Saturday, July 19, 2014

Black Swan, False Dawn--or Jagdeep and 17%?

the 'false dawn' term was used by Yellen on non UC biz around the same time (and that term captures really well the apprehensions across the board and showing up at UC Regents discussions) -- so decided to throw it in for the rhyme...

the Black Swan term and Jadeep (the new CI(nvestment)O) and 17% (dreams of that level of ROI) came up in the discussion of UC pension at the end of UC Regents wednesday morning meeting

the video for the Wed morning UC Regents meeting is available here:

here are some key markers to toggle to:
00:59:10 Napolitano comments,opening speech
--Faculty Rep Jacobs follows. It was his last meeting and he gave a speech on what he views as critical issues and how he thinks they should be addressed.

01:40:00 the Committee on the Future now mashed up into the Committee on Long Range Planning headed up by Regent Gould-- he highlighted this meeting is the first time in 1+ years

The presentation covered many major UC initiatives that will have long lasting impact and costs- it is a good primer on UC admin, ops and biz --if you are not sure what these things are and how they affect other student applications and acceptance, funding for classes, programs etc.

01:53:19 Working Smarter Initiative

01:55:10 UC Care

01:58:10 Fiat Lux Risk and Insurance Co.

02:00:30 Non Resident Student Enrollment numbers and projections are discussed at length in Q & A

02:07:00 UC Retirement and lack of 'contribution from state' policies as compared to CSU (but CSU does not have the same constitutional autonomy that UC enjoys, so...)

02:12:00 UC staffing levels discussed, questions around reductions of core funds, faculty reductions, core fund spending for educational mission.

02:14:00 Faculty Rep Jacobs- says the 'Governor is prone to think this is good news' and that UCOP has to explain to him that it is not good news and why.

02:16:50 Faculty Rep Jacobs -Working Smarter in many ways just reducing increase in expenses and that is not the same thing as increasing revenue.

02:40:00 P200 Strategic Sourcing Initiative - fixing 'sub optimal procurement practices' (again)

02:57:00 Begins the section on the UC Path presentation
(the only other presentation to regents on UC Path occurred in January 2012- but the budget for it is in the hundreds of millions)

03:25:30 ends the formal presentation on UC Path
discussion of possibility of offsetting costs for UC Path by cutting staff #s at campuses comes up in that section too,

also see: Remaking the University on UC Path: The sadder example of ongoing debt is the request for "external financing for the UCPath project." UC Path was UCOP's flagship solution to UC inefficiencies that were allegedly wasting taxpayers' money--in other words, new enterprise software for the systemwide consolidation of payroll and human resources functions. This is boring, important back office stuff, hardly good material for a political campaign to show the state "UC means business," but that's what it became. Rather than funding each campus's decades-old effort to upgrade its systems on its own, UCOP sought centralization, which predictably introduced new levels of cost, complexity, and inefficiency, since centralization is often not actually efficient.

I had heard nothing good about UC Path from people trying to implement it on campuses, and have tried to ignore it, but this week it has resurfaced as a problem at the Regental level. The project timeline has grown from 48 to 72 months, and its costs are said to be $220 million (it had spent $131 million by May 2014) . Worse, the repayment schedule has mushroomed from seven to twenty years. Annual payments are to be something like $25 million. Campuses are to be taxed to pay for 2015-era systems until 2035, which is like taking out a twenty year mortgage to pay for your refrigerator, except that your fridge will be working better in 2035 than next year's PeopleSoft product. Since the concurrent budget document notes efficiency savings of $30 million per year, UCOP may be spending $220 million to save a net $5 million per year over a couple of decades--and going into debt to do it. In the end, an efficiency measure has turned into a literal liability.

Want to point out here also -the first disturbing point in that UC Path presentation was the very murky way they described the software vendor as being the original project management?!- another disturbing point in the UC Path project presentation occurred when the heads of the project (they continually reminded everyone -they inherited the project) said the problem with the project were because "initially the project was approached as a software implementation project rather than fundamentally as a business transformation project"-- to hear that explanation while remembering how the 'project sponsors' former CFO Peter Taylor and VP Brostrom described the project from the beginning and their goals with it- e.g. how Taylor had monthly concerns about generating accurate payroll etc.- how could anyone on the project think that it would be just a software implementation (even non-experts know that software implementations are never just software implementations). Vice Chair Ruiz wanted to get into the reasons during the Q and A but...

The end of the UC Path discussion leads into pension discussion where concerns musings about Black swan events are assuaged, interjected... and Jadeep and 17% come up - Regent M wants caution (also see 02:37:00) and a full overview by CIO Jadeep before major moves on STIP --and Regent Wachter commented on wishing for almost-regent-now-advisor Crane as they discussed it...

Remaking the University takes this up too: Then there's the pension. UC employee contributions have now risen to 8 percent of salary, and UC's employer share is going to 14 percent of payroll. UC asked for the state to fund just next year's new increment on the employer contribution to the pension. This would be $64 million to cover the increase from 12 percent to 14 percent in 2014-15. The state rejected even this fractional contribution.

The state's point may be that the pension is UC's problem because the UC Regents created it, with their two-decade pension "holiday" in which neither employer nor employee made contributions. But it's not like the state wants to force accountability by naming names and cleaning house: Gov. Brown recently reappointed several long-term regents who among other things were directly involved in this ongoing lack of basic fiduciary responsibility. I assume that the pension liability helps Sacramento keep the financial dunce cap on UC's head, forcing humility in its budget demands.

A major result of the university's political weakness and the resulting austerity is more institutional borrowing. A normal sign of an improving economy is that institutions start paying down the debt they accumulated to get through a downturn. That isn't happening here. UC needs to borrow to make its contribution to fully funding the UC Retirement Program (UCRP) by 2042. It has been borrowing from its Short Term Interest Pool (STIP) for several years, and now wants to borrow another $700 million next year to make all of last year's (2013-14) planned payment. Without getting into the weeds of this issue, I'd summarize UCOP as saying it still can't afford to return the pension, by 2042, to 95 percent of the level at which all liabilities are covered, without continuing to borrow. (Two weeds: UCOP is saying it can't afford "modified ARC" for that year on its own; and although the document claims faculty Senate endorsement, this plan appears to be less than the Senate's call for 100 percent liability coverage by 2042). The pension is set to be significantly underfunded for most of the next thirty years. It will be a permanent political target and a burden UCOP will set against operating funds, with the likelihood of future liabilities incurred to pay down the pension liability.

The video for the afternoon section of the UC Regents Wednesday meeting here

01:14:00 Compliance and Audit committee
They highlighted that due to budget constraints they mostly do controls work over advisory services

01:27:29 the Education Policy Committee met on the sole topic of Title IX Task Force overview
student survivors participated
some title ix coordinators etc
they highlighted they want budget approvals
listed off calendar activities
Also discussion of UC advocacy in Sacramento came up at various points and Chair Varner said that the regents have decided they will now only support a biennial (every other year) effort rather than annual. Student govt officials said they wanted it to remain annual.
and some of the audio - if you only want to listen and not see the sometimes blurry slides (someone doing the video for UC needs to focus better on the slides) you can listen here. and for the afternoon section audio you can listen here.

and meeting video for the second day Thursday of UC Regents meeting can be viewed here

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