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Making Difficult Decisions in Difficult Times

 

Mark G. Yudof

 

“In finance, everything that is agreeable is unsound and everything that is sound is disagreeable.”
—Winston Churchill
 
In an era of blogging and tweeting, when every critic has a public platform, and when, it seems, many are waiting for a leader to stumble, the role of the university president has been transformed. Once regarded as leaders of a community, we are treated more often these days as political figures.

Even if you began your career as a closeted humanist or a workaholic in a lab (or a guy writing law review articles about equal educational opportunity) you are now in the public eye. Your salary will be deemed too high by whatever metric is convenient (other in-state presidents, your governor, or the president of the United States). The critics assume anyone can do the job, no matter how big your budget and how wide your responsibilities. The often-stated view is that administrators are an unnecessary expense: Who needs deans and medical directors? There is a platoon of self-trained CFOs in waiting who want you to divert hospital revenues or federal research funding to their purposes. Or perhaps the president should borrow huge sums of money for operating expenses, and let the next board and the next president worry about the repayment. No matter how deep in the organization the problem (such as a rogue athletics coach violating recruiting rules), the inevitable questions are, “What did the president know and when did he or she know it?”

To wake up in the morning and get going, a president needs a certain toughness because there are people you will never please, no matter the good faith you bring to your job and to the needs of your institution. A leader cannot—and should not—heed every critic and read every blog, but at the same time, cannot afford to be out of touch. So a leader must have methods to figure out what people are saying, and must understand that he or she will not receive universal applause. “You have enemies?” Churchill once observed. “Good. That means you’ve stood up for something, sometime in your life.”

Despite the madness, this is a great job. I am privileged to be president of the greatest public university in the world. The University of California’s (UC) campuses abound in talent, innovation, volunteerism, and deep devotion to the enterprise. Our students are the nation’s future. Through budget cuts, furloughs, layoffs, tuition increases, and the resulting protests, I never forget my mission: to preserve, protect, and defend UC and all its unique features, including its historic commitment to low-income students (one-third of our undergraduates are Pell Grant–eligible) and a record of world-class research, health care, and public service to the people of California and the nation.
 
In It for the Long Term
UC is the third public system I have been fortunate enough to lead, and along the way, I’ve learned that if you have the support of your board, if you embrace shared governance and keep the faculty and staff engaged, if you honestly address issues with the students, then you are pointed in the right direction. In university finance, having the right numbers is only 10 percent of the problem at hand. The other 90 percent is making an effective case to internal and external constituents on what needs to be done and on securing their collaboration and cooperation. In good times, the president’s job is to try to improve the place each day in a collaborative process. In bad times, the job is to ensure that the institution loses as little ground as possible and positions itself for future improvements in the quality of research and teaching, the quality of life on campus, employee satisfaction, and other issues vital to the university’s long-term health.
 
I keep this in mind especially in the tough economic times during which UC and many public universities around the country are currently struggling to find footing. In the last decade, statehouse support for higher learning, as measured by constant dollars appropriated for each full-time equivalent student, decreased in 30 of the nation’s 50 states. In California, still the crown jewel of public higher education, the state has become an unreliable partner, contributing in inflation-adjusted dollars only half of what it paid per student in 1990. California’s catastrophic fiscal crisis has only made things worse: Last year, the state cut UC’s budget by 20 percent, leaving an $813 million hole.
 
Just barely in office when the budget crisis hit, I got plenty of advice on how to fill the gap. Some people urged me to do things that are clearly illegal, like divert research funds. Others urged me to put our health-care systems in jeopardy by siphoning off funds and not worrying about working capital, risking the solvency of these ongoing businesses. Sure, you can save money by letting a hundred doctors go, but if the institution serves fewer patients, the revenue stream will decline as a result. Still, other people didn’t understand the concept of restricted funds and endowments. Frequently, the most facile answers are hardly the healthiest.
 
The New York Times columnist Tom Friedman describes “situational values” vs. “sustainable values.” Leaders guided by the former, he writes, “do whatever the situation will allow, no matter the wider interests of their communities.” He cites the example of a banker who writes a mortgage for a buyer he knows will be unable to maintain payments over time. On the other hand, leaders inspired by sustainable values “act just the opposite, saying: ‘I will never be gone. I will always be here.’ Therefore, I must behave in ways that sustain—my employees, my customers, my suppliers, my environment, my country, and my future generations.”
 
Any successful leader—whether the president of the United States or the president of a university—must strike a balance between what people want in the short term and what’s in the long-term best interest of the institution you are sworn to defend. There are no winners when an institution is faced with a series of bad choices, although there is always opportunity for institutional improvement. The present environment calls for devotion to the enduring viability of the university. A leader must look at the long-term picture; you don’t want to leave office a hero but with a $2 billion debt for your successor.
 
Looking Ahead, Looking Back
The president, regents, faculty, and staff must be staunch in insisting on long-range solutions and maximizing long-term prospects. That’s why I have advocated strenuously in Sacramento and in Washington, DC, for a more reliable funding stream for higher education. Our efforts are beginning to bear some fruit.

I think our advocacy is working in part because we have made the tough decisions to cut costs and raise fees. We’ve done our part. There’s a lot of rancor when you make the tough decisions, but ultimately in the political process, you come out with clean hands. You have a greater ability to get the spigot turned on from state government or to go to your alumni and ask for contributions. You’re not just Oliver Twist with an empty bowl asking for more, if you’ve indeed taken reasonable and prudent steps to reduce your expenditures.

Having taken the obvious steps like furloughs, layoffs, and fee increases, it’s incumbent upon universities to look for long-term changes in how they deliver services that both preserve quality and are more efficient. As is the case with a corporate head, you ultimately do not downsize and cut your way to success. You need a liftoff point.

Look what Abraham Lincoln accomplished during the darkest days of the Civil War. In 1862, with Union troops in retreat and European nations beginning to reassess their alliances, President Lincoln had the foresight to sign the Morrill Act, creating the nation’s land-grant universities. Lincoln behaved as a true leader. Looking above the smoke of the battlefield, a century into the future, he propelled a young, fractured, agrarian nation into an industrial powerhouse by giving rise to scores of the nation’s great research universities, including the University of California. If Lincoln could show such foresight during the Civil War, then surely we can do the same in the face of today’s fiscal crises in the states.
 
I believe that the current crisis at the state level calls for exploring and further developing the role of the federal government in funding higher education. Washington already does plenty: Its grant programs open doors for students from all levels of American life. Its support of research has been essential to the development of everything from cancer drugs to national defense systems. Most recently, the American Recovery and Reinvestment Act of 2009 (ARR A) has sought to infuse universities with unprecedented resources for both access and research. But if we are to reach President Obama’s goal of once again making the United States first in the world in the percentage of college graduates, it’s going to take more.
      
Reaching Bold Goals
Although I applaud Obama’s recent proposals to increase funding for Pell Grants, limit student loan repayment, offer debt forgiveness for those in public service, grant tuition tax credits, and boost research spending, I must respectfully note that something is missing from his approach. The president’s actions all serve to boost demand, but they do nothing to increase supply, that is, the capacity of America’s colleges and universities to absorb new students. Creating access without a corresponding boost in capacity will not achieve the president’s goal.
 
We must find creative ways to expand the federal commitment to research and access into a new category. Traditionally, the nuts and bolts funding of public universities—which supports faculty and staff salaries, equips laboratories, and maintains campus operations—has been left to the states. There has never been an integrated national strategy for higher education in the United States, but there needs to be one now. The mission is simply too important to leave to state governments that seem disinclined or unable to pursue it.
 
It’s incumbent upon all of us in the higher education community to work constructively to address the capacity problem and to help fulfill Obama’s goal. Here are just a few ideas that could be part of that strategy:
 
  • Reward institutions that enroll large numbers of Pell Grant recipients with additional funding for core university services. 
  • Establish a grant program for public universities and colleges to compete for federal funds based on meeting certain performance measurements, such as consistent enrollment of Pell Grant recipients, additional institutional support for low- and middle-income students, targeted graduation rates, and low loan default rates.
  • Supplement federal research grants with funds to expand graduate programs to train future faculty and researchers.
  • Create a theater of competition that will reward creative state efforts to improve college completion rates for low-income students. Institutions also should be allowed to compete for similar grants that would direct funds toward humanities education at research-intensive institutions and other disciplines with less access to federal research dollars.
  • Expand and make permanent the Build America Bonds program included in last year’s ARRA stimulus legislation, which provided a 35 percent subsidy on taxable bonds, opened up new markets for governmental borrowers, and saved millions in interest costs. The program should be expanded to allow public universities and institutions to use these bonds for working capital, with maturity limits of perhaps 10 years to provide fiscal managers with additional tools to spread out costs such as securing funding for pension obligation. The expansion of the program with these changes would be extremely helpful as our institutions work through these difficult financial times. This would provide substantial savings for public universities—savings that could be harnessed to take pressure off operating budgets and redirect more resources to expand capacity.

There are many other ideas to explore, and I welcome a lively debate. I have no doubt some will be better than mine. But we need to start now. We can either regain the prominence and leadership role we once held and invest in our citizens and our future, or we can become accustomed to mediocrity. We can watch from the sidelines as the new information-based economy is led by nations that value investment in human capital, or we can find new ways to meet the challenges—a course, it seems, that will require a reshaped federal role in higher education.

As G.K. Chesterton once observed, “Education is simply the soul of a society as it passes from one generation to another.”

Let us start now and work together to ensure safe passage.

 
 
Mark G. Yudof is president of the University of California system.