Is it Time to IPO the University of California?

To students: I’m sorry, I regret it, but the state has stopped building the highways to higher education, and they’ve started building toll roads.  Everyone’s been asked to take a share of the pain, but middle class families will bear the burden of the fee increase.

UC President Mark Yudof

Those were the pandering remarks of the President of the University of California at a UC Regents meeting September 16, 2009 at which he proposed to raise student fees by 32% to make up a shortfall in expected revenue caused by the recession and the state budget deficit.  The proposed increase is in addition to a 9.3% increase in fees imposed in May 2009 and will increase the cost at UC to $10,302 per year for undergraduates.  A decision by the Regents on the increase is set for November.

What’s going on?

The University is engaging in the age old sport of covering its assets by wailing and moaning in public about how badly the state is treating it and how mean Governor Arnold Schwarzenegger has been in cutting its budget.  President Yudolf conveniently forgets to mention that the State has a $42 billion deficit in the middle of the worst recession since the Great Depression.  He also ignores one other fiscal reality in that even with the state funding cuts to the University, California will still provide more than 61% of UC revenue compared to a US-wide state average of 35%.

President Yudolf says “Salaries for senior managers have been frozen, and the highest-level leaders, including myself, are taking a 5 percent pay cut.”  He did not remind the media covering his remarks that UC is recovering from a pay scandal during which administrators were accused to granting themselves “bonuses” and playing accounting games such as retiring from the UC system and then returning as “contractors” at equal or higher salaries.  Or that the salary freeze he mentioned applies only to “base salaries” and not to bonuses, pension supplements and other benefits received by UC management.

Don’t feel too sorry for President Yudolf he will survive on his roughly $828,000 compensation package not counting free housing and car even while he laments that the University has had to lay off more than 2,000 of its 170,000 faculty and staff (1.1%) from its $18 billion annual budget.

So you get the picture. . .

The University of California is a great institution of higher learning and has proven to be a savvy political one as well rallying its alumni to save it from Sacramento time after time. But this time many of those alumni are doing worse—a lot worse, than the University.  And those looking for work find it a little disingenuous for the University to complain about cuts in the current environment in the face of its prolific spending ways.

Here’s an idea:

Let’s IPO the University and impose management discipline!

What if California reduced its financial “investment” in the University of California to the national average of 35% from the current 61% and “auctioned off” the 26% difference to private equity investors telling them that they can retain their proportionate share of the value gain from leveraging the intellectual property rights, patents and creative brain power of the University in exchange for running its business enterprise to optimize its profit potential.

This would create an interesting balancing of interests.  The University would retain a 39% interest; the State General Fund would retain a 35% interest and private investors would get 26% and management rights to create value and growth from IP leverage.

Of course the first thing private equity would want to control is the University’s public relations contracts and the Office of the President.