The Financialization of Higher Education at Michigan State University
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THE FINANCIALIZATION OF HIGHER EDUCATION AT MICHIGAN STATE UNIVERSITY REPORT BY AMAN BANERJI, BRIGID KENNEDY, AND ADEMALI SENGAL APRIL 2018 ABOUT THE ROOSEVELT INSTITUTE Until the rules work for every American, they’re not working. The Roosevelt Institute asks: What does a better society look like? Armed with a bold vision for the future, we push the economic and social debate forward. We believe that those at the top hold too much power and wealth, and that our economy will be stronger when that changes. Ultimately, we want our work to move the country toward a new economic and political system: one built by many for the good of all. It will take all of us to rewrite the rules. From emerging leaders to Nobel laureate economists, we’ve built a network of thousands. At Roosevelt, we make influencers more thoughtful and thinkers more influential. We also celebrate—and are inspired by—those whose work embodies the values of both Franklin and Eleanor Roosevelt and carries their vision forward today. ABOUT THE AUTHORS ACKNOWLEDGMENTS Aman Banerji is a Program Manager at the Roosevelt Institute, We thank Michigan State where he leads the Network’s Financialization of Higher University Roosevelt chapter Education and Re: Public projects. Banerji also works with members: Walter Hanley, Kathryn a host of Roosevelt policy projects across the nation and Linehan, Vishnu Kannan, Adrian seeks to strengthen the Network’s policy work by leading Skazalski, and Abby Vander Graaf; the national cohort of Policy Coordinators. His academic Roosevelt staff: Kendra Bozarth, and professional experience has largely been focused on Jade Wilenchik, Katie Kirchner, structural and institutional inequality. Prior to joining Roosevelt, Malik Alim, Anna Machalski, and Banerji served at advocacy organizations and foundations Nehemiah Rolle; and partner in both the United States and India, including the Ford organizations and supporters, Foundation and the Drug Policy Alliance. Aman has a BA with including: Charlie Eaton, Douglas a concentration in economics and international development Webber, Elizabeth Parisian, from Sarah Lawrence College in New York. Stephen Lerner, Molly Gott, Carrie Sloan, Dominic Russell, Alan Smith, Brigid Kennedy is the Co-chapter Head of the Roosevelt Fred Floss, Howard Bunsis, William Institute @ Michigan State University and the Press and Hebert, Fred Floss, Howard Promotions Communications Coordinator for the Roosevelt Bunsis, William Hebert, and Adam Network. She is a senior at MSU, studying comparative Felsenthal. cultures and politics with a specialization in European studies and a minor in Spanish. Ademali Sengal is the National Student Policy Coordinator for the Roosevelt Network’s Financialization of Higher Education project. In his current role, Sengal works with student leaders at various Network chapters with support on research methods and strategy for better understanding how universities manage money. Previously, Sengal served as the President of the Roosevelt Institute @ Columbia University, a senior editor for the Journal of Politics and Society, a Public Policy and International Affairs Junior Fellow at Carnegie Mellon University, and a policy intern in the New York City Mayor’s Office of Operations. Sengal is a senior at Columbia University, studying political science and economics. Executive Summary Financial actors and their values play an outsized role on college campuses today. This process, termed the “financialization of higher education,” has led to a vast increase in the types of monetary flows that provide revenue for the financial sector—chiefly borrowing, construction, risky investments, endowment growth, and executive pay. In order to fund such spending priorities, universities have both increased costs on campus, including tuition price and additional fees, while simultaneously redirecting existing institutional resources away from scholarships and faculty and campus worker wages and benefits. Through this report, we document the financialization of higher education process through a case study of Michigan State University (MSU). The report’s analysis finds a series of noteworthy findings regarding the university’s financial decisions that are reflective of the financialization process and encourage greater scrutiny: • Michigan State University has radically shifted its revenue model with student tuition accounting for 39% of total operating and nonoperating revenue in 2015-16, up from 20% in 2001-02. Closely related, the share of MSU’s revenues drawn from state appropriations has fallen starkly during the same period. • The percentage of the university’s endowment that it spends annually on university programs has declined from 5% to 4.6% in the past two years. This change has led to the loss of over $15 million in programmatic spending on campus in the past two years alone. • MSU has expanded its holding in alternative investments like private equity and hedge funds that have delivered low financial returns, high fees, and a series of ethical challenges. Effective oversight of the university’s investments has been limited. The board of trustees has unanimously approved each of the 71 investment managers put forth by the university administration in the last decade. • Debt levels at the university have exploded, with a 210% increase in long-term debt between 2001-15, and a 672% increase in interest payments on capital and related activities between 2002-16 put toward funding new construction projects on campus. • In the 2016-17 school year, for every $1 MSU spent on scholarships and fellowships, it spent 32 cents paying hedge fund managers on its investments, and 74 cents on interest payments for capital and related financing activities. • As of 2015, the university had spent over $130 million on interest rate swaps—a complex financial derivative designed to lower borrowing costs. • Taken together, the university’s decisions to decrease annual endowment spending to 4.6%, invest in hedge funds (and pay the astronomical attendant fees) instead of Standard and Poor’s 500 index, and gamble on interest rate swaps have cost the university a staggering $493.6 million, enough to provide the full cost of attendance for 20,111 in-state students for one year. With these core issues in mind, the authors of the report offer five core recommendations for MSU’s administration: adding a voting student and faculty representative to the board of trustees; improving financial transparency; re-allocating MSU’s endowment investment; freezing the cost of tuition; and returning to the previous endowment programmatic spending level of 5%. COPYRIGHT 2018 BY THE ROOSEVELT INSTITUTE | ROOSEVELTINSTITUTE.ORG 4 Introduction The state of America’s higher educational institutions today is a radical departure from the promise progressives have envisioned for higher education. Successful public higher educational institutions have, rightly so, been defined as those that uphold education as a public good by providing it at an accessible and equitable cost for the many; are funded by collective sources of revenue; foster sustainable lifestyles for employees; and act as economic mobility engines for their communities. Few of these characteristics typify our higher education system today. Instead, skyrocketing student debt, massive funding cuts, and extreme wealth concentration are far better descriptors. In the 21st century, our higher educational system looks far more like a “pay to play” system than one that was designed to ensure access and equity for all. So, how did we get to this point? One prevailing and powerful explanation places blame at the doors of state legislatures across the country that have systematically defunded universities in an age of austerity. The systematic destabilization of higher education through decades of public disinvestment has brought universities to their knees rendering them deeply fragile and vulnerable. Yet it is not just state legislatures that have threatened the financial viability of public higher education. For years now, Wall Street has preyed on the financial crisis that universities across the country are experiencing, to advance their priorities in a manner that ensures greater financial profits at the expense of students, faculty, and campus workers. But, by casting higher education institutions as powerless victims caught in the storm of austerity and financial sector profits, this broader explanation overlooks a crucial aspect of the story. It fails to explain, for instance, why university administrators across the country have been complicit in making financial decisions that have further undermined the university like prioritizing the growth of endowments above all else, constantly raising tuition prices, stripping campus and student workers of a sustainable wage, substituting sustainable tenure-track labor with adjuncts, and more. Understanding the process of financialization—a growing phenomenon in today’s economy—helps to explain a scarcely told but crucially important part of the story. Financialization can be defined as an “increase in the size, scope, and power of the financial sector relative to the rest of the economy” (Konczal and Abernathy 2016) or a reshaping of economic life by “extending the reach of financial markets, logics, and actors into new and varied domains” (Eaton et al. 2016). Financialization doesn’t just refer to the increased power of the financial sector in the economy or the flow of material resources toward the sector from other parts of our society;