Wednesday, March 15, 2006
The Joy of Deficit Spending
Today the administration brought out their tired slides showing how the university is already deficit spending in order to make the case that they cannot possibly afford any more money for faculty salaries. Although it's tempting to dwell on the fact that every time they bring out those slides the numbers are different depending on the audience, let's instead look at this issue of deficit spending.
Quite simply, deficit spending implies that you are paying out more than you are taking in - expenses exceed revenues. For example, if you make $25,000 per year, but you spend $30,000 per year, then you are deficit spending. For most of us that means having to finance the deficit using something like credit cards. And that is generally considered a bad thing.
Consider another scenario. Suppose you make $30,000 per year, but you only spend $25,000 per year. In this case, you are running a surplus of $5,000 per year - generally a good thing. After four years, you would have $20,000 in the bank, so you decide to buy a new $20,000 car. In that fifth year, you still make $30,000, but you spend $45,000 (your normal $25,000 plus the $20,000 for the car). Your revenues exceed your expenses by $15,000 - i.e., you are deficit spending. Is that a bad thing? Probably not - you did get a new car after all.
The important things to note are:
Now, let's consider the university's situation over the last couple of years. Supposedly, the administration on-campus ran up a huge fund balance (surplus), and that offended administrators off-campus. As a result, the administration was directed to spend down the fund balance as soon as possible, and the campus was denied a tuition increase (no pay raise).
How does this compare with the personal scenario outlined above?
However, the administration claims that the campus is in a dire financial situation, and they cite the deficit spending as evidence. But, we have just seen that buying lots of one-time goodies creates the appearance of deficit spending, when in reality, it is not that bad. The administration would have us believe that they are spending down the fund balance for on-going, day-to-day expenses. But, they told us before that they weren't allowed to squander a fund balance for on-going expenses.
Of course, there are many items that affect the income and expenses of the university, and the university's situation may have changed over the last couple years. But have we seen anything so dramatic that it would not only convert a day-to-day surplus into a deficit, but that it would suck up a huge amount of fund balance, and still leave us in deficit? How could something so dramatic happen at a time when the state's economy is picking up to the point where the government is talking about refunding money to the taxpayers? Something doesn't add up.
Fundamentally, managing the money is an administrative task; it certainly isn't a faculty task. If the finances are whip-sawing back and forth like this in a healthy and improving economy, you really have to wonder about the real truth about the situation. Or if the situation really is this bad, what the hell are the administrators doing to make such a mess of this? In either case, why do the faculty have to pay the price?
Quite simply, deficit spending implies that you are paying out more than you are taking in - expenses exceed revenues. For example, if you make $25,000 per year, but you spend $30,000 per year, then you are deficit spending. For most of us that means having to finance the deficit using something like credit cards. And that is generally considered a bad thing.
Consider another scenario. Suppose you make $30,000 per year, but you only spend $25,000 per year. In this case, you are running a surplus of $5,000 per year - generally a good thing. After four years, you would have $20,000 in the bank, so you decide to buy a new $20,000 car. In that fifth year, you still make $30,000, but you spend $45,000 (your normal $25,000 plus the $20,000 for the car). Your revenues exceed your expenses by $15,000 - i.e., you are deficit spending. Is that a bad thing? Probably not - you did get a new car after all.
The important things to note are:
- In order to end up with $20,000 in the bank, you must have run a surplus,
- In this case, the deficit spending was not harmful (the new car), and
- Your normal expenses ($25,000) are still less than your income ($30,000), even if you don't get a pay raise.
Now, let's consider the university's situation over the last couple of years. Supposedly, the administration on-campus ran up a huge fund balance (surplus), and that offended administrators off-campus. As a result, the administration was directed to spend down the fund balance as soon as possible, and the campus was denied a tuition increase (no pay raise).
How does this compare with the personal scenario outlined above?
- In order to have a fund balance, the administration must have been running a surplus.
- The fund balance was (deficit) spent on one-time items (e.g., sidewalks, chairs, etc.), and at the time, the administration claimed that it was impossible to spend that money for on-going expenses (e.g., salaries).
- The administration did not gain any additional tuition, so all other things being equal, they must still have been running a surplus.
However, the administration claims that the campus is in a dire financial situation, and they cite the deficit spending as evidence. But, we have just seen that buying lots of one-time goodies creates the appearance of deficit spending, when in reality, it is not that bad. The administration would have us believe that they are spending down the fund balance for on-going, day-to-day expenses. But, they told us before that they weren't allowed to squander a fund balance for on-going expenses.
Of course, there are many items that affect the income and expenses of the university, and the university's situation may have changed over the last couple years. But have we seen anything so dramatic that it would not only convert a day-to-day surplus into a deficit, but that it would suck up a huge amount of fund balance, and still leave us in deficit? How could something so dramatic happen at a time when the state's economy is picking up to the point where the government is talking about refunding money to the taxpayers? Something doesn't add up.
Fundamentally, managing the money is an administrative task; it certainly isn't a faculty task. If the finances are whip-sawing back and forth like this in a healthy and improving economy, you really have to wonder about the real truth about the situation. Or if the situation really is this bad, what the hell are the administrators doing to make such a mess of this? In either case, why do the faculty have to pay the price?
# posted by Charles Anderson @ 7:00 PM 
Comments:
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Thanks for posting this explanation.
Just as a point of information for anyone interested: The compromise idea sent to the Faculty list (the 'contingency clause') would completely protect us from this situation, and to ensure that it could be linked to 'revenue' instead of 'operating budget'.
As I am sure we are all aware, if the University were to lose sufficient revenue (from students leaving to find a 'more stable' place to get their education and not worry about a strike, or massive cuts to state funding), then our compensation (number of courses available, and thus our compensation) would get cut.
At present if the University got a significant increase in revenue (larger than expected enrollment or a more progressive budget from the state legislature), we would not enjoy any of the added protection or benefit from that increase... so, the money goes to things like sidewalks or an elevator that few ever use.
The contingency clause would keep the same risk that we already face, but would now give us the benefit if a lot of money is suddenly found (either by ending the one-time expenses or larger than expected enrollments, etc).
The contingency clause would also allow the union and Administration to agree to a contract... with the union knowing that if the Administration suddenly finds (whether money they know about and are choosing not tell the union about, or money that suddenly develops) that the faculty will get a fair share of that money.
Perhaps most important of all: We do not need to strike. Our students don't have their education held up by the 'unstable' situation we are in, we all get to do what we love to do (to educate our students) and nobody has to worry about whether they are going to lose their rent/mortgage payment or health care (how many here have chronic diseases and rely upon health care) so that we can get some more money for faculty development.
If the issue is fairness, and if we are serious about not wanting to strike, then hopefully our union can push the contingency clause (or something like it) when mediation begins next week.
Just as a point of information for anyone interested: The compromise idea sent to the Faculty list (the 'contingency clause') would completely protect us from this situation, and to ensure that it could be linked to 'revenue' instead of 'operating budget'.
As I am sure we are all aware, if the University were to lose sufficient revenue (from students leaving to find a 'more stable' place to get their education and not worry about a strike, or massive cuts to state funding), then our compensation (number of courses available, and thus our compensation) would get cut.
At present if the University got a significant increase in revenue (larger than expected enrollment or a more progressive budget from the state legislature), we would not enjoy any of the added protection or benefit from that increase... so, the money goes to things like sidewalks or an elevator that few ever use.
The contingency clause would keep the same risk that we already face, but would now give us the benefit if a lot of money is suddenly found (either by ending the one-time expenses or larger than expected enrollments, etc).
The contingency clause would also allow the union and Administration to agree to a contract... with the union knowing that if the Administration suddenly finds (whether money they know about and are choosing not tell the union about, or money that suddenly develops) that the faculty will get a fair share of that money.
Perhaps most important of all: We do not need to strike. Our students don't have their education held up by the 'unstable' situation we are in, we all get to do what we love to do (to educate our students) and nobody has to worry about whether they are going to lose their rent/mortgage payment or health care (how many here have chronic diseases and rely upon health care) so that we can get some more money for faculty development.
If the issue is fairness, and if we are serious about not wanting to strike, then hopefully our union can push the contingency clause (or something like it) when mediation begins next week.
# posted by 
: 12:40 PM
: 12:40 PM
The idea of a contingent contract has already been presented and discussed. At the moment, the union is not interested in going down that road. However, it is still an option, just one that doesn't seem appealing. The reason that a contingent contract is problematic boils down to two words: responsibility and numbers.
As pointed out in the original posting, finances, as well as recruitment and retention, are the administration's responsibility. If we accept a contingent contract, then our compensation is dependent on something that we have no control or responsibility over. That is something that the bargaining team is not interested in.
Even if we did accept a contract like that, it would be contingent on making the numbers. Another significant point in the original posting is that the administration's numbers just don't add up. Two years ago we accepted a pay freeze and watched a large number of staff and adjunct faculty get fired, And then a year later, we discover that not only is there a surplus, but the surplus is so large that it embarrassed OUS and the governor.
What about an "objective" number like student enrollment? At the Christmas party the President interrupted the festivities to present a flip-chart showing great enrollment numbers, and he praised MacDonald for his work in recruiting and retaining students. Then, just a few weeks later, the President started talking doom-and-gloom about enrollment.
So, if a contract is contingent on numbers, and the administration gets to make up the numbers, do you really think we will come out ahead?
As pointed out in the original posting, finances, as well as recruitment and retention, are the administration's responsibility. If we accept a contingent contract, then our compensation is dependent on something that we have no control or responsibility over. That is something that the bargaining team is not interested in.
Even if we did accept a contract like that, it would be contingent on making the numbers. Another significant point in the original posting is that the administration's numbers just don't add up. Two years ago we accepted a pay freeze and watched a large number of staff and adjunct faculty get fired, And then a year later, we discover that not only is there a surplus, but the surplus is so large that it embarrassed OUS and the governor.
What about an "objective" number like student enrollment? At the Christmas party the President interrupted the festivities to present a flip-chart showing great enrollment numbers, and he praised MacDonald for his work in recruiting and retaining students. Then, just a few weeks later, the President started talking doom-and-gloom about enrollment.
So, if a contract is contingent on numbers, and the administration gets to make up the numbers, do you really think we will come out ahead?
# posted by : 1:08 PM
: 1:08 PM
This week's winners and losers from Oregon
March 17, 2006
WINNER: John Minahan, Western Oregon University's interim president, gave a blunt assessment of the college's financial situation in a public meeting with students, faculty and staff members Wednesday. Minahan's candor and devotion to the university are refreshing. We can't help thinking that WOU would have benefited if he had served as its permanent president in recent years.
March 17, 2006
WINNER: John Minahan, Western Oregon University's interim president, gave a blunt assessment of the college's financial situation in a public meeting with students, faculty and staff members Wednesday. Minahan's candor and devotion to the university are refreshing. We can't help thinking that WOU would have benefited if he had served as its permanent president in recent years.
# posted by : 12:38 PM
: 12:38 PM
As a student, I can't help feeling as though the faculty has absolutely no regard for the students that they are teaching... or in the case of a strike neglecting... unless the students are actively involved in supporting their cause. Convince me why I, as a student, should support your strike. I am very open to hearing, but the faculty is so bent on picking petty fights with the administration that they have completely forgotten whom they were contracted to work for; the students! By petty, I mean pulling such juvenile punches as.. "in the police report on the theft,[of the banner placed in front of WOUft HQ] Bargaining Team Chairman Peter Callero declined to list WOU President John Minahan as a suspect." (quoted from www.wouft.org)I am sorry, but I have seen more mature insinuations come from my 11 year old daughter. With behavior like this, it is not surprising that your support from the student population of WOU is dwindling. Please convince me, why should I, as a sr. with less than a year left before graduation, honor your picket lines?
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# posted by : 8:50 AM
: 8:50 AM << Home
