Kozachik: Admin bloat at embattled UA doesn't help reduce tuition for students

Credit Arizona Gov. Hobbs for firing off her note about the University of Arizona’s financial situation that I shared last week.
It essentially called out both Robbins and the Arizona Board of Regents for the mess they’re in, and called for getting distance between the board and UA administration in terms of both looking into causes and identifying solutions.

Given that the UA Faculty Senate is in no hurry to vote “no confidence,” the burden shifted to the governor’s office. She has now given Robbins/ABOR until February 9 to come up with a solution and to engage an outside audit firm, and to let her and the public know their game plan for digging out of the mess they’ve created.

In light of the alleged distance that ABOR and the UA says exists in the investigation/resolution of the mess it’s interesting to note that ABOR has agreed to fund some pretty critical pieces of whatever the ‘fix’ is going to end up looking like.

They’ve already agreed to fund multiple mid-term reviews of process, financials and that sort of thing. In addition they’re going to fund a consultant whose specific scope of work is to look into the overspending that has been happening in intercollegiate athletics (ICA), they’re going to fund a consultant to look into the financial impact the Global Campus is having on the UA, and they’re going to fund Huron Consulting – a group hired to specifically look into the UA’s administrative structure.

Clearly the board sees that they have some culpability or they wouldn’t be so quick to own these outside measures. The consultants need a clear arms-length distance from both ABOR and the UA.

This is from a Reuters story that ran about the time I started on the City Council:

NEW YORK – A global consulting company that rose from the ashes of the destroyed accounting firm Arthur Andersen is now facing a scandal of its own.
The problems at Huron Consulting Group Inc may reflect a corporate culture that carried over from Arthur Andersen, the firm that collapsed in connection with the Enron Corp scandal in 2002, legal and corporate governance experts say.

At the time Huron got into trouble with the Securities and Exchange Commission and several of their top administrators who had ties with the Enron/Arthur Andersen scandal had to leave the company. So it could be bad news that the UA is hiring a consulting firm that has a sketchy history with the SEC, or it could be good news that the firm knew it had to get rid of the leadership responsible for getting them in trouble.

I wish I had the confidence to believe Robbins and his inner circle did their due diligence before signing up with Huron. And getting rid of leadership that caused financial problems is something ABOR and the governor need to reflect on. So far all they’ve done is identify some scapegoats.

Regarding the ICA overspending, Robbins said “the athletics model has flipped on its head in the last four or five years” resulting in the deficit spending. That’s not quite accurate. The “athletics model” has been broken and “flipped on its head” for decades.

Robbins should call and I could give him the background he lacks. The world of intercollegiate athletics has been in a facility arms race for decades. The change in the past four-five years is that until now we had a president who’d rein in the ICA spending.

Now it’s keeping up with the Joneses and putting nothing but winners on the field. ICA is projected to run yet another deficit that’s north of $30 million this fiscal year. That’s on top of the $32 million they ran last year, and whatever they spent the $87 million Robbins “loaned” to them over the previous few years.

Last week Robbins finally admitted that the Athletic Department may never pay that $87 million back.

What’s needed is a president who’ll set the cap and force them to operate within it. That might mean avoiding paying over $13 million in coaching buyouts (even if donors paid it, that’s $13 million those donors don’t have to fund capital projects,) building aquatic facilities for women’s water polo and then deciding not to have the sport, and tens of millions on other facility upgrades, all in an effort to compete with schools that have much larger overall budgets.

In the UA’s own early analysis of the problem, Robbins’ own Strategic Plan is said to have added about $150 million to the financial stress on the UA.

John Arnold, the guy tasked with wearing his ABOR hat simultaneously with his interim UA CFO hat, has also pointed to “institutional funding for research” as a large part of the problem.

You can look back at previous newsletters where I made that point – based on data from the National Science Foundation. Arnold also pointed to the increase in financial aid the UA is handing out. In fiscal year 2018, that number was roughly $189 million. This coming fiscal year it’s projected to be $362 million. The current overspend for this fiscal year is in the $177 million range. 

In one year, the UA’s cash reserves went from $845 million down to $705 million. According to the current forecast that will become $510 million next year. It’s not a trajectory any business could sustain.

I was a bit (just a bit) surprised to see that fact was missed by the business leaders who put together the meeting they held in support of Robbins. The UA is now projected to have their day’s spending on hand at about ½ the level set as the standard by ABOR. And yet the board continues to wave the Robbins flag.

There are rough edges of a “plan” being discussed. Some of those include having operating units submit budgets calling for reductions of from 5-15 percent, a hiring freeze if you’re not athletics, taking a fresh look at financial aid, halting any “non-essential” capital projects, layoffs and some other similar efforts — the combined effect of which will not make up for the financial waterfall that’s happening.

Next steps are to watch for the February 9 report, and to see how long the Hobbs’ patience lasts. She mentioned the fox guarding the henhouse. It’s unclear if the fox is Robbins, Arnold, ABOR or if there are actually three foxes in the mix. 

It is a wholly bad look for the UA, city, and the tri-university system. 

Another bad look was the manufactured media story crafted by the big donors last week. 

The UA is a land-grant institution, not the plaything of the well-to-do. Nobody from the private sector who attended that meeting is going to feel the ticket price increases that are now being announced. The taxpayers generally will – and the closest they’re going to get to a meeting like that is buying a car.

At last week’s Faculty Senate meeting, Robbins and Arnold both acknowledged “administrative bloat.” I wonder though if he has his immediate area (or self) in mind because in terms of bloat, what Robbins has is significantly more than a little financial baby bump.

Robbins’ base salary is $816,000. Add to that his $10,000 annual car allowance, his free use of the $1+-million-dollar house in Sam Hughes neighborhood, 3.5 percent annual salary increases and the fact that each year the UA puts 21 percent of his salary into his retirement account. Last year that alone was $171,000. His annual retirement set-aside is triple what many UA faculty are earning as a base salary. But that’s not all. I pulled these additional financial incentives from his contract:

It’s not surprising he’s so bent on protecting the Global Campus. His bonus depends on it. Most people get hired to do a job and they don’t get extra bonus salary for doing it as expected. That’s bloat.

Robbins has some termination language in his contract. I pulled this directly from his contract. If ABOR simply told him to leave they’d be on the hook (we’d be on the hook) for the balance of his deal through mid-2026. That’s a few million dollars. But there are “for cause” reasons they could use to terminate the contract now. This is from his employment contract:

Is Robbins telling ABOR that he accepted the “resignation” of the CFO when in fact it was a shift in titles being dishonest? Is it honest to host private parties to strategize over the purchase of the Global Campus and call the effort “Operation Antelope” in order to keep the effort secret? Is running the UA into a fiscal condition where they now need to make $200 million in spending cuts neglect of his duties? That’s now for ABOR – or the governor – to decide.

If the board does decide to terminate his contract there’s a process they’d have to go through. This is also language from his employment contract:

One of the big donors who attended the Bobby rally last week said he couldn’t operate his business if certain employees had tenure and he couldn’t get rid of them. 

One wonders how his business would be doing if it followed the same “spend what you don’t have” mentality that the UA is now trying to work out from under. And if he’d have retained the employee most responsible for putting them in that position.

Morning Consulting did a survey to see what matters most to prospective college students. In the Arizona Constitution it says higher education should be “as nearly free as possible.” 

At the UA. in-state tuition begins at $13,600. Out of state is $41,000. That doesn’t include books, housing and living. 

According to the survey, affordable tuition is the number-one criterion of importance. Having a good football team is way down the list. Administrative bloat does not help reduce those tuition costs.