Thinking out of the Box Reinventing UPR Finances to Attain Sustainability and Institutional Accountability

By: 

Manuel Gómez, PhD Prof. of Physics, Former VP for Research and Academic Affairs, UPR;

Elías Gutiérrez, PhD Prof. Economics and Planning, Former Director Graduate School of Planning,  UPR; 

 José Manuel Saldaña, DDM Prof. of Dental Medicine, Former Chancellor and President UPR. 

In 2011, former Governor Luis Fortuño, aware of the Government’s financial crisis, ordered a Study of the Puerto Rico System of Higher Education that would produce a road map for its reform to make it financially more self- sufficient and responsive to the needs of the people of Puerto Rico in the 21st Century. The report was entitled: “Cambio de Rumbo para dar Pertinencia a la Educación Superior en el Siglo 21”, better known by the metaphor coined by the Committee that called it “El Golpe de Timón”, to emphasize the urgent need to reform the System. The report was ignored or misread by the Academic Community that was in favor of preserving the status quo!

The report clearly warned that the State University (UPR) was no longer sustainable under a financial system that depended on an ever increasing budget with no accountability to the State, and, whose Operational Budget was subsidized at the rate of more that 70% from the Government General Fund, while the Jurisdiction was suffering a recession, that was fast making the Government insolvent.

The report also warned that the financial problems of UPR were not unique since, studies of the financing of Higher Education worldwide indicated that the cost of higher education was growing at an unsustainable rate of five time the increase of inflation and, that by 2025, new models for the Higher Education enterprises would be needed.

The dependence of UPR on the State funds was a necessity back in 1903, when it was founded as a Normal College, to prepare teachers for the recently created Public System of Education. The poverty level at the time mandated low tuition fees. But, by 1980, as a consequence of Operation Bootstrap and Puerto Rico’s Industrialization, the low UPR tuition fees had become anachronistic. In 1980, the then President of UPR Ismael Almodóvar, took the difficult decision to increase tuition at UPR for the first time in more than 30 years, from five dollars per credit to fifteen. This created student riots that essentially resulted in the loss of a semester; it was an ideological clash between two visions: free Higher Education vs. the model of the US Public Universities in which the costs are shared between the students and the State.

In 1966, the Legislature approved a University Reform that defined the University’s Autonomy with respect to the Government, and Law #2 of 1966 that provided for an automatic 9.6% of the Commonwealth’s Budget to be assigned to UPR, no questions asked. This might have been good from the point of view of gaining relative fiscal autonomy from the Government, but, it carried the unintended result of encouraging UPR to become fiscally irresponsible. From 1985 to 2005, while Puerto Rico’s economy was growing, the UPR’s budget grew at a compounded rate of 7% annually (see Figure 1), encouraging UPR Presidents to solve problems by throwing money at them and, thus, promoting increasing inefficiency and mismanagement. At the same time and parallel to Law #2, the Federal Government created the Pell Grant Program in 1973, which, in Puerto Rico, nurtured the growth of a huge Private Sector in the Higher Education System, that by 2011 enrolled two of every three students in Higher Education. This is the reason that Governor Fortuño asked the Golpe de Timón Committee to analyze the whole System of Higher Education and look for synergies and complementarities between the Public and Private sectors.

After almost ten years of not revising Tuition Rates, then UPR President J.M. Saldaña requested a revision of tuition rates to decrease the increasing discrepancy between The Public University and the Private sector of Higher Education, that had grown up, in some cases, to a tenfold difference in tuition rates. It also established a mandatory annual revision of the Tuition rate of UPR . Unfortunately his successors left the annual revision without effect, because it was politically non-palatable and Law #2 kept fueling an annual compounded rate of increase in the Operational Budget of 7%. No need to become frugal, efficient, and fiscally responsible.

But, by 2005, an economic recession, that has lasted more than12 years, affected the Commonwealth’s Budget: a downturn in State revenues had taken effect. Then, the Law #2 showed the other side of its effect on the subsidy to UPR (see Figure 2). The seed had been planted for the UPR’s Financial Crisis. The Golpe de Timón Report strongly recommended a total revision of the revenue stream of UPR and a dramatic reduction on its dependence of the State Budget from 75% of its Operational Budget to no more that 30% of its Operational Budget.

  In 2011, as shown in Figure 2, the Golpe de Timón Committee warned that, due to the extended recession, the subsidy from the Sate to UPR would start to decrease around 2010 at the rate of approximately 7% per year, making it mandatory for UPR to revise its revenue stream, plan financially, and significantly reduce its dependence on the subsidy from State Funds. It suggested the following changes to UPR revenue streams to support the institution financially : 

  •  Tuition and Fees- Increase gradually the Tuition and Fees for all students to a rate equal to 50% of the average cost of educating a full time student, which would be approximately equivalent to $7,000 per undergraduate student per year and to about $10,000 for Graduate and Professional Degree students. And, in successive years, revise the Tuition and Fees, for all new students enrolled in UPR to respond to the unavoidable inflation. This increase in tuition and fees would tap more federal funds through the Pell Grants as more students would qualify for full Pell Grant assistance, and, also, increase the contribution from students who could afford to pay the full tuition and fees. This increase in revenues would help to decrease the dependence on State Funds. A program of fellowships, work study programs, and student loans would be put in place to ensure that all needy students, who qualified to enter UPR, could afford to pay for their studies. 

 {Estimated net annual gain in revenues, $200M, mostly from Federal Pell Grants}

  •  External Funds and Donations for Research, Innovation, and Scholarly Work and Education- The UPR has not used effectively and optimally its capacity to obtain external funds and donations to support its Research, Innovation, and Educational activities that are core to its mission. An aggressive plan to provide the management and infrastructure needed to support these revenue obtaining activities should be put in place. The funds obtained from these activities will provide resources to support the educational and research infrastructure, fellowships for students, Post Doctoral students, and additional compensation for the most productive Faculty members. The indirect costs generated by the external funds and donations would provide additional revenues for the institution that can be used to support its core academic activities and infrastructure and help support needy students through work study programs to defray their educational costs. 

 {Estimated revenue increases after all the necessary infrastructure and managerial know how has been put in place during a three year period: $20M in additional indirect costs and $20M in additional research fellowships and funds for work study programs to help needy students defray the increase in study costs.} 

  •  Faculty and Students Intrapreneurial activity , “Intramural Practice” and Contracts with the Business and Government Sectors (“Autogestión”) – The capacity to render consulting and other services to Government Agencies and the Private Sector by intrapreneurial faculty and students has not been effectively tapped by the University as an additional revenue source. The use of University Infrastructure and of students for consulting and other services can result in conflicts of interest; the University needs a “conflict of interest management policy”, like other universities, to stimulate university intrapreneurs. The Government has offered to give contacts to UPR to solve its pressing financial problems, but until UPR develops a policy for intrapreneurship this contracts will not result in new revenue streams for the institution. 

 The increasing senesce of the population and increasing need for lifelong learning offer a unique opportunity for continued education and professional development programs offered by the University with tuition costs that will be high enough to produce additional net revenue streams for the University. 

 The offering of Massive Online Open-source Courses (MOOCs), courses and programs, to National and International students would expand the base and diversity of its student body and could also, if priced properly, become an additional revenue stream for the Institution. 

{It will take at least two years to set the necessary infrastructure and managerial know-how to tap this source properly. Estimated additional revenues after year two: $20M to $40M per year; when the MOOC’s system is fully in place, by year five, if properly marketed, the MOOC’s courses and programs could generate an additional $50M per year.} 

  • Donations and an Endowment Fund – Contrary to Mainland Private Universities, and, increasingly, Public Universities, the UPR System lacks the necessary infrastructure to manage Donations and an Endowment Fund. The so called “Fundación de la UPR” is a half cooked mechanism to achieve a vigorous management structure to handle Donations and the UPR’s feeble Endowment Fund . Furthermore, UPR has done little to enhance the University’s image with it alumni and the People of Puerto Rico. Although most people will profess pride and love for their premier Higher Education Institution, this has not been translated into any significant donation or contribution to an Endowment Fund. The first thing the UPR has to do is stop its internal instability and mismanagement, that, with an alarming rate, on the average, of one riot, stoppage or strike every five years, projects a very negative image of a university in chaos. The committee also recommended that the Legislature approves a special tax credit for people who make Donations or contribute to the Endowment Fund of Institutions of Higher Education. 

 {This strategy is a long range proposition; it will take more than five years to change the image of UPR as Puerto Rico’s Flagship Institution of Higher Education, stabilize its Academic management, and reform its Governance to stop recurrent stoppages and strikes, before significant additional new revenues will start flowing into UPR from Donations and or Contributions to the Endowment Fund.} 

  •  Commercialization of the Intellectual Property- Since the 1980’s UPR has made various efforts to stimulate Patent Submission and faint efforts at commercializing its Intellectual Property with a singular lack of success. So far, no patent has been commercialized or royalties received from its Intellectual Property. This has been the case in spite of an ever increasing number of registered Patents( more than 60), thanks to the increase in R&D and Innovation activity that took place in the 90’s and the first five years of the 21st Century, when R&D external funds grew exponentially.{This strategy to obtain new external revenues for UPR is a long range proposition . It will take more than five years and concerted efforts to stimulate and support competitive R&D and Innovation with external funds, and establish well thought out strategies for the Commercialization of the Intellectual property, before revenues will be forthcoming from this source.} 
  •  Creation of University Corporations and Multi-Campus Multi-Disciplinary Research Institutes- The creation of Multi-Campus Multi-Disciplinary Institutes (M&M Institutes) was authorized by the UPR’s Board of Trustees in the late 90’s to stimulate research institutes that could be sustained by external fund and that would commercialize their Intellectual property; but, for various reasons, they never prospered. The Stanford Research Institute is probably a better model to follow, if a more entrepreneurial institutional culture could be fostered among UPR Faculty.These Institutes would be instrumental in promoting the commercialization of UPR’s Intellectual Property and increase the competitiveness of UPR in obtaining more external funds for Research& Development and Innovation. 

 University Corporations have been tried as means of obtaining added revenue streams to UPR , but they have been notorious failures at achieving this goal. The only exception to this has been the small, but efficient, Materials Characterization Center (MCC) that the local industry contracts to do technical state-of-the- art analysis for them; it has been financially self-sufficient for more than 15 years. The University Hospital is a counter example that, for years, has been a financial drain on UPR revenues. Until UPR develops an institutional Entrepreneurial Culture and the proper managerial infrastructure, Centers and Institutes will not contribute added revenue to UPR finances. 
  

{These two strategies will not be able to contribute to the non-Government revenue stream in the short term, it will take more than five years to set the needed managerial infrastructure and achieve the necessary Institutional Entrepreneurial Culture needed to sustain the Corporations and Institutes as sources of financial revenues.} 

 Conclusions:

To achieve the savings and obtain new revenue flow for UPR to make it less dependent on Government Subsidies, that are fast drying out, is a complex proposition that will be very difficult to implement. In the short run (one to three years) the only strategies available are the first three mentioned in this report; together with a serious analysis and elimination of nonproductive academic programs, redundant campuses, and managerial inefficiencies. But, as the “Golpe the Timón” clearly states, the ultimate solution lies in a full University Reform that will reinvent UPR and change UPR Governance to make it relevant to the realities of 21st Century. That, of course, requires a full transformation of the Institutional Culture (see the “the “Golpe the Timón’s” full report for a more in depth discussion of the road map to achieve a financially responsible and efficient University that responds to the need of the 21st Century). 

 Are the faculty and Management of the UPR ready for a comprehensive Reform of UPR? The alternative is sinking UPR into irrelevance!!  
4/15/2017

 FIGURA 1   y    FIGURA 2

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About Elías Gutiérrez

Profesor de la Escuela Graduada de Planificación de la Universidad de Puerto Rico desde 1966. Nació el 3 de julio de 1942 en la ciudad de Nueva York. En 1945 se traslado a Puerto Rico. En 1964 y 1965, respectivamente, obtuvo grados de Bachillerato y Maestría en Economía de la Universidad de Puerto Rico. En 1966, cursó estudios postgraduados en Planificación Económica en el Instituto de Estudios Sociales de La Haya, Holanda. Más tarde, en 1969 y 1973, respectivamente, obtuvo grados de Maestría y Doctorado en Economía y en Planificación Urbana y Regional de la Universidad de Cornell.
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