrative jobs elsewhere, or out-of-state students who want to come here so badly that they are willing to pay the out-of-state tuition and then stay here after graduation? Iowa's President Sally Mason says 40% of our out-of-state students do stay here. Think about it. O. Kay Henderson, "Mason says 40 percent of out-of-state students stay in Iowa after graduating," Radio Iowa, May 12, 2014.

It fails to take into account differences in the universities' entrance requirements. The University of Iowa requires that entering students have either taken itemized basic courses before coming to Iowa, or that they take remedial instruction in those areas at Iowa before graduating. It is my understanding that Iowa State does not have these requirements, and that the University of Northern Iowa has lower entrance requirements generally. Thus, unless the University of Iowa is willing to lower its expectations and entrance requirements it will be at a substantial disadvantage in recruiting entering undergraduates from Iowa in competition with Iowa State and UNI.

Graduate education and research is more expensive than undergraduate. There's a limit to how much a potential surgeon or dentist can learn by sitting in a 300-student lecture hall. Indeed, regardless of the subject matter, graduate and professional student education necessarily involves a lot of one-on-one and small group time with professors and researchers -- as well as often very expensive facilities and equipment. As noted above, Dean Fethke notes that for dental students this can run five times the cost of educating undergraduates.

Research and other grants go to top schools. Major government and foundation grants are not spread equally among all the nation's colleges. They go to the top research universities. The University of Iowa is one of them. To continue as such it needs the kind of funding that can attract, and then hold, top faculty in all departments. A funding formula that is (a) limited to Iowans, and (b) treats undergraduates and graduate/professional students as equivalent, is either designed to destroy the school's reputation and role, or the product of ill-considered policy. The money the University of Iowa brings into the state is very closely related to the quality of the faculty and their research. So cutting support there is definitely a foot shooting exercise.

Weakening the University of Iowa Necessarily Reduces Its $6 Billion Annual Contribution to Iowa's Economy
The University of Iowa is an economic engine for this state. It is exactly what our economy needs. We don't have a shortage of jobs for our most creative highly skilled workers. We have a shortage of workers adequately educated for the jobs that are available for those with such abilities in this highly competitive information age.

"As rising unemployment and layoffs beset workers around the country, Iowa faces a different problem: a surplus of jobs. Or to put it another way: a shortage of workers. A survey of companies by Iowa Workforce Development, a state agency, found as many as 48,000 job vacancies, in industries including financial services — Des Moines trails only Hartford as the nation’s insurance capital — health care and skilled manufacturing. One estimate projects the job surplus to reach 198,000 by 2014, with vacancies increasingly in professional positions. Greater Des Moines alone faces a shortfall of 60,000 workers in the next decade.

"The state provides a small, advance view of what some economists predict will be a broader shortage of skilled workers in the next 20 or 30 years, as tens of millions of baby boomers retire from the workplace, and the economy produces more new jobs than workers. Potential consequences include slower economic growth and competitiveness, as well as higher wages for skilled workers and greater inequality."

John Leland, "As Iowa Job Surplus Grows, Workers Call the Shots," New York Times, May 31, 2008.

"How did we go from the Great Depression to 30 years of Great Prosperity?" former Secretary of Labor Robert Reich asks. Robert Reich, "How Our Prosperity Became Stagnation," Des Moines Register, May 29, 2011, p. OP1 (no longer available online). "Government . . . widened access to higher education. The GI Bill paid college costs for those who returned from war. The expansion of public universities made higher education affordable to the American middle class. . . . Government could have enforced the basic bargain. But it did the opposite."

Public universities -- like the evolution of public K-12 schools centuries before -- were created to provide free or radically reduced-cost higher education to the people of their states, out of an awareness of the relationship between education, economic growth and quality of life.

How did California became the seventh largest economy in the world? It was in large measure because of its three systems of free education for Californians: the universities of California, the California state universities, and its community colleges -- similar to the way, as Robert Reich notes, the entire nation enjoyed the economic boost provided by the GI Bill that brought World War II veterans to the University of Iowa campus for a free education when I was growing up in Iowa City.

What is the Economic Impact of the University of Iowa -- Now Threatened by the Proposed New Budget Formula?
The positive economic impact of the University of Iowa on every Iowan is huge. See the the Tripp Umbach study, "University of Iowa Economic Impact Study; Fiscal Year 2008-2009," September 30, 2010.

"More than 30,000 students enroll at the University of Iowa each year. Some 58 percent come from Iowa, 25 percent from adjoining states, and 9 percent from the remaining states. International students from 104 countries make up 8 percent of the University’s enrollment. The UI educates many of the state's professionals: 79 percent of Iowa's dentists, 50 percent of Iowa’s physicians, 48 percent of Iowa's pharmacists and teachers and administrators are present in 80 percent of Iowa’s K-12 school districts." Id. at 3. Not incidentally, given the proposed budget model, "more than $143.7 million in fresh dollars entered the state of Iowa in the form of tuition from out-of-state students [with] a total impact on the state of Iowa of $380 million." Id. at 5.

Beyond the human capital, the direct and indirect contributions to Iowa's economy are enormous -- "$1.00 of every $30.00 in the Iowa economy is supported by the University of Iowa." Id. at 4.

According to Tripp Umbach, the University of Iowa Annual Impact on the Iowa Economy (explained more fully in its report) includes:

o $6.0 billion in total economic impact generated by UI operations in the state of Iowa

o $1.4 billion in total University-related spending (capital and goods and services)

o 51,818 jobs created in the state of Iowa as aresult of the UI

o $429.5 million in external sponsored research, supporting more than 6,275 jobs ["Iowa ranks 20th among public universities in federal research and development funding." Id. at 8. "These [6,275 research-related] jobs include not only direct employment by the University of Iowa research professionals (2,510 direct FTEs) but also indirect jobs created for supply and equipment vendors, contractors, and laborers for the construction and renovation of laboratory facilities, administrators and managers who support the research infrastructure, and jobs created in the community by the disposable income of the scientific workforce. Id. at 10. "Public research universities such as the University of Iowa stimulate economic development and extend the benefits of learning and discoveries to the citizens of the community, region, state, nation, and world. University-based research has proved to have a substantial and measurable affect on business formation and economic development. Research performed by Adam Jaffe at Harvard found that “. . . a state that improves its university research system will increase local innovation both by attracting industrial R&D and augmenting its productivity.” Id. at 11, citing Jaffe, Adam B., “Real Effects of Academic Research,” American Economic Review, March 1991, pp. 957-970.]

o $208.1 million in direct and indirect expenditures associated with people visiting UI

o $486.9 million to state and local government taxes, including sales, property, and business

Id. at 2.

In addition, the Tripp Umbach study estimates the economic value of voluntary contributions that benefit the state:

o 2009, UIHC provided more than $232.5 million in care to Iowa state residents for which it did not receive full compensation (charity care or bad debt).

o UI staff, faculty, and student employees donated $24.8 million in 2009 to local charitable organizations.

o UI staff and faculty provide hours of volunteer services. The economic value of such services is estimated at more than $17.0 million.

o UI students (undergraduate and graduate) also provide benefits in the form of contributions to local charities. It is estimated that the students donate nearly $6.5 million to local charities and that their volunteer activities are valued at nearly $20.5 million. These dollars are in addition to the [$6 billion] economic impact outlined above.

Id. at 13.

Conclusion
The Board of Regents, and its committee, probably have the legal right to ignore the University of Iowa's educational, research, and economic contribution to the state. They can work their will in dismantling it, by failing to take into account in budgeting the significantly higher costs associated with graduate and professional education and research. I haven't pursued the legal implications. But the thinly veiled consequences of this budget formula will cost every Iowan many multiples of any savings.

It is the Iowa Legislature, the Board of Regents, and its budget model committee -- not the universities -- that have made the decisions to abandon what Reich calls "the basic bargain." It is they who, by radically reducing the percentage of public support of higher education, have necessitated the escalating cost of Iowans' tuition.

Tripp Umbach reports that "In FY 08-09, the University of Iowa received $379.4 million in appropriations from the state of Iowa. For every $1 invested in the University of Iowa by the state, $15.81 is generated in the state’s economy. The total UI operation budget for FY 08-09 was $2.68 billion." Id. at 5. Thus, this public university, formerly named the State University of Iowa, received only 14% of its financial support from the State -- making it more like a private, than a public university, with tuition to match.

In short, like Walt Kelly's character in the comic strip "Pogo" once observed, "We have found the enemy and he is us" -- us and those we have chosen to elect as our governor and legislators (and the Regents they appoint), who have refused to provide adequate public support for what has been historically recognized as an enviable and productive American public good, and the graduate education and research foundation upon which a prosperous Iowa economy can be built.
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Note: Let me make unambiguously clear at the outset that (a) whatever may be the outcome of the University of Iowa's funding will not affect me personally -- financially, professionally, politically, or socially -- any more than its impact on every other citizen of the state, and (b) I have not communicated or consulted with, or been informed or advised by anyone in the University's central administration, nor have they -- or anyone at the law school -- seen this before it was posted. The information contained here comes from the Des Moines Register's coverage of the story [Sharyn Jackson, “University funding plan focuses on Iowa students,” Des Moines Register, p. A7, May 6, 2014], and the opinions expressed are solely my own.

This essay focuses only on higher education. It is in no way intended to minimize the importance of early childhood, K-12, community college, and four-year programs -- all of which I have strongly supported in the past, especially community colleges. This essay's message is simple: If Iowa is to continue to receive the enormous benefits that a nationally-recognized major research university can provide (including the added benefits to the Iowa undergraduates who are there), it must be funded in a way that recognizes the disparity in costs between undergraduate and graduate/professional education.

Four days after the posting of this blog entry on May 5, the former Dean of the Tippie College of Business and Interim President of the University of Iowa, Gary Fethke, published his take on these issues. Gary Fethke, “One Size Doesn’t Fit All for Regent Schools,” Des Moines Register, May 9, 2014, p. A15. Totally consistent with this blog essay in tone and ultimate position, it contains more factual detail about costs per student, tuition, and appropriations, and fewer of the other arguments put forth here.

The May 12 Daily Iowan ran a "Guest Opinion" column signed by 13 very distinguished members of the University of Iowa faculty, each of whom had served one or more terms as president of UI's Faculty Senate. "New funding model hurts UI," The Daily Iowan, May 12, 2014 ("The recent recommendation by the Performance-Based Revenue Model Task Force of the state Board of Regents to allocate legislative funding largely on the basis of undergraduate Iowa residents enrolled would prove devastating to the University of Iowa. If fully implemented, the recommended revenue model would slash our annual legislative-general-fund appropriation by nearly $60 million, with those funds being reallocated to the other two schools.").
-- Nicholas Johnson

What Is It With the Iowa State Board of Regents?!
Nicholas Johnson
Iowa City Press-Citizen
May 16 2014, p. A7
What is it with the Regents and the University of Iowa?

An earlier Board ran off one of the most competent university presidents in the nation, who was quite willing to stay. (He had to settle on the presidency of one of the nation’s most prestigious universities at three times the salary, and is now president of the Smithsonian Institution.)

The Register editorialized March 8 that, “The Iowa Board of Regents took [UI President] Sally Mason to the woodshed last week” for lack of communication -- when it was they who cancelled the meetings she had requested.

Later that month, believing this efficient and innovative University needs to be more so, it hands over $2.5 million to a consultant. “UI Says, ‘Deloitted to Meet You,’” http://fromdc2iowa.blogspot.com/2014/03/ui-says-deloitted-to-meet-you.html. ("Consultants borrow your watch to tell you the time; then they walk off with your watch.")

In their latest episode of “Can You Top This?” they have a committee proposing a new “budget formula” to transfer money away from the University of Iowa to Iowa State and the University of Northern Iowa. Although they refuse to release the proposal, the Register reports [May 6] the formula funds graduate and professional students equally with undergraduates, and only funds students from Iowa.

Memories of Peter Yarrow’s March 9 Englert Theater rendition of “when will they ever learn” flows “gentle on my mind.”

As soon as I heard the May 5th news of this latest IED the Regents left along the road to Iowa City, I laid out some of its problems in “Iowa's Economic Foundation? Graduate Education & Research,” http://fromdc2iowa.blogspot.com/2014/05/iowas-economic-foundation-graduate.html.

The short answer, of course, is that graduate and professional education costs much more per student than undergraduate education. For example, California’s “budget formula” appropriates five times as much for each dental student as for undergraduates.

Later, former Dean Gary Fethke added supporting detail of these cost disparities (“Regent System Shouldn’t Be One-Size-Fits-All,” May 10), followed by 13 former Faculty Senate presidents’ letter.

The proposal will necessitate reducing the quantity and quality of education received by Iowans (and others) at the University (including undergraduates). But its negative impact will not be limited to the UI’s students, staff and faculty. It will harm all Iowans by, among other things, reducing the University’s economic contribution to Iowa’s economy -– currently roughly $6 billion a year.

What else is wrong with this proposal?

The adage is right: “You get what you measure.” The proposal bases UI’s share of appropriations on Iowans, without regard to their disparate costs of education. That’s an incentive to compete for undergraduate Iowans by lowering admission standards, minimize professional and graduate students, and turn away international and out-of-state students who actually pay higher tuition. Why reject that 40% of non-residents who choose to come to, and then stay in, Iowa?

Besides, exposure to a wide variety of individuals is a significant part of a young Iowan's education at our universities. Students from other countries and regions of our country, various socioeconomic levels, different races, ethnicities and languages, among other things, enrich education.

In addition to the UI’s $6 billion contribution, what Iowa’s economy needs is not only more jobs, but more UI grads who can create jobs, and fill those going wanting for lack of highly-skilled applicants.

Major grants go to top research universities. The UI is one of them. To continue as such it needs to attract, and hold, top faculty. The near-half-billion UI receives in research grants is not inevitable. A funding formula that ignores this income is a foot shooting exercise.

Regents, however you feel about the University of Iowa, consider Iowa’s economy. Graduate and professional education is its foundation.
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The existence and content of this column is solely the responsibility and opinion of Nicholas Johnson of Iowa City. It has not previously been seen by any University of Iowa-affiliated person.

Related material on that day's [May 16, p. A7] opinion page includes the letter from 13 UI faculty members who were former presidents of the UI's Faculty Senate, "'One Size Fits All' Funding Undermines UI's Mission" ("Each school has its own unique identity and mission. Why not continue to respect and celebrate those differences"), linked above to another source, and the paper's Editorial Board "Our View" editorial, "Do the Regents Not Want UI to be Research I?" ([Board of Regents President Bruce] Rastatter basically considers UI to be a third-rate university -- at least, in his words, to be the third choice among Iowas residents. . . . Hopefully [the two columns on that page] will be more effective than we were in explaining to the regent president how UI's mission necessarily differs from those of Iowa State University and the University of Northern Iowa").

Regents' President Rastetter Charges UI Not "Welcoming"

Iowa Board of Regents President Bruce Rastetter has been quoted as believing that "Iowa typically has come in third as a choice for college of Iowans. We consistently hear from parents that they don't feel as welcomed . . . here as they do at ISU and UNI. Parents want to know that their kids are going to feel comfortable and that they are wanted." Sara Agnew, "Rastatetter: Kids Say UI Not As Welcoming; More Iowa Students Picking ISU or UNI," Iowa City Press-Citizen, May 15, 2014, p. A1.

It prompted me to put the following "comment" on the paper's online version of the story:

A relief to read our observations about the different costs of educating graduate/professional students and undergrads is seeping into Regents' thinking. [Agnew reported, "Rastetter acknowledged that the metrics of the proposed funding model should be adjusted to accommodate the large number of graduate and profession degree students at UI." Id., p. 6.] But problems remain. See, "Iowa's Economic Foundation."

1. As for UI applicants "feeling welcome," someone needs to research and print, or put a comment up here, regarding the detailed differences in entrance requirements between the three schools. My impression is that Iowa requires students to take some relatively more difficult courses, if not in high school then before graduating from UI, that ISU does not, and that UNI requires even less. If that's not correct I apologize in advance. If correct, I can see why some students might prefer UNI or ISU over UI. The less that is expected of a student the more comfortable they may feel.

[I subsequently researched this and concluded, "The admission course requirements (for liberal arts students) at the three universities for Science, Math and Social Studies are relatively equivalent, essentially three years of each, and four of English. UNI's requirements are marginally more flexible on English (speech, communication, and journalism can count) and Science (for which "general science" counts).

Foreign language is the major difference. UI requires four years of a single language for graduation in Liberal Arts and Sciences, Business, and Nursing. Iowa State only requires two years of a single foreign language. And UNI applicants need only complete two years of high school foreign language with at least a C- in their second year.

Sources: University of Iowa. As a research university with a number of professional colleges, UI's admission standards vary between colleges. But here are the UI's "Minimum High School Course Requirements" for the Colleges of Liberal Arts & Sciences, Business, Engineering, and Nursing.

Iowa State University. "Admission Requirements."

"UNI Freshman Admission Requirements".]

During this Press-Citizen online exchange, in response to my suggestion that the UI might have higher entrance requirements than Iowa State and UNI, a reader wrote, "Nicholas, that is not correct. ISU, Iowa and UNI all require a minimum of 245 on the Regents Admission Index (RAI) for admission. www.regents.iowa.gov/RAI/."

However, this morning [May 16] I received a comment from an official in a position to know that "the 245 RAI requirement is not a 'real' admission requirement. All three institutions can admit students below that threshold and, not surprisingly, ISU and UNI accept a lot more students below that threshold. If you go to the regents report at http://www.regents.iowa.gov/Meetings/DocketMemos/13Memos/October2013/fall2013enrollmenttables.pdf and scroll down to page 83, you'll see that Iowa's class this year of in-state students had 3.3% of students below the 245 RAI requirement. ISU had 7.8%. UNI had 15.4%. Iowa could accept more students below the 245, but we've chosen not to. The RAI is relatively new and it's 'interesting' that ISU and UNI have chosen not to adhere to it from the start (the previous 3 year of data are on pages 80-82)."

2. If anecdotal assertions regarding student happiness are to be our standard, my personal response when I see two parents and what appears to be their child looking lost on campus is to approach them, introduce myself, and take time to give them a bit of a tour. More than once has that child shown up at my office the following fall, recalling that experience. I can't believe I'm the only one doing that.

3. We have two good universities for undergraduate Iowans -- ISU and UNI. UI can also perform that function -- and as well. But that's not its primary strength and contribution to providing Iowa's towns with their doctors, dentists, lawyers and other professionals. That's not its primary contribution to Iowa's economy as one of our nation's major research universities. Of course, the UI can lower its undergraduate entrance requirements, pursue, enroll and educate more undergraduates. But is that really what the Regents should want?
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# # #

You're Worth Even More Than You Think You Are

December 14, 2009, 6:15 a.m.

Tying Pay to Social Value
(brought to you by FromDC2Iowa.blogspot.com*)

"There should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that."
-- Eilis Lawlor, New Economics Foundation

Not that you've ever doubted it, I suspect, but it really does turn out that the folks who clean our hospitals are making a greater economic contribution to our society than bankers. At least that's what the New Economics Foundation has asserted and documented in a report this morning.

For the past 75 years the non-profit, independent Consumers Union, with its subscriber-supported, advertising-free Consumer Reports publication and online service, has been putting the lie to the old adage "you get what you pay for." You don't. If you're interested in the quality of products, their life expectancy, repair bills, and number of consumer complaints, you're more likely to find the answer by looking at the Consumers Union laboratory results than by looking at the price tags on the products.

This morning the New Economics Foundation (NEF) documents what many of us have suspected all along. Susan Steed, Helen Kersley, Eilis Lawlor, "A Bit Rich: Calculating the real value to society of different professions," New Economics Foundation, December 14, 2009.

It turns out that it's also a lie that we get what we, as a society, are paying for labor. Some of those who are paid the least are actually creating more social and economic value than some of the administrators and professionals -- including the Wall Street bankers -- who are paid the most. Not only is it not true that "you get what you pay for," you may very well "give more than what you're paid for" as well.

"If You Can't Trust Your Banker . . ."

[Credit: "Shady Deal at Sunny Acres," Maverick, 2nd Season, 1958. The popular early television series, Maverick, "starring James Garner and Jack Kelly, remains the most famous and widely discussed episode of the Western comedy television series Maverick. Written by Roy Huggins and Douglas Heyes and directed by Leslie H. Martinson, this 1958 second season episode depicts gambler Bret Maverick (James Garner) being swindled by a crooked banker (John Dehner) after depositing the proceeds from a late-night poker game, then recruiting his brother Bart Maverick (Jack Kelly) to mount an elaborate sting operation to recover the money." It's also the source of two oft-quoted lines: "If you can't trust your banker, whom can you trust?" and "I'm working on it." See, "Shady Deal at Sunny Acres," wikipedia.org.]

As the NEF reports, "Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate." (This calculation looks back over 20 years and even credits the bankers with the taxes they paid over those years.)

Because the NEF is a British think tank all its numbers are in British pounds rather than dollars. I'm not going to convert all of them in this blog entry. If you want to do a rough conversion in your head as you read, assume a multiplier of 1.5 -- for example, 10 British pounds (£) would be the equivalent of 15 U.S. dollars ($). (The actual exchange rate has been bouncing around 1.4 to 1.7 for the past year.)

Here's how the NEF introduces its report:

This report takes a new approach to looking at the value of work. We go beyond how much different professions are paid to look at what they contribute to society. We use some of the principles and valuation techniques of Social Return on Investment analysis to quantify the social, environmental and economic value that these roles produce – or in some cases undermine. . . .

[T]o what extent does what we get paid confer ‘worth’? Beyond a narrow notion of productivity, what impact does our work have on the rest of society, and do the financial rewards we receive correspond to this? Do those that get more contribute more to society?

Our report tells the story of six different jobs. We have chosen jobs from across the private and public sectors and deliberately chosen ones that illustrate the problem. Three are low paid – a hospital cleaner, a recycling plant worker and a childcare worker. The others are highly paid – a City banker, an advertising executive and a tax accountant. We examined the contributions they make to society, and found that, in this case, it was the lower paid jobs which involved more valuable work.

The report goes on to challenge ten of the most enduring myths surrounding pay and work. People who earn more don't necessarily work harder than those who earn less. The private sector is not necessarily more efficient than the public sector. And high salaries don't necessarily reflect talent.

The report offers a series of policy recommendations that would reduce the inequality between different incomes and reconnect salaries with the value of work.

The full report is available as a printed document and also as a pdf file from the link, above -- though of course the NEF server is so overloaded this morning that you may need to wait to get it.

Here's some of what the BBC had to say about it this morning. Martin Shankleman, "Cleaners 'worth more to society' than bankers - study," BBC News, December 14, 2009.

The research, carried out by think tank the New Economics Foundation, says hospital cleaners create £10 of value for every £1 they are paid.

It claims bankers are a drain on the country because of the damage they caused to the global economy.

They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to "create stress".

The study says they are responsible for campaigns which create dissatisfaction and misery, and encourage over-consumption.

And tax accountants damage the country by devising schemes to cut the amount of money available to the government, the research suggests.

By contrast, child minders and waste recyclers are also doing jobs that create net wealth to the country.

The Foundation has used a new form of job evaluation to calculate the total contribution various jobs make to society, including for the first time the impact on communities and environment.

Eilis Lawlor, spokeswoman for the New Economics Foundation, said: "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit rather than those that generate profits at the expense of society and the environment".

She said the aim of the research was not to target individuals in highly paid jobs, or suggest people in low paid jobs should earn more.

"The point we are making is more fundamental - that there should be a relationship between what we are paid and the value our work generates for society. We've found a way to calculate that," she said.

A total of six different jobs were analysed to assess their overall value. These are the study's main findings:

* The elite banker

"Rather than being wealth creators bankers are being handsomely rewarded for bringing the global financial system to the brink of collapse

Paid between £500,000 and £80m a year, leading bankers destroy £7 of value for every pound they generate".

* Childcare workers

"Both for families and society as a whole, looking after children could not be more important. As well as providing a valuable service for families, they release earnings potential by allowing parents to continue working. For every pound they are paid they generate up to £9.50 worth of benefits to society."

* Hospital cleaners

"Play a vital role in the workings of healthcare facilities. They not only clean hospitals and maintain hygiene standards but also contribute to wider health outcomes. For every pound paid, over £10 in social value is created."

* Advertising executives

The industry "encourages high spending and indebtedness. It can create insatiable aspirations, fuelling feelings of dissatisfaction, inadequacy and stress. For a salary of between £50,000 and £12m top advertising executives destroy £11 of value for every pound in value they generate".

* Tax accountants

"Every pound that a tax accountant saves a client is a pound which otherwise would have gone to HM Revenue. For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound they generate."

* Waste recycling workers

"Do a range of different jobs that relate to processing and preventing waste and promoting recycling. Carbon emissions are significantly reduced. There is also a value in reusing goods. For every pound of value spent on wages, £12 of value is generated for society."

The research also makes a variety of policy recommendations to align pay more closely with the value of work.

These include establishing a high pay commission, building social and environmental value into prices, and introducing more progressive taxation.

I'm sure that before the sun sets this evening the bankers' economists, publicists and lobbyists will be doing their best to counter this awful truth. Meanwhile, there may be something here of use to Governor Culver and the Board of Regents.

Could it be that the greatest value to the State of Iowa might be to keep the cleaning crews on the payroll (and in fairness give them a raise) and get maximum savings from layoffs by getting rid of administrators?
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For the recent blog entries you may be looking for, go to "There Is No War in Afghanistan," December 4, 2009, and look through the links at the bottom of that blog entry.
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* 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
# # #

Cutting Slack, Cutting Budgets

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

Regents, University Presidents, Deserve Some Thanks and Credit
(brought to you by FromDC2Iowa.blogspot.com*)
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.]
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* 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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Board of Regents and School Board's Boundaries

October 29, 2009, 9:15 a.m.

It's Been a Weird Week in Lake Woebegon
(brought to you by FromDC2Iowa.blogspot.com*)
The big news today for many readers of this blog will be whatever comes out of the Board of Regents' meeting in Cedar Falls today regarding budget cuts at the three State universities. Staci Hupp, "Regents, presidents to discuss budget cuts today," Des Moines Register, October 29, 2009; Diane Heldt, "Regents open to large-scale budget cuts," The Gazette, October 29, 2009, p. A1. And see Nicholas Johnson, "TARP Lessons for Iowa's Budget Cutters," October 23, 2009, with links to numerous related blog entries.

With some exceptions, during the school year I've tried to hold the blog entries to Monday, Wednesday and Friday. But this week the Spence break-in revelations, leaked out Tuesday, warranted an immediate report and comment. Nicholas Johnson, "UI Spence Break-in: Gazette Scoop Illustrates Issues," October 27. And now today the Board of Regents' actions will be the story -- but not until this evening (if I can get to it before tomorrow morning). Meanwhile, the Register and Gazette stories, linked above, give some notion of what may be coming.

Meanwhile, we can only plead with our local School Board members to reconsider their approach to the redrawing of elementary school boundaries.

School Board and School Boundaries. I've written enough op ed columns and blog entries about boundaries that a summary statement, plus these links to more, ought to be enough. For some suggestions and analysis of alternative Board approaches see the 11 blog entries linked at the end of "School Board Election: Now Work Begins," Sept. 9, especially "School Boundaries Consultant Folly," Aug. 28, and "Cluster Schools: Potential for IC District?" June 3.

1. Substantive results. Obviously, I have my own opinion about the best substantive standards. But those preferences are irrelevant to the point I want to make. I won't even comment about the rather bizarre procedure it, and the consultant, utilized to "poll" Board members rather than voting.

2. School Board flexibility. "Local control of schools" means that the Board can do virtually anything with our schools that is not prohibited by federal or state law. They can decide to let some schools sit virtually empty while others are overcrowded. They can push the disparity between schools with regard to the percentages of students in various socio-economic classes up to the limit of the law -- or try to make them more equal than the law requires. They can draw circles around each school as its boundary, or vary them somewhat to achieve a variety of goals.

3. Board must lead -- and with metrics. The Board simply must, however, go beyond the vague "prioritiz[ing of] its top criteria" reported in this morning's Press-Citizen: Josh O'Leary, "Board finalizes priorities; Not all members pleased with process," Iowa City Press-Citizen, October 29, 2009, p. A1. This is the Board's legal, managerial, and political responsibility.

For example, telling a committee of 30 that it should keep in mind the Board's "priority" of "demographic considerations" is equivalent to Congress telling the FCC in 1934 that it is to regulate radio (and then television) in "the public interest."

Continuing with the "demographics" example, within the bounds of the law the Board can choose from a range of metrics.

(a) It should start by calculating the percentage of "free-and-reduced-lunch" (FRL) students in the District-wide student population.

(b) It could then say, to state the extremes, that it wants to [1] maximize the disparity, within the limits of the law, resulting in some elementary schools with a disproportionately high percentage of FRL students, and other schools that have a disproportionately low percentage of FRL students (kind of like what we have now), or to [2] draw boundaries and/or bus students so as to make the FRL percentages equal in all schools. [3] Or it could say that all schools' FRL percentages should be within some fixed number of percentage points of each other, say 5% or 10%, or whatever other percentage it wants.

I now express no view as to which of those metrics it should choose.

But for the Board to delegate its responsibility for boundaries to a committee of unelected citizens in the form of a multiple-variable set of criteria with no algorithm, made up of vague categories with no metrics, is an abdication of its responsibility, a kicking the can down the road, a recipe for chaos and frustration, and an unconscionable imposition on the time, energy, good will and financial resources of 30 dedicated local citizens and the public at large.

Ultimately, these metrics will emerge -- either because they have, finally, been declared by the Board, or because they are evident "de facto" from the numbers that have resulted from what they've done. That being the case, the earlier on the Board puts some specific metrics on the table the better off we all will be.

Obviously, this is not to say that, having done so, the Board should be forbidden to ever change its collective mind. Quite the contrary. New data, physical impractibility, political or economic pressures may very well call for some rational modifications in the numbers from time to time.

But at any given point in time, starting now, it is the Board, and only the Board, that should be specifying the specific numbers with regard to the criteria that it, prior Boards, and I, have laid out over the years.

Having done so, it is then possible, if the Board desires, to delegate the task of alternative line-drawing possibilities to the Superintendent, a consultant, or a committee -- but not before.

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There has been very little actually done over the last 30 years with regard to meaningful curtailment of alcohol abuse by UI students. There have not even been many proposals that could have a meaningful impact were they to be adopted -- which they seldom if ever are.

This morning's op ed column by Professor Poe (which appeared earlier in the Daily Iowan) is an exception and very much worth reading. It may later call for some commentary on this blog, but not this morning.

Marshall Poe, "Are Drunk Students Kicking Down Your Door?" Iowa City Press-Citizen, October 29, 2009, p. A8.
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* 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
# # #

TARP Lessons for Iowa's Budget Cutters

October 23, 2009, 7:40 a.m.

Today's blog entry is another in a series devoted to Iowa's budget crisis and its impact on the University of Iowa. Prior entries included:

"How Many Administrators Does It Take? Administrators are Multiplying & Sucking Us Dry," July 16, 2009

"A University's Strategic Communication; A Modest Proposal to the Regents' University Presidents," October 7, 2009

"Iowa's Budget Cuts and the University; Economic Collapse Tests Moral Values," October 9, 2009.

"How to Cut Iowa's Budget; Fairness, Justice and Leadership by Example," October 15, 2009.

"UI Budget: Waivers Wave Goodbye to Savings; Consistency, Hobgoblins and Waivers," October 19, 2009

Barofsky: "Anger, cynicism and distrust [an] unnecessary cost of TARP"
(brought to you by FromDC2Iowa.blogspot.com*)
Iowa Governor Culver's axe has begun to fall. Jennifer Jacobs, "1,300 state jobs at risk in proposed cuts," Des Moines Register, October 22, 2009 ("Iowans could see fewer troopers on highways, less treatment for addictions, fewer prison guards, delays in new dental coverage for children, less child abuse prevention work, longer waits for state tax refunds, less aid for college and dozens of other impacts if the governor approves budget cuts his agency directors presented to him. State corrections and human services workers would see the brunt of the layoffs. Those departments account for nearly 600 of about 793 layoffs proposed statewide.").

Next Wednesday the Board of Regents will announce with a little more specificity how the three Regents' universities should respond to the Governor's order that they, too, are expected to further cut their state appropriations by another 10%. See Staci Hupp, "Regents propose surcharge, 6.5-percent tuition and fees increase," Des Moines Register, October 23, 2009.

What an awful, and thankless, responsibility. History records no occasion when a budget cutter's decision was greeted with a standing ovation. Usually the recipients' reactions are just the opposite. No applause; little understanding; just "anger, cynicism and distrust."

These are the public reactions the Department of the Treasury's Special Inspector General, Neil Barofsky, says the Treasury's handling of the TARP program have produced: "Treasury's actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP."

But note that while Barofsky acknowledges the public's "anger, cynicism and distrust," he says that reaction was not a necessary cost, and that it could have been avoided if the government officials involved had behaved differently.

It's a model Iowa's budget cutters would do well to study -- in order to avoid that reaction here, on the part of Iowans generally, and those associated with its universities in particular.

But first an update on another scandal and advice to Iowans on how not to do government programs, whether of largess or of budget cutting.

Wednesday I wrote about another example of Congress handing over taxpayers' money to generous campaign contributors from another sector of our economy -- the developers, contractors, home builders, real estate brokers and mortgage bankers. In addition to the trillions of dollars they already get, they are now pushing to expand and extend their version of "cash for clunkers" (without the need to come up with the clunkers): an $8000 grateful taxpayers contribution for each house sold (which they wish to expand from first time home buyers to all buyers, and from $8000 to $15,000). (Needless to say, there's no provision in this program to help those who are providing the houses through bankruptcy, foreclosure, and their willingness to live on the street.) "Housing for the Wealthy, Unemployment for the Poor," October 21, 2009.

Yesterday we learn of yet one more reason to oppose this program (a program that most economists agree is loony from their perspective as well). It turns out it's been riddled with fraud. Jackie Calmes, "Fraud Reported in Program to Help New Homebuyers," New York Times, October 22, 2009 ("Just as Congressional leaders are calling to extend a popular tax credit for first-time homebuyers, government investigators are reporting new findings that point to widespread fraud in the program. A previously undisclosed report from the Treasury Department’s inspector general said that as of Sept. 30, the Internal Revenue Service had identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations. In late July, the I.R.S. announced its first successful prosecution.").

That same Wednesday (October 21) PBS' "Frontline" revealed what those now advising the President were doing to beat back the calls for regulation during the 1990s, efforts that played a major role in creating our current economic crisis -- in the midst of which their Wall Street friends and former colleagues at Goldman Sachs are continuing to earn billions in bonuses.

"The Warning," PBS Frontline, October 21, 2009 ("'We didn't truly know the dangers of the market, because it was a dark market,' says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. 'They were totally opposed to it,' Born says. 'That puzzled me. What was it that was in this market that had to be hidden?' . . . Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. 'Born faced a formidable struggle pushing for regulation at a time when the stock market was booming,' ["Frontline" producer Michael] Kirk says. 'Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves.' Now, with many of the same men who shut down Born in key positions in the Obama administration, 'The Warning' reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one. 'It'll happen again if we don't take the appropriate steps,' Born warns. 'There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.'" From the "Introduction."). If you missed it, you can watch streaming video of the program from the "Frontline" site.

On October 5 the New York Times reported:

The inspector general who oversees the government’s bailout of the banking system is criticizing the Treasury Department for some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks. . . . A Treasury official made incorrect statements about the health of the nation’s biggest banks even as the government was doling out billions of dollars in aid, according to a report on the Troubled Asset Relief Program to be released on Monday by the special inspector general, Neil M. Barofsky.

The report also provides new insight into the way the Treasury allocated billions of dollars to nine of Wall Street’s largest players.

Louise Story, "Report on Bailouts Says Treasury Misled Public," New York Times, October 5, 2009, p. B2.













[Photo Credit: Larry Downing/Reuters; Time; "TARP recipients testify before the House Financial Services Committee on Feb. 11. From left: Goldman Sachs' Lloyd Blankfein, JPMorgan Chase's Jamie Dimon, Bank of New York's Robert Kelly, Bank of America's Ken Lewis and State Street's Ronald Logue."]

Jim Kuhnhenn, "Watchdog: Bailout Helped, but At a Cost," Associated Press/Time, October 21, 2009 ("[Treasury Special Inspector General Neil] Barofsky said [in his latest quarterly TARP report that] the Troubled Asset Relief Program has come at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government. 'Despite the aspects of TARP that could reasonably be viewed as a substantial success,' he wrote, "Treasury's actions in this regard have contributed to damage the credibility of the program and of the government itself, and the anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP.' . . . The integrity of the industry: Many firms considered "too big to fail" last year, and thus in need of government assistance, are even bigger now. 'Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior,' the report states."). (Time has also kindly provided us with "25 People to Blame for the Financial Crisis," Time.)

So now we have "Frontline" passing along former CFTC chief Brooksley Born's warning that "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience," and Neil Barofsky warning that "Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior."

And how is the Obama Administration and Congress -- Democrats and Republicans alike -- responding to this urgent need that their most generous campaign contributors be more effectively regulated in the public interest? With a wink and a nod and an outstretched hand.

As the Wall Street Journal reports,

Some of the biggest Wall Street firms are back in the political-spending game after hunkering down while they were getting government bailout funds. Goldman Sachs Group Inc., Bank of America Corp., Morgan Stanley and other large financial-services firms stepped up their political donations in September to members of Congress . . ..Most Wall Street firms stopped making donations to lawmakers when they were receiving government funds, and many lawmakers stopped accepting them. But now . . . they are making campaign donations again. At the same time, they are increasing their spending on lobbying . . ..

For the details on who has given how much see Brody Mullins and T.W. Farnam, "Wall Street Steps Up Political Donations, Lobbying; Firms Boost Outlays Amid Debate on Financial-Services Overhaul, After Slowing Spending While Getting Bailout Cash," Wall Street Journal, October 23, 2009.

Sadly, this includes as well the President of the United States, Barack Obama, who even personally went to New York earlier this week for another $30,400-a-plate fund raiser. David D. Kirkpatrick, "Wall St. Giants Reluctant to Donate to Democrats," New York Times, October 20, 2009, p. A1.

Ironically, the "reluctance" to which that headline refers is the Wall Street executives "fear of getting caught in the public rage over the perception that Wall Street titans profiting from their government bailout may use their winnings to give back to Washington in return. And the timing of the event, as the industry lobbies against proposals for tighter regulations to address the underlying causes of last year’s meltdown on Wall Street, has only added to the worry over public appearances."

This is not the most laudatory basis for reluctance, perhaps, but at least it's better than that of a President who seems to be either unaware of or unconcerned about "the public rage over the perception" -- what Barofsky identifies as the unnecessary public "anger, cynicism and mistrust" fomented by such fund raisers.

This is probably enough reference to stories for a blog entry. But here are a few more for those interested in pursuing this, The Crime of Two Centuries, before turning to the lessons for Iowa's budget cutters.

U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program. . . . including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today. . . .

Barofsky’s estimates include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs. . . .

Barofsky offered criticism in a separate quarterly report of Treasury’s implementation of TARP, saying the department has “repeatedly failed to adopt recommendations” needed to provide transparency and fulfill the administration’s goal to implement TARP “with the highest degree of accountability.”

As a result, taxpayers don’t know how TARP recipients are using the money or the value of the investments, he said in the report. . . .

The Treasury has spent $441 billion of TARP funds so far and has allocated $202.1 billion more for other spending, according to Barofsky. In the nine months since Congress authorized TARP, Treasury has created 12 programs involving funds that may reach almost $3 trillion, he said. . . .

Barofsky said the TARP inspector general’s office has 35 ongoing criminal and civil investigations that include suspected accounting, securities and mortgage fraud; insider trading; and tax investigations related to the abuse of TARP programs.

Dawn Kopecki and Catherine Dodge, "U.S. Rescue May Reach $23.7 Trillion, Barofsky Says," Bloomberg, July 20, 2009.

"Watchdog: Treasury and Fed Failed in AIG Oversight," Associated Press/New York Times, October 14, 2009 ("Treasury Secretary Timothy Geithner is 'ultimately responsible' for regulators' failure to rein in massive bonus payments at American International Group because he led the agencies that provided AIG's lifelines, according to a bailout watchdog. Geithner was president of the Federal Reserve Bank of New York before taking over at Treasury in January. He has said he did not learn until March about the $1.75 billion in bonuses and other compensation promised to AIG employees. But Geithner's subordinates at the New York Fed learned of the payments in November, according to Neil Barofsky, the special inspector general for the $700 billion financial bailout.").

Pallavi Gogoi, "TARP report slams lack of transparency," USA Today, October 20, 2009 ("In a scathing report out Wednesday, a government watchdog blasts the Treasury Department for its handling of a $700 billion bailout program and for not adopting all of its earlier recommendations [and] Treasury's failure to provide more details about the use of TARP funds . . ..").

"Bailout watchdog Barofsky: Too early to say how much of $700B will be refunded to taxpayers," Associated Press/Baltimore Sun, October 21, 2009.

"U.S. 'unlikely' to recoup aid to banks; TARP watchdog's report is also critical of secrecy," Bloomberg/Washington Post, October 22, 2009.

William A. Barnett, "Who’s Looking at the Fed’s Books?" New York Times, October 21, 2009 October 22, 2009, p. A35.

And the meat-less, dry bone thrown the public's way turns out to be little more than public relations window dressing in front of what looks very much like same-old, same-old in the back rooms. Joe Nocera, "Pay Cuts, but Little Headway in What Matters Most," New York Times, October 23, 2009, p. B1. (They don't affect many people; for those they do affect, it only impacts their salaries for November and December of this year, then they can be renegotiated; stock options are exempted, so there's no limit to that continuing source of income, so long as they hold them for two to five years -- which they'd do anyway to ride up the price; and they can make more if things improve for their company, regardless of what they personally had to do with that. As the headline puts it, there's "little headway in what matters most."). See also, Editorial, "Symbolic Cuts Need to Set Tone for Real Cuts," Iowa City Press-Citizen, October 23, 2009 (regarding Governor Chet Culver's self-imposed salary cut).

As for Iowa's budget cutting, it's important for us to keep it in context. Take a look at this report prepared by one of the other Nicholas Johnsons (in addition to this one a couple of the others are the law professor at Fordham, and the literal rocket scientist). Nicholas Johnson, Phil Oliff, and Jeremy Koulish, "An Update on State Budget Cuts; At Least 41 States Have Imposed Cuts That Hurt Vulnerable Residents; Federal Economic Recovery Funds and State Tax Increases Are Reducing the Harm," October 20, 2009 (with a link to the full report in pdf).

One of the consequences of the Washington-Wall Street Axis, described above, is that it really is tough all over. Those SOBs have harmed every single American -- except for themselves, their friends and colleagues, and others in the top 1% of the wealthiest. Iowa is even in some ways, such as unemployment, better off than many.

In terms of the universities all Iowans, not just the Board of Regents, Iowa Legislature, and the universities' presidents, need to do some serious and heavy thinking about the role of "public education."

I've written about this before, and undoubtedly will again. Here's a summary:

o A century ago or more the American people and their elected officials decided that a fourth- or eighth-grade education was not enough for our kids. If nothing else, our economy and our military required a minimum of 12 years of schooling (what is popularly referred to as "K-12"). We agreed this was so important that it would be provided free to all at taxpayers' expense, because we all benefitted.

o It is not a stretch to say that if K-12 was essential a century ago, K-16 (that is, a college education; or its equivalent for those in the trades, something similar to the German system) is equally essential for today's economy and military -- not to mention the "life, liberty and pursuit of happiness" of our citizenry and their self-governing democracy. This is also sufficiently important that it should be paid for by all.

o The GI Bill after World War II brought returning veterans to the University of Iowa and other colleges and universities throughout America, at little or no cost to the students, but with an economic return many times over for our post-War economy and the American people.

o An economic downturn is precisely the time when it makes sense to increase the number of citizens getting additional education. (a) Rockwell and other corporations are pleading with educators to help create a better educated workforce. What better time to do it than when there are fewer jobs available? (b) Isn't laying out money for public education better than laying out the same amount of money for unemployment compensation? (c) If we're looking for long term economic growth, and not just short term fixes, there's no better investment than education.

o As recently as 1981 the State of Iowa paid 77.4% of the cost of an Iowan's university education; the student, and his or her parents, paid 20.8%. Today that has dropped for the State from 77.4% to 42.8%, and increased for the student from 20.8% to 51.3%. (See the Register story and chart, below.)

o One can argue over the most appropriate allocation of the costs of education between those who benefit directly (the students, and to some extent their parents) and indirectly (every American taxpayer). But whatever that most appropriate relationship is thought to be, what is the rationale for the enormous disparity between the relationship for K-12 (0% for students; 100% for taxpayers) and the 13-16 of K-16 (51.3% for students; 42.8% for taxpayers)? Would we ever consider, as a budget cutting measure, going back to the days of K-8 -- providing free public education through junior high, and then charging parents 51.3% of the actual cost of providing high school education? Think about it.

For the Register's chart, and story, see Gunnar Olson and B.A. Morelli, "Tuition now top funding source for regents universities," Des Moines Register, October 23, 2009 (including a chart showing the relative percentage of costs covered by tuition vs. appropriations increasing from 20.8% vs. 77.4% in 1981 to 51.3% vs. 42.8% in 2010). And see the news this morning that Staci Hupp, "Regents propose surcharge, 6.5-percent tuition and fees increase," Des Moines Register, October 23, 2009.

I sympathize with you, Iowa's budget cutters. Yours is not an enviable task. But you can learn from the errors of Washington, and try to avoid them.

Be fair and just in your judgments. Be rational, and fulsome in your explanations. Be transparent and open in your process.

And keep in mind Barofsky's observation that the public's "anger, cynicism and distrust" -- while warranted and understandable -- is a dangerous thing, with long lasting consequences, and that it is, above all "unnecessary."
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* 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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UI Budget: Waivers Wave Goodbye to Savings

October 19, 2009, 7:25 a.m.

By any standard one of the biggest issues ever confronting the State of Iowa and its state universities is the handling of the past, present and future budget cuts occasioned by the current Wall Street created economic crisis. Here are some earlier blog entries on this subject, followed by today's comments about "waivers."

"A University's Strategic Communication; A Modest Proposal to the Regents' University Presidents," October 7, 2009

"Iowa's Budget Cuts and the University; Economic Collapse Tests Moral Values," October 9, 2009

"How to Cut Iowa's Budget; Fairness, Justice and Leadership by Example," October 15, 2009

"How Many Administrators Does It Take? Administrators Are Multiplying & Sucking Us Dry," July 16, 2009

Consistency, Hobgoblins and Waivers
(brought to you by FromDC2Iowa.blogspot.com*)
For the most part I agree with Emerson's observation that "A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines." Ralph Waldo Emerson, "Self-Reliance," Essays: First Series (1841). Among my concerns and complaints about administrators generally, and educational administrators in particular, is what he called "foolish consistency," the lack of the imagination or will to, as Robert Kennedy put it, "Dream things that never were and say why not."

But we must also reflect on Emerson's qualifier. It is not "consistency" that rides on the back of hobgoblins, as he is so often quoted as having said, it is only "foolish consistency.

I recall an occasion when, as an FCC commissioner, I was pleased to be able to vote with my fellow commissioners in announcing a new policy. Alas, I cannot now remember the policy, nor do I have the time or inclination this morning to try to track it down. It may have had to do with the joint ownership of TV stations and newspapers in the same city. In any event, I thought it a good policy; one that would not be popular with the big media owners, but was nonetheless in the best interest of the American people.

But I was not so pleased with what the Commission did thereafter. My recollection is that in something like the first 11 cases to arise under the new rule my colleagues listened to the pleas of these major corporations and agreed, not to repeal the rule mind you, but to "waive" it in the case before them. This necessitated my return to my much more comfortable role as a dissenting commissioner. The waivers were, in my judgment, neither adequately justified by the parties or commissioners, nor warranted.

In short, the "consistency" I was calling for was necessary if there was to be any rule at all. There was nothing "foolish" about it.

I was reminded of that experience yesterday while reading B.A. Morelli, "U of I Health adds official in face of budget trouble," Des Moines Register, October 18, 2009. And see B.A. Morelli, "UI Health Care adds new position at hospital," Iowa City Press-Citizen, October 17, 2009 ("A Press-Citizen review last year found that UI spent about $1 million on four new senior positions in 2008, and the university created three new vice president positions. . . . 'I can't think of any justification for adding any position while these cuts are being made that can't draw down more (grant) dollars or doesn't save lives,' said Rep. Jeff Kaufmann, R-Wilton. 'I can't believe they've gone this long and they are adding it into a half-time position -- and that couldn't wait? Even if it is $45,000, I don't care if it is $5,000, it sends a message to people at the bottom of the organization. I just don't understand it right now,' he said.").

Here we are, confronting a budget crisis. The Board of Regents has put a freeze on hiring, voted for a halt to construction (until they voted against it), is considering a mid-year tuition increase, layoffs, cuts in salaries and benefits, has at least nodded in the direction of fairness in all of this, and what does the UIHC do?

Morelli reports that it, "filled a newly created position of chief medical information officer last week -- the same day university officials were instructed to consider temporary and permanent layoffs and a tuition surcharge" (an emphasis in the Register's story and headline that doesn't appear in the Press-Citizen's version).

And why is this position necessary? Because it accompanies a $61 million investment in a new computer system -- an amount that exceeds the cuts being asked of all the Regents' institutions combined. (The same can be said of the Regents' decision to go ahead with the $47 million modification of the Carver Hawkeye Arena, following its earlier decision to halt all construction.)

And who is to fill this position? Someone who already has a couple of what one would think are full time jobs -- practicing medicine while providing administrative services to a major division of UIHC.

So this new title of "chief medical information officer" -- whatever that may mean -- is designated as only a half-time job.

And what is this new position, during a hiring freeze, going to cost us? $46,000.

Well, that's only about the average for an Iowa family. Not much for a doctor, right? Not until you consider that this is on top of the $245,030 he already earns, bringing the total ($291,494) to well over $300,000 with benefits.

Now it's long past time that I acknowledge I have no inside information about this decision. Had I been involved in the process I might well agree with Morelli's report of Regent Bob Downer's view of the matter: "Bob Downer, a member of the Iowa state Board of Regents who leads the hospital oversight committee, backed the position. Hospital finances have been improving, and the position was viewed as essential, Downer said." (But see, "How Many Administrators Does It Take? Administrators Are Multiplying & Sucking Us Dry," July 16, 2009, with its link to Miles Weinberger, "Rethink priorities in UI hospital layoffs," Des Moines Register, July 11, 2009.)

So I'm not arguing that this was necessarily a wrong decision, that our new "chief medical information officer" is not worth all he's being paid and more, or that the new $61 million investment could be equally well handled by those already in place.

All I'm suggesting is that if the budget cutting process is to be perceived as fair and just for all (see "How to Cut Iowa's Budget; Fairness, Justice and Leadership by Example," October 15, 2009) -- not to mention be effective in creating any meaningful savings -- there is going to have to be some consistency in holding to the rules. The exceptions are going to have to be very, very few and far between and very well publicly justified.

This is especially the case with the high profile, powerful and relatively highly paid positions.

If every time the rules that should apply to their construction projects and purchases, new positions and promotions -- not to mention their own pay and benefit packages -- they are successful in getting those rules waived as to themselves, we're also going to be either waiving goodbye to savings or imposing even more of the pain on those least able to bear it.

Much of Americans' anger toward Wall Street, the Administration and Congress at this time comes from the perception that the bailouts and stimulus packages are going to Wall Street (and the firms on the verge of paying their executives multi-million-dollar bonuses once again) not Main Street. Support for the housing sector goes to developers, contractors, brokers and those wealthy enough to consider buying a new home -- not those who are being forced out of their homes through foreclosure. There are no meaningful government job programs of the kind we had in the 1930s.

The same reactions can be fueled by the way we handle this statewide budget crisis if we're not careful. Giving $61 million to the hosptial, $47 million to the Athletic Department, and an additional $46,000 to a state employee already earning $245,000, while asking low paid state employees to accept layoffs, furloughs, and cuts in pay is bad symbolism at best.

Consider the problems currently confronting a neighboring institution, North Dakota State University in Fargo. Monica Davey, "Furor Swirls Over College Chief’s House," New York Times, October 18, 2009, p. A22.

As Ms. Davey reports, it is not going down well with North Dakotans that the construction costs of a new home for the University's president and his wife have gone from an already excessive $900,000 budgeted to now over $2 million, or that it turns out his wife is getting $50,000 a year as an "ambassador" for the University.

As the Bismark Tribune has editorialized, it's all “so far outside the values of people of the state [of North Dakota that] it will become a grandiose symbol of excess and arrogance.”

I'm not saying we have precisely that problem, or that the amounts spent on our University president's home are on Iowans' radar at the moment. But I do think we need to guard against actions that the Bismark Tribune characterizes as a "symbol of excess and arrogance" -- not to mention "unfairness."

On a more positive note, Provost Wallace Loh's "first year seminar" program stands as a symbol of what can be done creatively in these times. I have joined some 110 other Iowa faculty members in offering to teach a small section of entering first year undergraduates. It's been a pleasant experience -- at least for me, and my students don't appear to be in rebellion. All of us are volunteers; no one is getting paid for this effort. It costs the University nothing; it costs participating faculty nothing but some additional time; and if it achieves its purpose it will improve the quality of entering students' academic experience at Iowa and hopefully improve our retention rates in the Big Ten. And best of all, it has not -- at least so far -- been accompanied with anyone having to take a pay cut.

There are, of course, those who say this is a terrible idea; that faculty should never agree to teach for free. I disagree. I think these are times in which we all have to be willing to give something -- if not time, then money (and it may very well turn out to be both).

So long as it falls fairly on all, so long as there is not the perception, as in George Orwell's Animal Farm, that "all animals are equal, but some animals are more equal than others," I'm willing to do my share and I suspect others are as well.

But it's fragile. Once we start showing favoritism to the most highly paid and powerful, once the pain is not appropriately shared, a communitarian spirit of cooperation can disappear like the morning mist.

It is only foolish consistency that comes with hobgoblins.
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* 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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