As an undergrad at the University of California-San Diego it was no secret that the Regents, who controlled the operation and decision-making of the university, were involved in some risky business. The Regents, a group of Californians entrusted with the education of 11 undergraduate and graduate campuses, are appointed by the governor. Their appointments are usually based on their contributions to their state and community, which often implies business ventures. Thus, it is only fitting that the university is run like a corporation, far from its original intention of being a free and public university for the students of California. While the University of California’s (UC) many campuses are producing world-class education, scholars, and research, year by year the UC is being increasingly abandoned by the state, which is dealing with their own budget woes. Faced with a heightened demand by students and an ongoing budget deficit, the Regents have increased the number of out-of-state and international students, and sharply increased student fees over the past five years.
The UC’s response to the budget crisis has been characteristically neo-liberal; placing the burden on the people at the bottom by increasing fees and decreasing local enrollment (which disproportionately affects already underserved communities) while allowing those at the top to mainly remain untouched (e.g. high up administrators). Moreover, following capitalist logic, the Regents have pursued funds and capital through other sources, including Wall Street. Investment is nothing new to the University, and UC’s history is rich with student demands for divestment from oppressive regimes and demands for financial and operational transparency.
Unlike private universities, as a public institution, the UC is required by law to publish its financial reports and investments. A complete examination of the UC’s connection with Wall Street would be colossal. Of the billions of dollars in investments, by February 2012 “[t]he Regents had outstanding principal on loans and private placements … of approximately $21 million” and have recently “entered into a $215 million revolving credit agreement with a syndicate of lenders.” I have chosen to mainly discuss the UC’s bonds because of their sheer volume and public (and fascinating) literature. Moreover, I wish to explore how credit ratings and bond support place pressure on the university to maintain its image and status, and how the university attempts to do so.
In a 2011 report entitled “Annual Report on Debt Capital and External Finance Approvals”, the UC’s Standard&Poor AA rating is based off of the “University’s diverse revenue base, strong liquidity position, and its position as a premier research institution” (10). Thus, ostentatiously, according to Wall Street, the UC’s strengths are its researchers, labs, private donors and student fees. In order to maintain its AA rating, which is advantageous for its investments, the UC must play to its assets. This not only puts pressure on the Regents to maintain these status markers, but continues to put unequal emphasis and value on professors and campuses that produce research and grant-money rather than placing tangible value in educated students and alumni pursuits. In turn, this reinforces rifts and resource inequities amongst the UC’s nine undergraduate campuses.
This past February the UC sold a $860 million century bond to a variety of buyers including “70 institutional investors, such as pension funds, bond funds, life insurance companies and hedge funds.” The revenue will go to the UC’s top three performing campuses, Berkeley, Los Angeles (LA), and San Diego (SD). Given the publicity and size of this sale, the choice of recipients (Berkeley, LA and SD) cannot go unexamined. Appropriating money to these schools in such a highly publicized sale seems strategic at the very least. As can be seen through its internal and external reports and audits, the UC’s research base, most of which is housed in its top schools (not to mention national labs like Lawrence Livermore and Los Alamos) is one of its biggest assets. Therefore, investors and financiers put pressure on the UC, through ratings, investments and advisement, to invest in these campuses to maintain their high performance. The other UC schools, particularly those without hospitals and a large research base, are considered weaker assets, and thus receive lesser resources and value.
Although students at the other six campuses do not enjoy the same investment as the top three, they still pay the Regents’ debts. Through trades and business, the Regents make service payments annually on various investments, which are “secured by and payable from revenues of the facilities financed, investment income, student fees, rental payments and other revenues.” Thus, although they are not being touted or considered worthy investments, the students of Davis, Santa Cruz, Santa Barbara, Irvine, Merced and Riverside bear the same burden as their Berkeley, LA and SD brethren: they must service the debt of the Regents and their business ventures.
Admittedly, this analysis has only begun to touch the surface on better understanding the internal workings of the University of California and the external forces influencing decision making, fund allocation, and budgetary operations. It will be interesting to see what types of changes will come in the next few years with the passage of Proposition 30 in terms of the public’s willingness to fund public education. However, this new tax revenue will not be sufficient enough to offset years of underfunding, or the UC’s other financial burdens. In fact, “[o]f the $250 million UC expects to receive from Prop. 30,” a large portion of that will go towards paying off their Wall Street losses, which total are estimated to total $257 million. As long as the state continues to cut university spending and the Regents continue to court investors, play on Wall Street and adhere to neo-liberal standards of what makes a university valuable, it is inevitable that the students will continue to be the victims of a failing system.