Tuesday, September 30, 2014

Rearranging the Deck Chairs on the Titanic

According to Wiktionary:

To “Rearrange the deck chairs on the Titanic” is, metaphorically speaking, “To do something pointless or insignificant that will soon be overtaken by events, or that contributes nothing to the solution of a current problem.”  It is a metaphor for all sorts of sinking enterprises, and not just ships on the ocean.
The Titanic metaphor came to mind after reading a September 28, 2014 Pittsburgh Post-Gazette article¹ entitled: “State university system gets more nimble in face of fiscal stress.”  A careful look at the measures PASSHE is now taking—compared to what actually needs to be done—shows those measures to be pointless, insignificant, soon to be overtaken by events, and contributing nothing to the solution of the current problem.  For details see Privatization Without a Plan

The state university system which is the subject of the article is the Pennsylvania State System of Higher Education (PASSHE)—the 14-University system of taxpayer-supported institutions of higher education that includes Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock and West Chester Universities.
The article is a “puff piece,” defined by Wiktionary as “a journalistic form of puffery; an article or story of exaggerating praise that often ignores or downplays opposing viewpoints or evidence to the contrary.”
A Puff Piece with an Edge

While much of the article reads like a PASSHE news release, with its list of hopeful future outcomes in overcoming various challenges, a small portion of the article singles out just one of the 14 PASSHE universities—West Chester University and its campus leadership—for harsh public treatment.

The Post-Gazette takes credit for publicizing West Chester University campus emails obtained through the state’s Right to Know Law.  These emails reportedly showed that “top West Chester leaders engaged in what amounted to a stealth campaign to promote introduction and passage of Senate Bill 1275, the controversial secession legislation that the system leadership opposed.”
Based on my 20 years of experience as a university president in the PASSHE system, the leadership of PASSHE is not above—and in fact has made it a frequent practice—to tip off the media to “inside information” in an effort to publicly embarrass and thereby punish and intimidate presidents who would dare to cross PASSHE’s increasingly dictatorial and paranoid Board of Governors.

A citizen or reporter seeking negative or damaging information about a campus will get no response to a generic or non-specific RTK request. To successfully negotiate the RTK law, one must be able to cite a specific document that is known to exist and was created with the use of taxpayer funds.
For that reason, it is unlikely that a reporter will know what to ask for—without inside help.

The labor-friendly Post-Gazette is well known to reflexively support the faculty union position on various issues.  What makes the West Chester secession situation different is that, in this case, the interests of the faculty union and the interests of the PASSHE leadership happen to coincide—that is, both the faculty union and the PASSHE leadership have publicly declared strong opposition to the West Chester secession plan, and as the Post-Gazette article clearly suggests, any PASSHE president who supports a plan strongly opposed by both entities is likely to incur the wrath of both entities.
One measure of that wrath may be seen in the following quotes from the Post-Gazette article:

‘Mr. Brogan said he has contacted West Chester officials about the matter. “I was told that it was not the administration at West Chester.  It was the supporters of West Chester,” Mr. Brogan said.
Asked if he believed that explanation, the chancellor replied: “Not for a minute.”’

PASSHE’s chancellor is quoted in this article as basically calling the West Chester president a liar.
PASSHE’s Attack on West Chester University Administrators

In addition to publicly questioning the veracity of West Chester administrators, PASSHE may also have foolishly opens Pandora’s Box with the following quote:
“Mr. Brogan said the system has told some member schools they need to spend down more of their unrestricted net assets.”

“He cited as an example West Chester, which alone has $109 million out of the systemwide $598 million total.  State System officials say that West Chester’s sum exceeds system guidelines and that while reserves in general are necessary, most of the school’s assets do not appear to be earmarked.”  
PASSHE Hypocrisy Revealed

As shown in detail in my Blog Post of September 1, 2014 entitled “The PASSHE Story - Part 8:”
“PASSHE’s total fund balance is the sum of fifteen (15) different fund balances, including one for each of the 14 universities, plus a fifteenth entity known as “the Board of Governors plus the Office of the Chancellor,” or the (BOG+OOC) fund balance for short.  Between 1993 and 2013, PASSHE’s total fund balance grew exponentially from a low of $120 million in 1995 to a high of $597 million in 2013, corresponding to an average annual growth rate of 9.32%/year for 18 years, a rate which if continued, would cause PASSHE’s total fund balance to double to $1.2 billion in just seven and one-half more years.

“Despite BOG Policy 2011-01 which purportedly restricts individual PASSHE universities to fund balances between 5% and 10% of annual revenue, official PASSHE data show that not a single PASSHE university in FY 2013 had a fund balance that fell in the required range!  One university had a fund balance below the 5% minimum, and 13 other universities had fund balances in excess of the 10% maximum.  The data show that the fund balances for those 13 PASSHE universities range from a low of 12.2% to a high of 59.3%, with a PASSHE 14-university average of 36.4%.

“The fund balance history for the entity known as (BOG+OOC) is even more telling since, unlike the 14 universities, the maximum annual revenue permitted to that cost center is limited by law (Act 188) to one-half of one percent of PASSHE’s total operating budget, which is currently about $1.5 billion. One-half of one percent of that figure is about $7.5 million most of which—one would expect—is needed to pay for PASSHE’s many employees in Harrisburg, with little left over each year to put in a fund balance. 

“But official PASSHE data show since 1998, the (BOG+OOC) fund balance has routinely reached levels higher than PASSHE’s legally-permitted annual revenue.  In fact, in 2005, the (BOG+OOC) fund balance reached the astronomical figure of $68 million.  That 2005 fund balance figure is nine times higher, and the 2013 figure is 4.5 times higher, than the maximum permitted annual revenue to (BOG+OOC).”

As Lucy once said to Desi on I Love Lucy, “You have some splainin’ to do!”

² http://www.amazon.com/Privatization-Without-Plan-Leadership-Pennsylvania/dp/1491295244/ref=sr_1_1?ie=UTF8&qid=1408368767&sr=8-1&keywords=angelo+armenti.

Monday, September 22, 2014

Machiavellian Win-Lose Politics and PASSHE's Majority Stakeholders

Politics have no relation to morals.   Niccolo Machiavelli
 
Last week’s blog post on September 15, 2014 included the following question:
 
Will Either Candidate for Pennsylvania Governor Respond Publicly to PASCU’s Six Questions?
 
PASCU’s invitations to both candidates, and both statewide political parties, were delivered on August 25, 2014 and included a September 17, 2014 deadline for response.  Those three and one-half weeks passed with no response whatsoever from either candidate or either party.  Hence, we have our answer:  

Neither Corbett Nor Wolf Agreed to Publicly Answer PASCU’s Six Questions!

I hoped that both candidates would provide answers to the six questions and, as a result, that PASSHE’s Majority Stakeholders could benefit from their answers in deciding which if either candidate they might wish to support in the upcoming election for governor on November 4, 2014.
 
In view of the silence from both candidates, I have listed below the six questions and PASCU’s Response regarding what that silence might portend for PASSHE’s Majority Stakeholders going forward.
 
Recall the context for PASCU’s first three Questions: 
 
‘The purpose of the fourteen PASSHE universities, according to Act 188, is to provide: “High quality education at the lowest possible cost to the students.”  Official PASSHE data show, however, that the Act 188 statutory purpose of the PASSHE universities has not been delivered to the students since 2002.  And in January of 2014, PASSHE unveiled its new strategic plan entitled “Strategic Plan 2020: Rising to the Challenge,” which makes no mention of PASSHE’s Act 188 statutory purpose. [Questions 1, 2 & 3]’

Question 1: If elected Governor of Pennsylvania on November 4, 2014, will you publicly endorse and support the Act 188 statutory purpose of the fourteen PASSHE universities cited above?
PASCU Response 1:  Neither candidate is willing to answer this question publicly.  I.e., neither candidate is willing to endorse and support an existing Pennsylvania law (Act 188) in the face of evidence that the purpose of that law is being ignored by the PASSHE Board of Governors on which the PA Governor sits! 

Question 2: During this election campaign for Governor of Pennsylvania, will you publicly endorse and support the Act 188 statutory purpose of the fourteen PASSHE universities cited above?
PASCU Response 2:  Since neither candidate was willing to publicly endorse and support the Act 188 statutory purpose of the PASSHE universities after being elected governor on November 4, 2014, it is perhaps not surprising that neither candidate was willing to campaign in support of that same purpose.

Question 3: In view of the dual failure cited above—PASSHE’s failure to deliver Act 188’s statutory purpose to the students, and PASSHE’s failure to even commit publicly that it is trying to deliver it—what public assurances, as a Candidate for Governor, can you give to PASSHE’s students, parents and alumni that, if elected Governor, you will use the power of your office to help correct both failures?
PASCU Response 3:  Taken literally, the silence of both candidates in response to this question basically says that neither candidate is willing to provide any assurances to the Majority Stakeholders with regard to helping correct either or both of these egregious PASSHE failures.

Recall the context for questions 4, 5 and 6:
‘PASCU’s Mission is “To ensure that the statutory purpose of public higher education in Pennsylvania as specified by Act 188 of 1982: ‘High quality education at the lowest possible cost to the students’ is indefinitely preserved and faithfully delivered.”   [Questions 4, 5 & 6]’

Question 4:  As a Candidate for Governor of Pennsylvania, are you willing to campaign publicly in support of PASCU’s Mission?
PASCU Response 4:  Since neither candidate agreed to support the statutory purpose of Act 188, it also follows that they wouldn’t support PASCU’s goal of preserving and delivering that statutory purpose.

Question 5: In your opinion, is it appropriate for the State, the 25% financial stakeholder in the 14 PASSHE universities, to control 100% of the 174 PASSHE governance seats, while the students, parents and alumni donors, the 75% financial stakeholders, control 0% of PASSHE’s 174 governance seats?

PASCU Response 5:  Neither candidate wanted to answer this question because to do so—to admit that the status quo is unfair to the Majority Stakeholders—they would then have to admit to the need to do something about it!  The silence of both candidates on this question confirms: a) both political parties benefit from the status quo; and b) both parties will cling to the status quo to preserve those benefits.
Question 6: As a candidate for Governor of Pennsylvania and, in view of the great funding/governance disparity that exists between the Majority and Minority stakeholders, are you willing to campaign publicly in support of changing Act 188 to align the governance-shares of the Majority and Minority financial stakeholders to more closely match their respective funding-shares, as advocated by PASCU?

PASCU Response 6:  Why would either candidate offer to correct a problem they won’t admit exists? 
The First Amendment and the Hope of the “Fourth Estate

Since candidates for elected office can easily ignore inconvenient questions from non-partisan, not-profit organizations such as PASCU, and can do so with impunity, we can only hope that the members of the press will pursue these same questions on behalf of the thousands of PASSHE students, parents and alumni donors whose interests continue to be ignored by elected officials from both PA political parties.
I say that because of the critical role that America’s Founders created for the press in safeguarding the future of our democratic republic, a role emphasized in 1974 by Supreme Court Justice Potter Stewart when he said: “The primary purpose of the First Amendment was to create a fourth institution [a.k.a. Fourth Estate] outside the government as an additional check on the three official branches.”

PASSHE students, parents and alumni can only hope that the press will live up to that primary purpose.

Monday, September 15, 2014

The Myth of Political Gridlock: When D’s and R’s Secretly Work Together to Benefit Themselves

The Myth of Political Gridlock

For years we have been led to believe by our elected officials, and most media coverage, that the two major political parties—Democrat & Republican—refuse to work together for the benefit of the people, and that as a result the states and the country find themselves in the throes of “political gridlock.”
 
While every myth is entitled to its kernel of truth, in this case there is ample evidence to suggest that the two major political parties do cooperate much more than most people realize—just not in ways that are always obvious, nor in ways that voters would appreciate, if in fact they were to become aware of them. 
 
A cynic might even suggest that public displays of rancor between elected officials from both major political parties is a theatrical smokescreen designed to perpetuate the myth of political gridlock and in that way to distract public attention from numerous examples of collusion between the elected officials from both parties, a collusion that benefits, not the people but rather, the elected officials themselves.
 
Merriam-Webster defines “collusion” as “secret cooperation for an illegal or dishonest purpose

Don’t tell the children, but would any adult in America today be surprised if told that elected officials on both sides of the aisle might “work together secretly in a dishonest effort” say to benefit themselves at the expense of the taxpayers?  No one paying attention in Pennsylvania could credibly claim surprise.
 
In 1995 Pennsylvania legislators gave themselves automatic future salary increases tied to the CPI,¹ and in 2001 they doubled their pensions—in both cases with sufficient bipartisan support to make it law.
 
And lest you think that sort of thing is an anomaly, years earlier in 1978 the Pennsylvania Legislature created an Ethics Act nominally designed to make conflicts of interest by elected officials illegal.  But by cleverly ignoring the dictionary definition of the term and creating their own definition instead, ² the conflicted salary and pension grabs of 1995 and 2001 easily passed ethical muster. 

I’m not saying that individual legislators are bad people.  But as a group, something in the Capital coffee or water supply appears to have turned the legislature into a master of shameless, self-serving mischief.
 
PASCU’s Six Questions for Governor Corbett and Candidate Wolf

On August 25, 2014 PASCU reached out to both the Corbett and Wolf Campaigns on behalf of the Majority Stakeholders at the 14 PASSHE Universities, inviting both candidates to answer the following six questions:

“The purpose of the fourteen PASSHE universities, according to Act 188, is to provide: “High quality education at the lowest possible cost to the students.”  Official PASSHE data show, however, that the Act 188 statutory purpose of the PASSHE universities hasn’t been delivered to the students since 2002.³  And in January of 2014, PASSHE unveiled its new strategic plan entitled “Strategic Plan 2020: Rising to the Challenge,” which makes no mention of PASSHE’s Act 188 statutory purpose.  [Questions 1, 2 & 3]

1.       If elected Governor of Pennsylvania on November 4, 2014, will you publicly endorse and support the Act 188 statutory purpose of the fourteen PASSHE universities cited above?
2.       During this election campaign for Governor of Pennsylvania, will you publicly endorse and support the Act 188 statutory purpose of the fourteen PASSHE universities cited above?
3.       In view of the dual failure cited above—PASSHE’s failure to deliver Act 188’s statutory purpose to the students, and PASSHE’s failure to even commit publicly that it is trying to deliver it—what public assurances, as a Candidate for Governor, can you give to PASSHE’s students, parents and alumni that, if elected Governor, you will use the power of your office to help correct both failures?
PASCU’s Mission is “To ensure that the statutory purpose of public higher education in Pennsylvania as specified by Act 188 of 1982: ‘High quality education at the lowest possible cost to the students’ is indefinitely preserved and faithfully delivered.”   [Questions 4, 5 & 6]

4.       As a Candidate for Governor of Pennsylvania, are you willing to campaign publicly in support of PASCU’s Mission?
5.       In your opinion, is it appropriate for the State, the 25% financial stakeholder in the 14 PASSHE universities, to control 100% of the 174 PASSHE governance seats, while the students, parents and alumni donors, the 75% financial stakeholders, control 0% of PASSHE’s 174 governance seats?
 
6.       As a candidate for Governor of Pennsylvania and, in view of the great funding/governance disparity that exists between the Majority and Minority stakeholders, are you willing to campaign publicly in support of changing Act 188 to align the governance-shares of the Majority and Minority financial stakeholders to more closely match their respective funding-shares, as advocated by PASCU?”

Will Either Candidate for Pennsylvania Governor Respond Publicly to PASCU’s Six Questions?
 
The 2014 campaign for Pennsylvania governor between Tom Corbett and Tom Wolf is heating up, and with increasingly nasty attack ads a certainty, the question of whether either or both campaigns would be willing to publicly answer PASCU’s Six Questions naturally arises.  Between PASSHE’s 112,000 students and their parents and families, and PASSHE’s 450,000 Pennsylvania-residing alumni and their families, publicly answering those questions in an effort to gain support at the polls from such a large bloc of voters would seem like something both campaigns should consider. 
 
We will soon learn whether either, both or neither candidate will publicly answer PASCU’s Six Questions. 

Should one or both of the candidates decide to affirmatively address those questions, it would represent the first time that either political party in Pennsylvania will have recognized the interests of PASSHE’s Majority Stakeholders—the students, parents and alumni donors who currently pay 75% of the cost of education at the PASSHE universities, while the State now provides 25%.

Should both candidates decline to answer, it would suggest that both political parties believe they now benefit too much from the status quo to support the kinds of changes PASCU is calling for.  That would also mean neither political party is ready to support the interests of the Majority Stakeholders, despite their large numbers and potentially significant impact on the outcomes of elections for public office.   
 
Stay tuned.
¹ http://blog.pennlive.com/capitol-notebook/2013/11/this_years_legislative_pay_hik.html#incart_related_stories.
² https://www.keepandshare.com/doc/6732130/harrisburg-patriot-op-ed-angelo-armenti-jr-march-8-2013-pdf-157k.
³ http://www.amazon.com/Privatization-Without-Plan-Leadership-Pennsylvania/dp/1491295244/ref=sr_1_1?ie=UTF8&qid=1408368767&sr=8-1&keywords=angelo+armenti.

Monday, September 8, 2014

PASCU Reaches Out to the Two Candidates for Pennsylvania Governor

PASCU Reaches Out to the Two Candidates for Governor in the November 4, 2012 Election

On August 25, 2014 PASCU delivered identical packets of information to the Campaign Offices of the two announced candidates for Governor of Pennsylvania—Gov. Tom Corbett and Sec. Tom Wolf.  That same information was delivered that same day to the Pennsylvania Democratic Party and the Republican Party of Pennsylvania.  And in the next few days, that same information will be sent to the College Democrats and College Republicans at the fourteen PASSHE Universities, and will also be posted on the PASCU website at http://www.pascu.net/.

PASSHE is the 14-University system of taxpayer-supported institutions of higher education that includes Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock and West Chester Universities.

The purpose of PASCU’s outreach to the two candidates is to invite each one to make their individual cases for support in the upcoming election to the “Majority Stakeholders” at the 14 PASSHE universities.

Background

The Pennsylvania Association of State Colleges and Universities (PASCU) is a non-partisan, non-profit association whose mission it is: “To ensure that the statutory purpose of public higher education in Pennsylvania as specified by Act 188 of 1982: ‘High Quality Education at the Lowest Possible Cost to the Students,’ is indefinitely preserved and faithfully delivered.”
 
PASCU was founded in June of 2012 as it was becoming abundantly clear that the statutory purpose of public higher education in Pennsylvania, cited above, had neither been preserved nor delivered since 2002.  In fact an analysis of official PASSHE data, which I carefully conducted, showed that:¹
a)      Half the gains in educational quality delivered to PASSHE students by the Board of Governors (BOG) during PASSHE’s first 18 years of existence (1984 to 2002) were subsequently undone by the BOG in the subsequent 11-year period (2002 to 2013); and,
b)      The BOG isn’t providing a PASSHE education at anything like “the lowest possible cost to the students.”  Financial aid packages for students across America average 51% grants and 42% loans, while financial aid packages for students at PASSHE universities average 27% grants and 65% loans.

Key Questions about Pennsylvania “Public” Higher Education

Two key questions include these: 1) Who pays?  And; 2) Who Decides?

Many people are surprised by the answers to those questions:
a)      75% of the cost of “public” higher education is paid—not by the State—but by the students, parents and alumni donors at the 14 PASSHE universities—i.e., by the “Majority Stakeholders.” (In particular, students and parents account for 70% while private donors account for 5%.) 
b)      25% of the costs are paid by the Commonwealth of Pennsylvania—the “Minority Stakeholder.”
c)       But the 25% Minority Stakeholder controls 100% of the 174 governance seats on the boards where all key decisions affecting the Majority stakeholders are made; and
d)      The 75% Majority Stakeholders control 0% of the 174 governance seats on the boards where all key decisions affecting them are made!

This huge Funding/Governance Disparity has been called ‘Privatization Without Representation,’ and is an “un-American” travesty of justice that demands redress.  The Majority Stakeholders at the PASSHE universities currently have no voice in exchange for their 75% funding share, but PASCU aspires to become the voice of PASSHE’s more than 700,000 individual Majority Stakeholders.

Pennsylvania Voters will Elect a Governor on November 4, 2014

In eight weeks Pennsylvania voters will decide who our Governor will be for the next four years. 

Each candidate is associated with one of our two major political parties: Democrat and Republican.

But for PASSHE’s Majority Stakeholders—the Students, Parents and private donors, primarily Alumni, who now pay 75% of the cost of education—party politics will be no help in deciding whom to vote for—unless both candidates agree to be held to account by being asked, before the election, to provide written answers to questions on whether and how they will support the issues of greatest concern to the Majority Stakeholders at the 14 PASSHE universities.
 
The packet of information sent to the two candidates included a one-page Cover Letter,² a four-page Factsheet,³ a two-page Preliminary Statement and Candidate’s Questionnaire,⁴ a one-page Agreement⁵ and a one-page Guidance for Candidates.⁶
 
Taken together, these five documents represent PASCU’s attempt to hold both candidates accountable when it comes to the serious issues affecting the Majority Stakeholders at the 14 PASSHE universities. 

The most serious of these issues is Privatization Without Representation.

 “Privatization Without Representation” is the rapid defunding of public higher education by the State (the Minority Financial Stakeholder), which shifts the cost of education to the PASSHE students, parents and private donors, primarily alumni (the Majority Financial Stakeholders), while the State retains 100% control of PASSHE’s governance seats where all key decisions affecting those stakeholders are made. 

PASCU sees the current disparity between funding shares and governance shares as a gross injustice in which the appointees of the Minority (25%) financial stakeholder make all key decisions, while the Majority (75%) stakeholders now choose zero appointees who would give voice to their best interests.
 
To correct that injustice, PASCU is committed to giving the Majority Stakeholders a governance share comparable to their funding share and, in that way, providing the Majority Stakeholders with a proper voice in the operation of the 14 PASSHE universities, a voice currently and unjustly denied to them.    

² https://www.keepandshare.com/doc/7328870/pascu-ec-cover-letter-august-19-2014-pdf-172k.
³ https://www.keepandshare.com/doc/7328871/pascu-ec-factsheet-august-19-2014-pdf-384k.
https://www.keepandshare.com/doc/7328872/pascu-ec-preliminary-statement-and-questionnaire-august-22-2014-pdf-283k.
https://www.keepandshare.com/doc/7328873/pascu-ec-agreement-august-22-2014-pdf-169k.
https://www.keepandshare.com/doc/7328874/pascu-ec-guidance-for-candidates-august-22-2014-pdf-165k.

Monday, September 1, 2014

Policy-Induced Death Spirals - The PASSHE Story - Part 8

PASSHE Money-Hoarding Continues Even as More Death Spirals Loom

Two weeks ago, we noted that Board of Governors Policy 2011-01: University Financial Health contained two totally contradictory provisions.
 
On the one hand, the policy requires each PASSHE university to maintain a “fund balance,” a.k.a., “unrestricted net assets” balance, of between 5% and 10% of annual revenue.  In effect, this provision requires universities to maintain what might be called a “savings account,” or what less charitable critics might call a “slush fund.”  But in any case, this provision of the policy puts limits on both how small, as well as how large this fund balance should be, with 10% of annual revenue being the policy maximum.
 
On the other hand, that same policy requires each PASSHE university to maintain an annual “operating margin” of between 2% and 4% of annual revenue, meaning that universities are directed to spend only 96% to 98% of their annual revenue.  As a result, universities complying with the “operating margin” provision of the policy will be adding from 2% to 4% of annual revenue to their fund balances each and every year and will soon violate the 10% policy maximum required by the “fund balance” provision.
 
The first provision limits the maximum amount the universities are permitted to have in their fund balances; but the second provision forces them to put money into their fund balances every year! 
 
Since it is impossible to satisfy both provisions of that BOG policy every year, we posed this question:  “In view of the contradictions, one wonders how the PASSHE Board of Governors and the Office of the Chancellor ever intended to administer such a conflicted policy.”  We then offered the following answer:

“The data suggest that they avoided all contradictions by simply enforcing only one-half of the policy (operating margins) while ignoring the other half (fund balance limits), thereby encouraging still more and more PASSHE money-hoarding.”
 
That answer was based on official PASSHE fund balance data that ended with fiscal year 2012, the first year since BOG Policy 2011-01 went into effect.  We recently obtained 2013 Right to Know information from PASSHE that confirms PASSHE is enforcing the operating margin requirement while simultaneously ignoring the fund balance requirement, with the predictable result—still more PASSHE money hoarding.
 
PASSHE Fund Balance and Operating Margin Data for FY 2013

The figures cited below regarding PASSHE fund balances and operating margins are taken from documents provided in response to two recent RTK Requests to PASSHE. ¹ˉ²

PASSHE’s total fund balance is the sum of fifteen (15) different fund balances, including one for each of the 14 universities, plus a fifteenth entity known as “the Board of Governors plus the Office of the Chancellor,” or the (BOG+OOC) fund balance for short.  Between 1993 and 2013, PASSHE’s total fund balance grew exponentially³ from a low of $120 million in 1995 to a high of $597 million in 2013, corresponding to an average annual growth rate of 9.32%/year for 18 years, a rate which if continued, would cause PASSHE’s total fund balance to double to $1.2 billion in just seven and one-half more years.
 
Despite BOG Policy 2011-01 which purportedly restricts individual PASSHE universities to fund balances between 5% and 10% of annual revenue, official PASSHE data show⁴ that not a single PASSHE university in FY 2013 had a fund balance that fell in the required range!  One university had a fund balance below the 5% minimum, and 13 other universities had fund balances in excess of the 10% maximum.  The data show that the fund balances for those 13 PASSHE universities range from a low of 12.2% to a high of 59.3%, with a PASSHE 14-university average of 36.4%.
 
The fund balance history for the entity known as (BOG+OOC) is even more telling since, unlike the 14 universities, the maximum annual revenue permitted to that cost center is limited by law (Act 188) to one-half of one percent⁵ of PASSHE’s total operating budget, which is currently about $1.5 billion. One-half of one percent of that figure is about $7.5 million most of which—one would expect—is needed to pay for PASSHE’s many employees in Harrisburg, with little left over each year to put into a fund balance. 
 
But official PASSHE data show⁶ since 1998, the (BOG+OOC) fund balance has routinely reached levels higher than PASSHE’s legally-permitted annual revenue.  In fact, in 2005, the (BOG+OOC) fund balance reached the astronomical figure of $68 million.  That 2005 fund balance figure is nine times higher, and the 2013 figure is 4.5 times higher, than the maximum permitted annual revenue to (BOG+OOC).
 
The future has already arrived. It's just not evenly distributed yet.”
                                                                                                               William Gibson

PASSHE’s total fund balance now approaches a staggering $600 million, while other recent PASSHE data regarding university operating margins suggest that the very same policy-induced financial death spirals that struck six PASSHE universities in the last two years are now looming over other PASSHE universities.
 
In particular, operating-margin data for fiscal years 2011, 2012 and 2013 reveal⁷ that something ominous has suddenly begun to occur to a majority of the 14 PASSHE universities.  In 2011 and 2012, only one (1) university recorded a negative operating margin, and the average operating margin for all 14 universities in both years was an identical 5.19%, well above the required “maximum” of 4.00%.

But in 2013, eight (8) PASSHE universities recorded negative operating margins, and the 14-university average plunged to 0.55%, well below the minimum of 2.00% required by BOG Policy 2011-01.

This sudden change in the average operating margin for the 14 PASSHE universities—from 5.19 to 0.55 in a year—suggests PASSHE’s money-hoarding stratagem is about to collapse in the face of economic reality.  Recall that “the PASSHE system as a whole has been sinking, “financially speaking” since 2002.”  And the Board of Governors’ ill-advised policy of controlling tuition rates for political, as opposed to economic, reasons will continue to drive PASSHE universities into death spirals not of their own making.     
 
¹ https://www.keepandshare.com/doc/7321924/university-financial-health-measures-for-2010-11-2-pdf-41k.
² https://www.keepandshare.com/doc/7321925/university-financial-health-measures-for-2012-13-pdf-38k.
³ https://www.keepandshare.com/doc/7321993/aa-passhe-unrestricted-net-assets-fund-balances-from-fy-1993-to-fy-2013-august-25-2014-pdf.
https://www.keepandshare.com/doc/7321995/aa-passhe-university-unrestricted-net-assets-fund-balances-for-fy-2013-august-26-2014-pdf.
https://www.keepandshare.com/doc/6772880/act188-pdf-405k.
https://www.keepandshare.com/doc/7321998/aa-passhe-bog-ooc-fund-balances-for-fy-1993-to-fy-2013-august-26-2014-pdf-186k.
https://www.keepandshare.com/doc/7322008/aa-passhe-university-operating-margin-percentages-for-fy-2011-2012-and-2013-august-26-2014-pdf.

Monday, August 25, 2014

Policy-Induced Death Spirals - The PASSHE Story - Part 7


Widely Different University Cost Structures

While it is true that each of the 14 PASSHE universities is subject to the same laws, policies and labor contracts, it is also true that those laws, policies and labor contracts allow for variances at the individual PASSHE universities—and those variances can and do lead to widely different university cost structures.

Act 188

Consider this excerpt from Act 188, Section 20-2010-A. Power and Duties of Institution Presidents:
 
“Subject to the stated authority of the Board and the council, each president shall have the following powers and duties:

(1) Except insofar as such matters are governed by collective bargaining agreements entered pursuant to the act of July 23, 1970 (P.L. 563, No.195), known as the “Public Employee Relations Act,” and subject to the policies of the Board, to appoint such employees, professional and non-instructional, graduate assistants, etc. as necessary, to fix the salaries and benefits of employees, professional and non-instructional, and to establish policies and procedures governing employment rights, promotion, dismissal, tenure, leaves of absence, grievances, and salary schedules.” (Emphasis added.)
 
BOG Policy 1984-14-A: Terms and Conditions of Employment of Senior Policy Executives

Act 188 grants individual university presidents the authority to “fix the salaries” of employees, subject only to existing collective bargaining agreements and Board of Governors (BOG) policies.  In practice, this authority is handled differently for unionized and non-unionized PASSHE university employees. In both cases, however, presidents retain the discretion and authority to “fix the salaries” of employees. 
 
For managers, who are also said to be “non-represented” employees, presidents retain substantial discretion with regard to both the initial salary at the time of hire, as well as to the size of occasional salary increases, provided that they fall within an approved range set by Board of Governors’ policy.
 
For faculty, presidents exercise discretion over the starting salaries of new hires by selecting the initial “rank” and “step” on the CBA-approved faculty pay scale at the time of hire.  Though, after that, any future salary increases are determined by other provisions of the Collective Bargaining Agreement.
 
However, because raises in faculty salary tend to be negotiated as percentages, total faculty salaries tend to compound themselves exponentially over time, meaning that even slight differences in starting faculty salaries at one university will, over time, compound themselves into substantially higher total salaries which, in turn leads to widely different university cost structures, as official State data show.   

The Joint State Government Commission (JSGC)

The JSGC is a bipartisan and bicameral research agency serving the General Assembly of Pennsylvania.  The Commission produces an annual report entitled “Instructional Output and Faculty Salary Costs of the State-Related and State-Owned Universities.  As suggested from its title, that report¹ compares the salary costs of eighteen (18) universities that receive appropriation funding from the Commonwealth of Pennsylvania: the 14 PASSHE or “State-Owned” Universities; and Pennsylvania’s four “State-Related” universities, Penn State, Pitt, Temple and Lincoln Universities.
 
The attached spreadsheet² is based on a the annual report of the JSGC issued in February of 2013 which includes data for the six Fiscal Years 2007, 2008, 2009, 2010, 2011, and 2012.  Both the JSGC report¹ and the spreadsheet provide faculty salary data for the eighteen universities listed in the report.   
 
The spreadsheet and the JSGC report on which it is based reveal that the average faculty salary costs over that six-year period differ greatly, both within PASSHE, as well as between the PASSHE six-year average and the six-year averages of Penn State, Pitt, Temple and Lincoln Universities.
 
These results provide compelling evidence that the cost structures of the fourteen PASSHE universities differ significantly, with the six year average salary ranging from 7% above the PASSHE average to 11.6% below the PASSHE average.  And since the faculty at all fourteen PASSHE universities are paid according to the same pay scale in the collective bargaining agreement—once the initial salaries at the time of hiring have been “fixed” by presidential appointment—any large difference in average faculty salaries is typically attributable to variations in the starting salaries at the time of faculty hiring. The only exception is the case of an aging faculty in which most, if not all, faculty are approaching the end of their careers. 
 
The Role of Pennsylvania Geography

It is a fact of history and geography that most, but not all, of the PASSHE universities are located in rural areas where the employment opportunities for spouses and family members of new faculty hires can be very limited.  For this reason, PASSHE universities located in in the most rural areas of the State must offer higher starting salaries to attract the best new faculty members.  Universities closer to major cities also find it easier to attract good faculty members because of their proximity to the research universities that produce large numbers of the doctoral degree graduates that the PASSHE universities seek to hire.
 
PASSHE universities close to urban areas also have the added advantage that comes with proximity to large population centers, i.e., proximity to more potential students.  This enables those universities to more readily grow their student enrollments, which also grows their operating revenues and helps them forestall the financial death spirals that six of the PASSHE universities have already encountered.
 
Recall, that the only strategy that can forestall PASSHE’s policy-induced death spirals indefinitely is that of steadily growing enrollments—which for various reasons is unsustainable—meaning that indefinite postponement of the mission failure and bankruptcy that defines PASSHE death spirals is not possible.
 
Universities with lower cost structures are often the universities with the largest fund balances, meaning that their ability to stay afloat longer than other PASSHE universities should come as no surprise.  But the ultimate fate of each of the 14 PASSHE universities—imminent mission failure and bankruptcy—is preordained unless certain BOG policies, as enumerated in Privatization Without a Plan,³ are changed.  And so far, there is no evidence to suggest the needed policy changes are even beginning to happen.          

² https://www.keepandshare.com/doc/7319078/aa-faculty-salary-comparison-jsgc-data-september-6-2013-pdf-211k.
³ http://www.amazon.com/Privatization-Without-Plan-Leadership-Pennsylvania/dp/1491295244/ref=sr_1_1?ie=UTF8&qid=1408368767&sr=8-1&keywords=angelo+armenti.

Monday, August 18, 2014

Policy-Induced Death Spirals - The PASSHE Story - Part 6

There are at least three reasons why some PASSHE universities appear to be doing well—financially speaking—while others have been forced to publicly declare financial distress.  These include: 1) PASSHE’s Flawed Business Model; 2) Years of PASSHE Money-Hoarding; and 3) Widely Different University Cost Structures.  We already discussed the first of these reasons last week; we will discuss the second reason this week; and we will discuss the third reason next week.

A Metaphor for PASSHE’s Business Model
 
As shown last week, growing enrollments can keep a few of the 14 universities temporarily solvent, but only by impoverishing all the others.¹ This situation is occurring only because the PASSHE system as a whole has been “sinking,” financially speaking, since 2002.  An apt metaphor for the few “temporarily-succeeding” PASSHE universities might be a few dogged passengers climbing on the backs of their less fortunate companions to reach the higher decks on what is, unfortunately, a sinking ship. 

Years of PASSHE Money-Hoarding
 
It is quite obvious from official PASSHE data² that some of the PASSHE universities have been hoarding large sums of money for many years—with the tacit approval of the Board of Governors and the Office of the Chancellor—and at dollar levels and percentages of revenue that are clearly much higher than those permitted by BOG Policy 2011-01: University Financial Health.³ In fact, 12 of 14 PASSHE  universities in FY 2011 showed fund balances higher than, and in some cases much higher than, 10%. 
 
From its beginning on July 1, 1983 until passage of this BOG policy on April 7, 2011, PASSHE operated without a written policy on the amount of money that individual PASSHE universities should retain in “fund balances.”  By definition, a fund balance operates the same as a savings account attached to a checking account does.  So if your total deposits for the month exceed the total of checks written that month, the surplus would go into your “savings account,” or “fund balance.”  If for next month the total of your checks exceeded your deposits, you would ‘dip into’ your fund balance to cover the shortfall.
 
In the early 1990s, PASSHE circulated a “Draft Policy” on fund balances that required the universities to maintain a fund balance between 4% and 8% of the current year’s revenue.  And although that draft policy was never promulgated, BOG Policy 2011-01 formally mandated a slightly higher fund balance range—between 5% and 10% of the current year’s annual revenue.
 
Strangely, this same BOG Policy 2011-01 also calls for maintenance of an annual “operating margin” of between 2% and 4% of revenue.  This means that presidents are expected each year to spend only 96% to 98% of their current revenue.  Note the peculiar and inherent contradiction between the “fund balance” provision and the “operating margin” provision of the very same BOG policy.  The first limits how much money you can save going forward; and the second effectively forces you to save every year!
 
Any university that successfully met the operating margin requirement each year (saving between 2% to 4% of annual revenue) would inevitably violate the fund balance requirement (keeping the fund balance between 5% and 10% of current revenue), and vice versa.
 
For example, a university starting with a “minimal” 5% fund balance, and a 2% to 4% operating margin would exceed the 10% fund balance limit in just two or three years!  A university at the maximum 10% fund balance would immediately go over that limit the first time they recorded even the minimum 2% operating margin!  So in order not to violate the maximum 10% fund balance limit, such a university would have no choice but to violate the minimum 2% operating margin requirement! 
 
In view of the contradictions, one wonders how the PASSHE Board of Governors and the Office of the Chancellor ever intended to administer such a conflicted policy.  The data suggest that they avoided all contradictions by simply enforcing only one-half of the policy (operating margins) while ignoring the other half (fund balance limits), thereby encouraging still more and more PASSHE money-hoarding. 
 
The PASSHE BOG Ignores the Fund Balance while Enforcing the Operating Margin Provision

Between FY 1997 and FY 2011, the total unrestricted net assets² (fund balance) for PASSHE, including the 14 universities and the entity known as the BOG-OOC, grew by a whopping 261% (from $141,693,575 to $511,028,132), meaning PASSHE’s total fund balance grew at an average annual rate of 9.61% per year for 15 years.  But that was before the new BOG policy took effect.
 
BOG Policy 2011-01 took effect on July 1, 2011, the very first day of the 2011-12 fiscal year.  While one might have expected to see at least a slowing down of the rate of growth, if not an actual decrease in the size of PASSHE’s fund balance, official PASSHE data show that during the BOG Policy’s first year, PASSHE’s total fund balance grew to $584,209,183, a one-year increase of $73,181,051, or 14.1%.  This one-year increase was even greater than PASSHE’s average increase during the previous 15 years.  Even at the lower (9.61%) rate of annual growth, PASSHE’s fund balance could top $600 million for FY 2013.

Direct Evidence for the Impoverishment of the Many by the Few
 
Recent news articles have described a plan that would enable West Chester, Bloomsburg and possibly other PASSHE universities with more than 7,000 students to move to state-related status.⁴ A fund balance comparison for the 14 PASSHE universities for FY 2012 and FY 2013 is very telling.

Financial records recently obtained by a Right to Know request from PASSHE⁵ confirm that between fiscal years 2012 and 2013, West Chester and Bloomsburg universities together added a total of $18.3 million to their unrestricted net assets (fund balances).  At the same time, Clarion, Edinboro, Mansfield, East Stroudsburg and Slippery Rock universities subtracted a total of $12 million from their fund balances.  This is direct evidence for how the PASSHE allocation formula shifts funds to a few PASSHE universities with growing enrollments, while simultaneously impoverishing five PASSHE universities that had publicly declared financial distress in the fall of 2013.

² https://www.keepandshare.com/doc/6758271/official-passhe-data-on-unrestricted-net-assets-for-fiscal-year-2011-july-14-2012-pdf-315k.
³ https://www.keepandshare.com/doc/7308027/bog-policy-2011-01-university-financial-health-pdf-96k.
http://www.post-gazette.com/news/education/2014/03/06/Proposed-legislation-would-grant-more-autonomy-to-state-owned-universities/stories/201403060289.
https://www.keepandshare.com/doc/6848404/passhe-2012-13-unrestricted-net-assets-march-10-2014-pdf-87k.