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California State University: The Coming For-Profit Train Wreck

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The California Faculty Association, which represents the faculty of the nation's largest public university system, released a report today titled: "For-Profit Higher Education and the California State University, A Cautionary Tale." In it, the CFA presents a devastating critique of the "for-profit" direction that Chancellor Charles Reed and the Board of Trustees have taken the CSU system. "Leveraging the public's hunger for 'access' and the opportunistic moment of crisis," the paper's summary states, "the CSU's executive leadership is quietly pursuing a vision of the university that will have permanent consequences and irrevocably harm the CSU's quality and reputation."

The detailed and densely footnoted report takes on the gigantic executive salaries and perks that have become central to the Chancellor and Trustees' approach to university governance even in a period of austerity. The paper also critically examines the top management's proposed expansion of Extended Education programs to by-pass public accountability as well as its promoting of on-line courses that can be farmed out to organizations outside the university in an effort to open up new opportunities to exploit California's struggling student population.

Regarding the lavish CSU executive salaries, many of them passed in the midst of the worst economic downturn in California since the Great Depression, the paper states:

"Last year, CSU executives were paid between $240,000 and $400,000 in salary alone. On top of that, each executive is allotted $12,000 per year as an auto allowance. Campus Presidents and the Chancellor each receive either state-owned homes or housing allowances of $50,000 or $60,000 per year. Other perks available to executives include special retirement packages such as lifetime employment as a tenured professor and other deals that were widely criticized as excessive 'golden parachutes' when they were exposed by the San Francisco Chronicle in 2006."

The exorbitant salaries for top management, with their generous perks and multiple raises, have come at a time when student fees and tuition have skyrocketed and many students cannot graduate in a timely manner because so many courses have been cut and the budget for basic instruction has been slashed. This state of affairs raises basic issues of fairness.

So out of touch are Reed and the Trustees they saw nothing amiss last summer in passing a 12 percent hike in student fees at the same meeting where they voted to give the incoming president of San Diego State an increase in salary of $100,000 over his predecessor. Only after the public uproar this move caused, which caught the top managers by surprise, did they hastily draw up a new policy that would cap raises for new presidents at 10 percent over the previous salary. But the damage had been done. The only reason they took this small step was because the public, state legislators, and Governor Jerry Brown expressed outrage at the tone-deaf nature of the move. This episode was not just bad "optics" but revealed Reed and the Trustees' utter detachment from the economic realities of the state.

State Senator Ted Lieu (D-28th District) fired off a blistering letter that took to task the Chancellor and Trustees for pointing to big universities that contained medical schools, law schools, research institutes, and huge endowments as "comparison" institutions to justify the sumptuous salaries for CSU executives. In times of plenty the public might tolerate this kind of salary and pension spiking, but amidst austerity and budget cuts, when students and their families are forced to pay more for fewer course offerings, Reed and the Trustees' clinging to CEO-level compensation packages has an added level of egregiousness. Fiscal crisis seems to be the permanent condition of the state, deficits are high and tax dollars are scarce, yet the CSU managers continue living large and bilking California taxpayers while undermining the affordability of the public university they're entrusted to protect. Governor Brown expressed his concern about "the ever-escalating pay packages awarded to . . . [CSU] top administrators," and criticized Reed and the Board's actions regarding executive pay as "setting a pattern for public service that we cannot afford."

In the past two years the CSU system has shed some 8,000 course offerings, (about 6 percent of the total), at the same time thousands of students are being turned away. Now the Chancellor and Trustees propose a $20 million expansion of on-line courses to "compete" with for-profit "colleges." They haven't adequately explained why the CSU now must hunt for new students out of state to "compete" against for-profits while closing their doors to qualified California students.

The Chancellor and Trustees appear to be fast-tracking an end run around the public and the faculty by calling for enlarging the Extended Education operations, which do not require the same scrutiny under California law as does the rest of the CSU system. For example, "while California law requires public notice and comment whenever the CSU Board of Trustees votes to raise regular CSU tuition, this law does not apply to fees for courses offered through higher-priced CSU Extended Education programs."

The related expansion of CSU On-Line and the proposed partnership with the Western Governor's University, which is a non-profit but follows the same business model of the for-profits and has a similarly abysmal graduation rate (22 percent), further empowers the top management to make command decisions for the system free of public input. These moves represent yet another attack on the shared governance structure that has served the state and the CSU well for a half century. Californians might want to think twice before they trust these people to expand the Extended Education programs and the CSU On-Line facilities, which would grant them more power to manipulate the CSU budget and generate profits at students' expense.

Before plowing ahead with an aggressive shift to on-line teaching with fewer public safeguards Californians should take a look at the Community Colleges' decision to drop their proposed "partnership" with Kaplan after Kaplan's exploitative practices of students became widely known. The CSU should not go down this same road. Another cautionary tale comes from CSU Bakersfield's experience in pipelining its remedial math courses over the Internet with disastrous results. Of the 700 undergrads who took the course only 40 percent passed their final exams, whereas the year before students in the traditional classroom setting had a 75 percent pass rate.

On-line courses are not for everybody, especially students requiring additional help. They might be cheaper to administer and cost-effective to the bottom line, but for many CSU students they can be a bad fit. They should be considered thoughtfully and deliberately and with plenty of public and faculty input.

"The misguided attempt to remake a great public institution in the image of a scandal-ridden, failed model of higher education is not happening because of a public mandate, nor is it happening through open discussion within the system's democratic processes. Instead, the transformation is being executed through a stealth process of for-profitization, led by a handful of richly rewarded executives and a few powerful individuals on the Board of Trustees. And it is taking place without sufficient transparency and accountability."

The CFA paper concludes with a clarion call to save the CSU and offers some concrete proposals:
1). Reinvigorate the spirit of public service at the highest echelons of the CSU management; the system would be far better served if the chancellor and the executives understood that they are educators, not CEOs;
2). Grant a greater role for ex officio voting members of the Board, the Governor, Lt. Governor, Superintendent of Public Instruction, and the Speaker of the Assembly, who are all answerable to voters and to the public at large and could keep the state legislature and executive branch informed about the decisions being handed down;
3). Democratize the CSU Board of Trustees. There should be more student and faculty voices on the Board as well as a democratic process to hold them accountable for their missteps;
4). Do whatever it takes to maintain the affordability and quality of education for Californians.

The corporate-style mismanagement of the CSU system points to a deeper crisis in values. It's the underlying mentality that makes the revelations of the for-profit model and the salary spiking so disturbing. Reed and the Trustees have shown themselves to be untrustworthy stewards of a public institution vital to the success of the next generation. Like the for-profit "colleges," they view young people as a source of revenues and a captive market that has nowhere else to go. They've embraced the same practices that have been so discredited by the excesses of the for-profit corporations that pose as "colleges." Rather than doing all they can to give students who are largely from working class backgrounds a leg up in American society they follow a business model ill suited for the needs of our students.

Parents, students, and especially alumni have a right to be outraged over the way Reed and the corporate-friendly Trustees have so mismanaged a public institution that took decades to build. They're combining the worst of the public sector (executive salary spiking and the misallocation of tax dollars) with the worst of the private sector (a watered down curriculum and the exploitation of students, staff, and faculty).

Amidst a serious economic downturn in California, with unemployment hovering at roughly 3 percentage points above the national average (and 6 points above the average in some hard hit counties), with layoffs, furloughs, class and program cancellations, the Chancellor and the Trustees' insistence on maintaining gigantic executive salaries has revealed their detachment from the economic realities facing California's students.

If Reed and the Trustees are allowed to achieve their maximal goals for the CSU without strident opposition from the public the CSU will end up in a few years resembling more a privatized for-profit diploma mill than the great public university system it once was. What the Chancellor and Trustees don't seem to understand is that the more they batter the CSU "brand" the less prestige their own positions will hold.

Why should these people be paid more than the Governor of California, the Chief Justice of the Supreme Court, and even the President of the United States? Why isn't the Chancellor termed out like California legislators and most other public officials? Maybe the only way to get through to these people is to point out that as the quality of the CSU declines under their mismanagement the underpinnings justifying their own prestigious salaries will eventually decline with it. They must assume that they'll be long gone before that happens and like the rest of the business world perfectly happy to pass on the damage they caused to society while walking out the door.