June 16, 2009
A public relations bomb just landed in my inbox: an email fromUC Berkeley Chancellor Robert Birgeneau and Provost George Breslauer announcing the impending reality of horrific budget cuts across the Berkeley campus and the rest of the UC system as the state slowly faces up to fiscal reality. Instead of the 8% cuts (approximately $67.2 million) that the campus had originally projected during their budgeting process, they now anticipate that the cuts likely to be approved by the legislature will force a 20% (or $145 million) cut. As you can imagine, the letter doesn’t get better after that.
I just read this a few seconds ago, so I don’t have anything thoughtful to say about it yet, but I felt compelled to reprint it here in full in order to publicize the situation. As I was looking at it, I couldn’t help but wonder at the extent to which these circumstances are likely to bring about radical changes for all of us affiliated with the country’s most renowned public institution of higher education. The inherent volatility of financial markets aside, the situation is a tragedy which could have been at least partially prevented through more effective action by California’s political elites.
Dear Campus Colleagues:
As you are undoubtedly aware, California’s financial crisis has worsened severely in recent weeks; this means that the likelihood of unprecedented cuts in State funding of the University has risen dramatically. UC Berkeley is facing the most difficult financial situation that we have ever encountered in our university careers.
We know that you have been hearing rumors about a number of potential actions designed to reduce costs not only at Berkeley but across the system. We want to lay out the financial context for you, tell you what we think may happen, and let you know our leadership strategy for the Berkeley campus as we manage through these difficult times.
Today, we find ourselves facing stark new realities.
Six weeks ago, UC Berkeley faced a $67.2 million budget gap for 2009-10. That anticipated shortfall has now grown to $145 million. Here is how we have been working to address the anticipated shortfall.
* The recently-enacted 9.3% student fee increases and other revenue-enhancement measures that become effective July 1, have reduced the $145 million gap by $30 million.
* In addition, through the work of many of you, our cost-saving measures introduced in 2008-2009 have further reduced the gap by another $15 million.
* That leaves us, at present, with a $100 million remaining gap for the academic year 2009-2010. We are hopeful that this gap will not grow further as the State finalizes its budget, but we must assume that this is our working target as we plan for the coming year.
* The possible loss of the Cal Grants program, as proposed by the Governor, is not included in the above totals. These grants total $47 million annually to the UC Berkeley campus. They cover fees for a large number of our undergraduates. The loss of Cal Grants would not only disadvantage those students; it would fundamentally subvert our social imperative to provide broad social access to the excellence at UC Berkeley. The Joint Legislative Budget Conference Committee has proposed protecting student awards for 2009-2010 grants, but that is not 100 percent certain.
* Federal stimulus funds are beginning to trickle in, but are not designed to cover existing core operations.
UC Berkeley, of course, is not alone in facing these challenges. Private universities have suffered major declines in their endowments while public universities nationwide have experienced severe cuts in State support.
This basically means that we are now facing a reduction of our baseline budget that will likely continue, and may even deepen, over multiple years. These unprecedented developments require us to examine the underlying assumptions that guide us in delivering and supporting the University’s mission of teaching and learning, research and scholarship, and public service.
For UC Berkeley, this much is certain: all of us—students, faculty, staff, and senior administrators—will be required to sacrifice as we navigate our way through this crisis. At the same time, it is essential that we work together to address the formidable challenges ahead of us.
Our budget planning scenarios, which had earlier anticipated an average of 8% permanent budget cuts to all campus units for the coming fiscal year, will now likely be at a campus-wide average of 20%. While some units will need to spread the cuts over two years, the campus average cut must be at least 12% in 2009-2010. The remainder must be taken by 2010-2011.
These cuts will not be uniform “across-the-board”; units that are core to the teaching and research missions will be given somewhat lesser cuts than the others, and, within the teaching-and-research realms, units with higher capacity will be asked to take larger cuts than those with lower capacity. This is the only rational approach in a campus like ours if we are to preserve our depth and breadth of academic excellence—our principal competitive advantage.
Clearly cuts of this magnitude will require all areas of our campus to sacrifice considerably, and to make changes in their core operations. We will need to reduce our workforce significantly and this will be painful and difficult. To accomplish this, we will also need to make changes to our core operations and the way we do our work. All of these efforts will take time to achieve.
Over the summer, managers will work with their units to make difficult but necessary decisions about reductions in our workforce, while determining which services we can eliminate or curtail. Naturally, all policies and procedures will be followed, and we will work to treat our people with the respect and dignity they deserve under these very difficult circumstances. We are sensitive to the impact of staffing reductions on the workload of remaining staff and are seeking ways to streamline our business processes.
As each unit or department works to meet our new budget number, many specifics remain unclear, requiring approval by the Office of the President and the Regents for system-wide implementation. We would like to inform you of those things that are likely or certain to occur in 2009-2010.
What We Know for Sure
* It is, unfortunately, certain that, during 2009-2010, efforts to implement permanent budget cuts at all UC campuses will result in the elimination of many staff positions.
* It is certain that, during 2009-2010, there will be a near-total freeze in new faculty hiring at UC Berkeley.
* It is certain that, during 2009-2010, a staff hiring freeze at UC Berkeley will remain in effect.
* It is also certain that there will be no faculty or staff early-retirement programs at UC campuses on the order of the VERIP of the 1990s.
What is Likely to Happen
* It is highly likely that, through temporary furloughs and/or pay cuts, faculty, staff, and senior administrators at all UC campuses will see their wages reduced by about 8 percent (with potentially a lower rate for our lowest paid workers); it remains uncertain whether pension calculations will be affected by this reduction.
* It is highly likely that, at some point during the 2009-2010 academic year, faculty, staff, and senior administrators at all UC campuses will begin contributing to the UC pension fund.
* It is quite possible that the health-care premiums paid by faculty, staff, and senior administrators at all UC campuses will increase significantly.
Our first and foremost goal is to preserve the academic excellence of Berkeley. To that end, let us be clear as to what we will not entertain during this crisis.
* We are not discussing or considering layoffs of Senate faculty members, tenured or untenured.
* We are not discussing or considering making Senate faculty promotion decisions contingent on available funding.
* We will not sacrifice Berkeley’s commitment to breadth and depth of academic excellence.
* We will not allow the budgetary crisis to subvert either the delivery of our teaching mission or the support infrastructure for research.
* We will not sacrifice our commitment to social access: low-income students who have earned a place at Berkeley must be capable of affording a UC Berkeley education.
* We will not flag in our commitment to recruit to Berkeley the best graduate students in all fields.
* We will not abandon our efforts to train and promote a highly skilled and diverse workforce.
These are the guiding principles that will be in the forefront of our activities as we entertain difficult choices.
As we progress through this budgetary crisis, we are also looking forward to the longer term prospects and we are taking measures to reduce the size and cost of our enterprise by streamlining work. For example, we have begun implementing a multi-year plan to streamline administrative processes in IT, Human Resources, procurement, business services, student advising, research administration, and other areas. Many of these improvements will involve centralized and automated systems that will reduce our dependence on a patchwork of decentralized, labor-intensive operations.
Over time, a combination of layoffs, retirements and normal attrition will result in a smaller workforce that will bring our staff and faculty payroll closer to alignment with State funding, while maintaining high-quality services. Toward these ends, we have already made substantial investments in systems such as the Human Capital Management (HCM) systems, the Berkeley Financial System (BFS), and an upgrade to ePro, our procurement system.
We are also working with the Office of the President on ways to cut costs by adopting system-wide (UC) administrative systems and reducing prices through system-wide procurement of some goods and services. Locally, we are consolidating the administration of contracts and grants and are merging back-office functions of both academic and non-academic units.
We are actively engaged and working closely with the Academic Senate and a faculty subgroup that has been formed specifically to examine budget reduction measures. We anticipate evaluating all options around hiring, retention practices, and strategies to defend the breadth and depth of academic excellence for which UC Berkeley is renowned.
We are implementing an entire suite of revenue-enhancement measures: full recovery of the central administrative costs associated with our self-sufficient auxiliary enterprises; negotiation of a higher federal overhead rate for campus research; expansion of the reach and earnings potential of University Extension and Summer Sessions; and, of course, intensified private fund-raising. We are also restructuring campus debt to reduce those costs over the near term.
In the external realm, University leaders are advocating aggressively, making sure that legislators, the public, and UC’s closest constituents understand the value of our mission, employees, and students.
We pledge to redouble our efforts to strengthen UC Berkeley’s long and rich tradition of combining access and excellence. Throughout the State, country, and even the world, Berkeley remains the standard by which all other universities are judged when it comes to the combination of comprehensive academic excellence and deep commitment to a public mission. We will not shy away from our commitment to either of these lofty goals.
Through shared sacrifice by students, staff, faculty, and senior administrators, and through renewed efforts to reduce over time the cost of delivering instruction, research, and administrative services on campus, we will emerge from this crisis more focused and more efficient, but equally excellent and accessible. UC Berkeley has been an outstanding institution for 141 years and it will still be outstanding 141 years from now. We look forward to working with you toward these ends.
What happens next?
We are acutely aware that the economic situation makes this a difficult time, professionally and personally, for many of you. Change of this magnitude will be difficult. We have asked our Human Resources area to assist in a number of ways, specifically by supporting managers and employees as we work through this difficult time. We understand that clear information on campus actions and resources to help you is essential. We ask that managers and supervisors please take time to go though this message with your employees. We renew our commitment to bring you that information as we learn it, via e-mails and on our Budget Central website: newscenter.berkeley.edu/budgetWe hope that you will watch the site for budget news as it develops, and we thank you for your continued commitment and dedication to this unique institution.
Robert J. Birgeneau
George W. Breslauer
Executive Vice Chancellor and Provost
April 10, 2009
Tony Curzon Price has a thoughtful piece at Open Democracy in which he examines what he calls The G20’s sins of commission.
I’m interested in a whole bunch of angles that Price explores, but the money shot for all you global governance and development geeks out there is a graph Curzon Price recycles from Paul Swartz at Council on Foreign Affairs Geo-Graphics blog:
Curzon Price goes on to use the graph to make an interesting (and important) claim about the implications of China’s newfound romance with the IFI’s and global regulation.
I, on the other hand, thought it would be kind of fun to play with the graph to try to get a better sense of what may have driven these changes in the IMF’s role over time. Since Swartz doesn’t share the data or source for his graphic, I’m reduced to hacking around with the .jpg in the GIMP (which made for a really fun distraction during a meeting the other day). Apologies for the resulting visual clutter, but here’s the same graph with some new knobs and bits. The bigger dots correspond to the events that accompanied the biggest shifts:
- Margaret Thatcher elected: May 1979
- Black Monday: Dec 1987
- Berlin Wall taken down: November, 1989
- Soviet Union Collapses: December 8, 1991
- Mexican Peso crisis: Dec 1994
- Asian Financial crisis: July 1997
- Brazil devalues the Real: Jan 1999
- Dot-com bubble bursts: March 10, 2000
- September 11, 2001
- Argentine debt default: Dec 2001
- US invades Iraq: March 20, 2003
- Brazil and Argentina pay off IMF debts: Dec. 2005
- Global Recession: October 2008
Some of the things I thought might correlate with sudden changes in the global weight of IMF lending – such as Black Monday (2); the Dot-com bubble burst (8); Argentina and Brazil paying off their debts (12) – didn’t seem to matter at all.
Others – such as Thatcher’s (and Reagan’s) election (1); the Mexican Peso crisis (5); and the 1-2 combo of the Asian (6) and Brazilian (7) financial crises – appear magnified when seen through this lens.
Most intriguing to me is the long steep slide that occurs following September 11, 2001 (9). My inclination is to explain that as the result of a perfect storm that combined the eroding credibility of the IMF (Joe Stiglitz, eat your heart out!) and a real estate derivative and petro-dollar fueled explosion of private lending world-wide. No matter how you slice it, though, there’s no denying that the world financial system has gone through some exceptionally dramatic changes in the last ten years.
Other than that, I don’t have a flashy Theory of Everything to explain all the data here. Heck, as I said, I don’t even have the data. Nevertheless, it’s fun to speculate.
April 6, 2009
As in just about all the coverage I’ve seen of the Google Books deal with the Author’s Guild,
Friday’s NY Times story raises the familiar specter of Google-as-monopolist. This continues the longer-term trend of tarring the Mountain View, CA based firm with the same brush as it’s older, bigger, and more widely-distrusted rival from Redmond, WA. I’d like to point out a problem with this storyline that stems from the nature of the particular terms of the agreement.
In my mind, the nastiest and most inexplicable aspect of this agreement is not the bare fact that Google is about to buy the rights to a massive proportion of the world’s books. That has been a long time coming and is not a surprise. As many have pointed out, it could, in principle, lead to price manipulations when Google turns around to sell access back to libraries. However, I suspect we won’t see anything like that. Google’s lawyers aren’t stupid – they know that the Justice Department will be hot on their trail as soon as they get the faintest whiff of something like this. They will not want to let this happen if they can help it.
No, as I understand it, the truly nefarious part of the agreement preserves Google’s right to pay the same rate for licenses that publishers might offer to a hypothetical Google competitor in the future. This means that Google has effectively cornered the market for buying digital books – putting it in a position to shape the market to its liking in a way that looks much less evil to consumers.
The likely outcome is that buyers of access to Google Books won’t necessarily pay a premium price as they would with a typical monopolist. Instead, it is the organizations that sell rights to the books to Google in the first place who will be paid less than they would in a more competitive retail market.
Back in the 1930’s, the industrial economist Joan Robinson termed this kind of market failure a “monopsony.” The ideal typical form of monopsony arises in situations where the market for a particular good only has one buyer. This monopsonistic buyer is able to manipulate prices in much the same way that a monopolistic vendor would. The result is a market where the pricing mechanism fails to reflect supply and demand, perpetuating distortions and the breakdown of all the nice side effects that come along with a working market such as quality control, incentives to innovate, and adequate compensation for the producers of the goods in question.
Monopsony makes for less exciting headlines because it does not threaten consumers. Monopsonistic retailers slowly suck profits from their suppliers, forcing them to accede to their demands through the threat of massive revenue losses. The paradigmatic examle of a monopsonist in recent years has been Wal-Mart. The giant firm gets low prices for consumers by manipulating the prices of vendors (and by systematically undermining the labor market, but that’s another story). As soon as Wal Mart threatens to stop carrying their product, a seller has little bargaining leverage since they cannot afford to lose such a massive customer.
At least one person (who I don’t feel comfortable naming or quoting directly without permission) in the Berkman Center’s cyberlaw clinic assures me that the terms of Google’s agreement with the Author’s Guild are not totally clear on this point. Nevertheless, the fact that such an interpretation is not inconsistent with the text of the agreement should be reason enough to worry anyone who reads, writes, buys, or sells books.
December 19, 2008
ASEAN may go ahead with once-scrapped plans to create an Asian Monetary Fund as an alternative to the IMF.
Seems to me like a redundant effort that only makes sense given the extent to which the IMF does not respond effectively to the needs of the majority of its member states.
Multilateralism falls apart if you don’t cultivate it in good faith.
November 23, 2008
Ever since the announcement of the discovery of Brazil’s Tupi oil field earlier this year, I haven’t really taken the time to think about the political implications of the new-found reserves. This article from the Christian Science Monitor is suggestive in that regard. Unfortunately, the piece hews to a decidedly optimistic storyline about how the income will pay for new social welfare programs. That’s all well and good, but let’s take off the rose-tinted glasses long enough to consider at least a few of the less attractive alternatives.
I share the view that Brazil’s new-found oil wealth will bring about transformative changes within the country’s economy, its state, and its society. The infusion of cash will indeed open up untold opportunities for closing Brazil’s notorious wealth gap. It will also further entrench Petrobras – already one of the largest firms in the Global South – as a worldwide energy-production leader. To the extent that these opportunities are managed effectively, Brazil will gain in influence, wealth, and international prestige.
However, to the extent that the Petrobras windfall is managed poorly and generates unanticipated spillover affects, it could easily produce a catastrophe. The sudden surge in income will likely give Petrobras executives and investors even more political clout than they already have, leading to increased opportunities for corruption (already a neverending problem in Brazilian politics), graft, and nepotism within the state. Furthermore, only an immense amount of well-channeled political goodwill can prevent the expansion of Petrobras from encroaching on the political interests of Brazil’s other burgeoning industries and its most vulnerable citizens.
This is not about simple optimism or pessimism, but rather about the realities of imbalanced petro-economies. The reasons why other oil-rich nations have such a horrendous track-record in terms of political accountability, transparency, and inequality has a lot to do with the pressures that a burgeouning state-owned energy sector tends to place on the rest of the state and private sector. Just because Brazil has enjoyed sustainable growth and social progress since the mid 1990’s does not mean that it has somehow “advanced” beyond the point at which its oil might prove more troublesome than its worth.
November 11, 2008
The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
The Bloomberg story goes on to quote Barney Frank spouting a bunch of nonsense about it not being so bad if “the fed gets a haircut” on these loans, but that logic misses the forest for the trees.
Bad information about the state of the Fed’s credit offerings will only breed mistrust and doubts among the rest of the market’s participants. The Treasury is correct to assume that making this knowledge public will destabilize some firms. However, if the Treasury actually wants to improve things in the long run they will seek more transparent procedures since a market with grossly distorted information does not benefit anyone.