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.

Monday, August 11, 2014

Policy-Induced Death Spirals - The PASSHE Story - Part 5

Last week we cited the apparent contradiction between: 1) Some PASSHE universities declaring severe financial distress, and; 2) Other PASSHE universities touting great financial success.  This week we will explain how both of those things are direct consequences of PASSHE’s current business model.
PASSHE’s Current Business Model

PASSHE’s business model has been in place since July 1, 1983—the day Act 188 took effect.  From that day until the present time some 30 years later, all key decisions affecting all 14 PASSHE universities have been made by 174 officials sitting on PASSHE’s 15 governing bodies, which includes one overall Board of Governors (BOG) with 20 members, and 14 local Councils of Trustees (COTs) with 11 members each.

The version of the bill that would later become law as Act 188¹ featured a “strong Board/weak Council” structure.  That is, almost all key decision-making authority was reserved to the Board of Governors, with very little authority granted to the local Councils of Trustees.

As evidence for the “weak Council” assertion, consider that under Act 188, Councils of Trustees get to approve all university financial expenditures—but weeks or months after they have already been made!  The greatest authority granted to Councils of Trustees may be the power to conduct annual evaluations of sitting presidents or, as vacancies occur, to conduct national searches to identify three unranked finalists for the job. But in both cases, their recommendations go to the Board of Governors for decision.

According to Dr. James McCormick, PASSHE’s first Chancellor (1984-2001), earlier drafts of the Act 188 bill had eliminated local ‘boards of trustees” entirely, even though they had previously existed at each one of the 14 PASSHE campuses for many years.  As Dr. McCormick explained it to the 14 University presidents, the decision to reinstate the 14 local “councils” (not “boards”) was made to preserve the 154 patronage opportunities that would otherwise be lost to politicians of both parties if the councils were totally eliminated.  Also, in Pennsylvania, a “council” ranks lower on the power hierarchy than a “board.”  

Act 188 Created PASSHE as Public Corporation

It is important to note that prior to the passage of Act 188 the 14 “state-owned” universities were part of the executive branch of Pennsylvania State government, with the presidents reporting directly to the Secretary of Education in the Governor’s Cabinet.  Also, prior to Act 188, the university presidents were themselves political appointees, nominated by the Governor and confirmed by the State Senate.

Act 188 created PASSHE as a ‘public corporation,’ meaning that the 14 presidents would, for the first time, no longer be political appointees. Rather, they would be selected through national searches, and would report to a Chancellor who would also be selected by means of a national search.

And while these aspects of the new law would turn out to be huge improvements, and while the law granted a much-needed taste of separation from direct political control, the public corporation now known as PASSHE would itself be governed by a 20-member Board of Governors whose membership consisted of five elected officials and 15 political appointees.

So while the presidents would no longer be political appointees, the presidents and universities would report to a chancellor who, in turn, reported to a board consisting of elected and appointed officials.

It was thought that Act 188 would provide a buffer between the 14 universities and direct political control sufficient to allow the PASSHE universities and PASSHE students to thrive.  In fairness, the law worked perfectly well for its first 19 years (1984-2002), but it has increasingly failed to work since 2002.²

But that failure did not occur because the law was changed—because it wasn’t—but rather because the Board of Governors since 2002, with its slowly evolving membership, has decided not to deliver the Act 188 statutory purpose of the PASSHE universities: “High quality education at the lowest possible cost to the students.”  Instead, the Board of Governors since 2002 has adopted a policy to maintain the lowest possible tuition (i.e., sticker price) rather than the lowest possible cost to the students (i.e., bottom line). 

This failure by the BOG to follow the law as written—when combined with the steady 30-year decline in State funding—has essentially starved the PASSHE system of universities for the funds needed to deliver PASSHE’s Act 188 statutory purpose, largely accounting for the BOG’s failure to deliver that purpose.
 
But the “Allocation Formula” which distributes the pool of State appropriation to individual universities basically sets the funding shares to the 14 universities so as to match their respective enrollment shares.  So if a few universities are able to grow their enrollments, they will effectively impoverish those that can’t, speeding up their mission failure and financial demise, and only temporarily postponing their own.  The data show unequivocally that without steadily increasing enrollments—which are not sustainable—each and every PASSHE university is headed for mission failure and bankruptcy in the near term. 
Punctuated Equilibrium

Since it began in FY 1984, PASSHE has enjoyed three decades of “policy stasis,” even as the underlying facts on the ground were dramatically changing.  Consider, for example: 1) FTE enrollments increased by 58%; 2) State funding per FTE student fell by 50%; 3) the State’s share of PASSHE’s budget fell from 63% to 25%; and 4) the share paid by students, parents and alumni donors shot up from 37% to 75%.³ 

During those three decades, PASSHE’s Act 188 policy framework was arguably one of the few things that didn’t change during that period.  And like steadily grinding tectonic plates, this ‘policy/reality disparity’ is a grinding inconsistency that portends powerful sudden change.

Pennsylvania’s key elected officials are not only deciding (legitimately) that State appropriation funding to PASSHE must be reduced, for valid demographic and economic reasons, they are also deciding (quite illegitimately) that PASSHE tuitions must also be kept low, for purely political reasons.

Taken together, these two decisions have created the “death spirals” that five PASSHE universities have recently encountered, and that the other nine will find it increasingly unable to avoid.  

² https://www.keepandshare.com/doc/6794551/privatization-without-a-plan-chart-9-and-caption-january-23-2014-pdf-387k.
³ http://www.amazon.com/Privatization-Without-Plan-Leadership-Pennsylvania/dp/1491295244/ref=sr_1_1?ie=UTF8&qid=1407466669&sr=8-1&keywords=angelo+armenti.

Monday, August 4, 2014

Policy-Induced Death Spirals - The PASSHE Story - Part 4

Possible Faculty Layoffs
 
As stated in my July 14, 2014 blog post entitled “Policy-Induced Death Spirals - The PASSHE Story:
 
“In the four month period between August and December of 2013, five of 14 PASSHE universities— Clarion,¹ Edinboro,² Mansfield,³ East Stroudsburg and Slippery Rock—publicly declared financial distress, ballooning deficits and layoffs of tenured faculty.” 
 
On July 30, 2014, an article appeared in the Post-Gazette⁶ with the following headline: “Notices of possible faculty layoffs go out at five of Pa’s 14 state-owned universities.” The following five PASSHE universities were identified in that article: Clarion, Edinboro, Cheyney, East Stroudsburg and Mansfield.
 
This latest article may be confusing to some people because, at first glance, it may seem like “old news.” But it is not old news; it is an extension of a grim and unnecessarily tragic story that will linger on the campuses and in the media in the months and years ahead.

Other PASSHE universities, beyond the six that have so far done so, will also announce faculty layoffs as each of the eight remaining universities face their ultimate preordained fate—which is mission failure and bankruptcy in the near term.  But in fairness to the leaders on the fourteen individual PASSHE campuses, the absolute truth of their situation isn't known or appreciated: 
 
The 14 PASSHE Universities are Trapped in a Death Spiral Not of Their Own Making
 
There is a big difference between human events and the newspaper stories about them; even when the facts are accurate, the underlying reasons for those facts are rarely understood or reported.
 
For example, a comparison between the news stories from last year and this year reveals important facts, namely that four of the five universities—Clarion, Edinboro, Mansfield and East Stroudsburg —were included in “potential faculty layoff stories” both years while for 2014, Cheyney replaced Slippery Rock as the fifth PASSHE university on that unfortunate list.
 
As well, other recent news stories have cited the fact that West Chester University is doing so well in terms of its enrollments and finances that its backers are proposing that it—and possibly a few other PASSHE universities with strong finances and enrollments over 7,000 students—become “state-related.”
 
One wonders, of course, how it is possible that four of the fourteen PASSHE universities could be facing potential faculty layoffs two years in a row—an obvious symptom of severe financial distress—while one or more PASSHE universities are contemplating joining the ranks of the “state-related” and largely independent Pennsylvania institutions that include Penn State, Pitt, Temple and Lincoln Universities.  One way to make sense of this obvious conundrum is to think of it in terms of “punctuated equilibrium.” 
 
Equilibrium

Merriam-Webster defines “equilibrium” as “a state of balance between opposing forces.”  Such equilibrium can be either static or dynamic.  For example, an airplane sitting on a runway is in static equilibrium because the downward force of gravity on the plane (its weight) is exactly counterbalanced by the equal and opposite “normal” force of the runway pushing upward on the plane.  That very same airplane flying level at 35,000 feet and 600 miles per hour is in dynamic equilibrium in the sense that the downward weight of the plane is now counterbalanced, not by the runway, but by the upward lift on the plane provided by its airfoil wings.
 
Equilibrium can also be stable or unstable.  A marble in the bottom of a parabolic shaped well is in stable equilibrium at the bottom of the well.  A small push to one side or the other allows the marble to return to its original equilibrium spot at the bottom of the well.  But a marble will balance—at least temporarily—at the top of an inverted parabolic well, with the upward and downward forces totally balanced.  But in that case, the slightest push to one side or the other causes the marble to cascade rapidly away from its equilibrium spot. 
 
Punctuated Equilibrium

According to Merriam-Webster, “punctuated equilibrium” is characterized by “long periods of stability with short periods of rapid change.” This concept is now familiar from many different branches of both the physical and social sciences.  For example, in geology, tectonic plates and volcanos can exist for eons in quiet states of calm equilibrium, and then suddenly burst out into violent earthquakes or eruptions.
 
In evolutionary biology, the concept of punctuated equilibrium helps paleontologists understand the fossil record which empirically suggests very strongly that species exhibit extremely long records of “stasis,” interrupted by extremely brief periods of “rapid change.”
 
In the social sciences, punctuated equilibrium also helps to understand how changes in public policy can come about.⁷ As with the physical science examples just cited, the evidence suggests that social systems also tend to have long periods of stasis, punctuated by sudden shifts in policy.  This in turn suggests a similarity between the “stickiness” of tectonic plates that causes an accumulation of pent-up energy, and the social stickiness of organizations that, benefitting from the status quo, resist any loss of power and perks until that pent up energy becomes great enough to create a new status quo.
 
Next week we will continue to show how the obvious contradiction in the simultaneous existence of two polar opposites can be possible—namely how: a) some PASSHE universities can be declaring financial distress; while b) other PASSHE universities are touting financial success.  As we will see, the apparent contradiction, yet to be clarified by the media, can be readily explained via the concept of punctuated equilibrium.⁸ 
 
¹ http://www.pennlive.com/midstate/index.ssf/2013/08/clarion_university_restructuri.html.  Penn Live, August 16, 2013.
²
http://www.post-gazette.com/education/2013/09/11/Edinboro-University-plans-faculty-program-cuts/stories/201309110152. post-gazette.com, September 11, 2013.
³
http://www.pennlive.com/midstate/index.ssf/2013/09/mansfield_university_becomes_t.html. Penn Live, September 26, 2013.
http://www.post-gazette.com/news/education/2013/10/30/East-Stroudsburg-is-fourth-state-owned-Pennsylvania-university-to-announce-cuts/stories/201310300139. post-gazette.com, October 30, 2013.
https://www.keepandshare.com/doc/6756902/tribune-review-december-24-2013-slippery-rock-university-facing-10-million-deficit-possible-l. Tribune-Review, December 24, 2013.
http://www.post-gazette.com/news/education/2014/07/30/Notices-of-possible-faculty-layoffs-go-out-at-five-of-Pa-s-14-state-owned-universities/stories/201407300181.
Baumgartner, Frank and Bryan D. Jones (1993). Agendas and Instability in American Politics. Chicago: University of Chicago Press.
⁸ This note will acknowledge and thank a faithful reader of this blog for suggesting this concept.