Historically,
America’s economic strength has largely been dependent on the quality and
accessibility of the education system particularly at the college and graduate
levels. Excellence here has been
the fuel for America’s global growth.
But, increasingly,
over the past decade plus there has been a most troubling cost growth with
tuition growing faster than inflation and student loan debts exploding. Today, the total loan debts exceed $1
trillion with some 15 percent of that expected to go into default leaving
another huge debt burden on the taxpayer.
Further, these sharp rises in tuition have all but eliminated the
possibility of a student working his way through college and, thereby,
jeopardizing another vital part of the American Dream.
Today a student
working at minimum pay rates would have to work some 61 hours per week in order
to cover University of Minnesota costs.
In 1970, that figure was 24 hours.
Further, the average student now graduates with a debt load of nearly $30,000. Assume a couple marries, the combined
debt load is $60,000 and this does not include any graduate school costs. But what it does do is severely hamper
the ability of that couple to purchase a home and it also influences the type
of employment they seek. Economics compels them to make choices related more to
earning power than toward service-oriented opportunities including teaching
For instance, in
medicine the debt load is approximately $150,000 and this clearly is impacting
career choices with specialties gaining and the area of general practice in
decline.
As a result of these
changes, our economy will be hurt from fewer housing starts to attracting
teachers and doctors. These rising
costs will also prevent many talented individuals from seeking advanced degrees
particularly in areas vital to our economic growth. For instance, a recent Price-Waterhouse
report noted that the United States is losing its “innovative edge” in medical
technology to countries like China and Brazil
That is a trend we
cannot allow to continue.
Over the past several
months, there have been troubling stories published in the Star Tribune, Washington Post, and Wall Street Journal relative to the University of Minnesota’s
administrative bloat and excessive compensation costs. And contrary to the efforts by
administrators to brush aside the importance of these rising costs, it is of
vital importance that we deal with them and prevent further harm.
Personally, I had
always thought of the role of academic administration to be one of fostering an
environment of excellence and success for the teaching and research pursuits
that constitute the mission of a university. In so many ways they defined the public service value in
higher education.
Sadly, higher
education leaders have created a financial model that focuses on their
importance and it is spiraling out of control And it is this spiraling that is increasingly creating
media criticism and is being identified as a cause for the sharp increases in
tuition.
For instance, when I
came into the Governor’s office in 1991, the President of the University made
approximately $152,000 while I made $112,000 – a gap of some $40,000. Today, the Governor makes $120,000 and
the University President, $610,000 – a gap of $490,000.
This mirrors the
overall explosion of administrative salaries. As an example, the lead attorney for the University makes
$295,000 or $95,000 more than the Attorney General of the United States, and
over $180,000 more than the Minnesota Attorney General and some $78,000 more
than the Chief Justice of the United States Supreme Court.
The University
President’s Chief of Staff earns a salary commensurate with the United States
Secretary of State while the University lobbyist who pleads the University’s case
at the State Capitol earns some $60,000 more than the Governor.
Joel Maturi, a
fundraiser and part-time teacher makes $468,000 while the President of the
United States earns $400,000.
This comparison with
federal and state government officials with comparable responsibilities could
go on ad infinitum.
Overall, the Wall Street Journal and Washington Post found some 17
administrators making over $300,000 per year - well more than the Vice President of the United States and
some 81 earning over $200,000 per year or more than any cabinet-level
secretary.
As if this is not
sufficient cause for alarm, the retirement packages have been attracting
attention.
First of all, the
University has a rich pension formula for its higher-level employees including
administrators. Prior to January 2012, the required employee contribution rate
was 2.5 percent of salary with the University contributing 13 percent. Most public employee systems require a
more even split between employer and employee. In January 2012, a new formula went into effect with
employees contributing 5.5 percent while the University puts in 10 percent –
still a most generous plan.
Interestingly, the
University is far less generous to its civil service employees. They are part of the Minnesota State Retirement
System and contribute 5 percent of their salaries with the University putting
in another 5 percent. Simply put,
the top echelons of administrators have a substantially richer pension reward
system than the average employee.
On top of this, the Star Tribune has published the enormous
costs of some retirement packages.
At the height of the
deep recession from 2007-2012 when the middle class was losing some 40 percent
of its total net worth and students were buckling under the weight of sharp
tuition increases, some top University administrators were helping themselves
to unprecedented retirement riches.
For instance, the Chancellor of the University of Minnesota, Duluth was
granted by retiring President Robert Bruinincks a $535,700 bonus package. Other top administrators were also
benefactors in sharing the $2.8 million made available by the University.
The one that caught
everyone’s attention was the enrichment package President Bruininck’s
negotiated. In addition to
compensation in excess of $700,000, he received $455,000 for the purpose of
preparing himself to return to the academic world. He also funneled some $355,000 to his newly created Center
for Integrative Leadership where he teaches at a salary of $355,000 per year.
This excess directly
translates into higher administrative costs which are then placed on the
various colleges under the umbrella of the University. For instance, the medical school pays
over $66 million for overall administration services ranging from utilities to
a variety of student services as well as technology, library, etc. There is no one specific item that
identifies administrative overhead.
Rather these costs are blended in with the overall figures.
However, the
bottom-line result is that our medical students pay the highest or near the
highest tuition for public universities and this impacts our ability to attract
the highest quality students.
Further, as mentioned previously, this high cost burden is a factor in
the type of medicine students pursue.
At the Business School,
the overhead is nearly $21 million.
The prior Dean of the Carlson School pursued financial independence for
the school in order to reign in the costs. This effort was not successful. She resigned and accepted the position
of Dean of the University of Michigan School of Business which enjoys more
financial independence.
Clearly, high
administrative costs have serious consequences. But salaries, pensions, and retirement packages are only a
part of the overall problem of administrative costs. Perhaps even more serious is the effect of management
layering.
For instance, at the
University of Minnesota, most management employees are under contract rather
than serving at-will. This means
they can only be fired with cause.
This has created some highly expensive and inefficient practices. It is not uncommon for an outgoing
President to extend the contracts of his favorite managers thereby limiting the
flexibility of the incoming President.
Further, it has
created an environment resistant to dismissal and supportive of transferring
the less productive employees.
The overall effect has
been one of creating a confusing array of management layers. For instance, when the University of
North Carolina at Chapel Hill hired Bain & Company, they concluded: multiple layers of management can exacerbate
complexity. Complexity and related
operating issues lead to inefficiency.
Likewise, when Bain and company reviewed management at the
University of California, Berkeley, they noted the redundancies, complexities and inefficiencies.
Is the challenge worth it? Well, the Bain report for the
University of North Carolina outlined cost savings of $66 million per
year. At Berkeley it was $75
million per year and at Cornell the anticipated savings were $85 million.
Frankly, I have not
enjoyed writing this blog. Like so many of you, I love the University and have
nothing but fond memories or professors going the extra mile to help faltering
students and lead us into a world of ideas and exploration. They were truly brilliant teachers in
the best sense of the word.
As I get older, my
acquaintanceship with the medical facilities has become more frequent. Again, the nurses and doctors are not
only talented but also caring. They are exceptional.
They all define the
best in serving the public. But,
sadly, the leadership of Morrill Hall has left us with serious problems that
must be dealt with if the University is to succeed. It is clearly a necessary
challenge…
In my next blog, I
will deal with issues of leadership, etc.
See you then.
