Governor Scott Walker – Management By Crisis

Wisconsin’s Republican Governor Scott Walker is a master of management by crisis. Not to be confused with crisis management, management by crisis involves creating a budget mess through mismanagement. Then, claim you are forced to make “hard choices” and make the budget cuts you wanted all along.

Walker’s $2.2 billion budget hole for the next biennium provided the necessary excuse to cut $300 million from the University of Wisconsin system’s budget over the next two years. Since the UW had asked for an extra $95 million, the real cut is $395 million or $197.5 million per year. Because fixed costs such as buildings can’t be changed, almost all the $197.5 million cut will come from salaries.

In a world where intellectual capital and education are valued more than ever, Wisconsin voters had the choice between electing a Harvard MBA or a college dropout as governor in 2014. Voters opted for the later. What’s transpired shouldn’t surprise anyone.

Priorities

According to the latest Bureau of Labor Statistics Quarterly Census of Employment and Wages, Wisconsin had 2,809,053 gainfully employed citizens in June 2014. Doing a little math, the $197.5 million cut to the UW system saves the average taxpayer $70.31 per year, or about the cost for a Friday night fish fry, tip and drinks for two.

For a state with only 27% of its citizens (+25 years old) having a college degree, maybe it is surprising the University of Wisconsin has gotten as much financial support as it has over the years. The college dropout governor and the non-college graduate segment that makes up Walker’s core support group go for the fish fry.

The argument over university funding highlights the divisions in Wisconsin between the halves and the halve-not’s. Increasingly, these delineations are based on level of education.

Bascom-straight
A great institution that has the misfortune of being in a state governed by Scott Walker.

According to a 2013 Pew Research Foundation study, Millennials (born after 1980), with at least a bachelor’s degree, earned an average $45,500 per year. High school graduates in the same age group earned an average $28,000. On a percentage basis, the college graduates earned 38% more than the high school graduates.

For many people, income inequality is about multi-billionaires. Yet, the more relevant income inequality comparison is closer to home. Driving in Wisconsin, the differences in people’s lifestyles in Madison and Middleton compared to the trailer parks and run down homes in La Crosse, Eau Claire and rural areas where economies are more oriented to manufacturing and small farms is shocking.

Contrary to many people’s views, the middle class has not disappeared; it has just changed. For rural and small town Wisconsinites living in homes that desperately needed paint and repairs ten years ago, the education thing didn’t work out. These folks are caught up in the type of low paying manufacturing jobs Governor Walker wants to attract to Wisconsin with his low taxes, lax environmental regulations and subsidies from his Wisconsin Economic Development Corporation.

All this clashes with the communities of huge new homes in Dane County and surrounding areas. Much of this Dane County wealth is first generation. A good deal is spun off from the university when grad students commercialize their research. In almost all cases of families with spouses each bringing home six-figure salaries annually, education gave them the ticket to where they are today.

Logically, policymakers would emulate the Madison success story across the state with more investments in the university system. Instead, we are going to replicate the La Crosse and Eau Claire low paying manufacturing models.

College degrees – generic?

Even after Walker’s spending cuts; the University of Wisconsin will still hand out degrees. The question is, will funding cuts that lower faculty quality impact graduate earnings?

A National Bureau of Economic Research Working Paper*, studied the post graduation earnings of students who attended upper tier schools (University of Texas and Texas A&M) versus lower tier Texas colleges and community colleges. The researchers found after correcting for college entrance scores, in all student percentile categories, students from upper-tier colleges earned significantly more than those who went to community colleges and lower tier state schools.

Most striking was the level of earnings from the highest-ranking University of Texas graduates. The researchers concluded that while top-tier graduates from Texas A&M, community colleges and other schools had high earnings; these were amplified dramatically by graduates from the more prestigious university. An even more important finding was how the highest ranked students coming into college had the highest earnings after college.

Even more damaging…

Over and over, the recurring theme when looking at college graduate earning studies is the impact of college entrance rankings. On average, the best prepared high school graduates with the highest test scores get into the most prestigious universities, have the highest grade point averages in college and have the highest earnings throughout their careers.

A pro-education Republican that founded the Land Grant Colleges. My, how things have changed.

While Walker’s University of Wisconsin spending cuts get the most press attention, Walker’s education vendetta may actually have the most impact with his cuts on the state’s K-12 system. Walker’s K-12 cuts have minimal impacts initially. Over time, expect to see the following happen in Wisconsin’s public schools:

  • Education majors presently in college will evaluate Wisconsin’s commitment to their future. They can expect lower, or at best stagnant wages, working in deteriorating facilities, using outdated equipment, having larger classes with more special needs students requiring extra attention, the constant threat of layoffs and working with increasingly incompetent peers. The smart education majors will switch fields and leave teaching to those who can’t do anything else.
  • Older teachers will continue teaching, counting days until retirement. Their efforts will correlate strongly with the level of support in their communities. For example, if the local school board and community vote for regular school tax increases, their commitment will stay at a high level. If the community looks at teachers as a place to cut taxes, this group of teachers’ moral will plummet.
  • Ambitious and talented younger teachers will pursue corporate training and other positions. The best will leave the public school system and the worst will stay.
  • Wisconsin government subsidies for voucher schools will increase, at the cost of public schools. The 26 voucher schools with the highest number of voucher students in Wisconsin for the 2014-15 school year are church affiliated. The majority are Catholic. While the world needs more science and math majors, many of these schools will focus on teaching that the world is 6,000 years old, that women are subservient and Gays are somewhat less than human.
What the UW cut means

Walker supporters attempt to build popular support for the UW cuts by pointing out that 407 university employees make more than the governor’s $143,000 salary. What they don’t point out is that the UW brings in over $1.1 billion in research annually. This money doesn’t just fall into the university’s lap.

University of Wisconsin-Madison academic superstars who can add their name to a $multi-million research proposal and automatically move it to the top of the funding pile are having their phones ringing off the hook. Headhunters are offering to hire them and their entire labs to move to universities and colleges that have a commitment to excellence (in other words, dollars). They really don’t care how much the pay they are offering compares to their governor’s salary. The hiring universities know how much these present UW employees can generate for them and that dictates the pay offers. Consequently, these professors can write their own paycheck somewhere else or “teach an extra class” at UW as Governor Walker suggests.

UW somehow has to come up with the money to match outside package offers (these include pay, travel, top flight lab equipment and other perks) for these faculty members or watch hundreds of millions of research dollars leave the university. If the UW can somehow match outside offers, headhunters will focus on their grad students. These PhDs and matriculating PhDs are the future of the university and more important, these are the entrepreneurs that take research and spin it off into local business ventures. Logically, UW’s biggest losses will be these top-flight grad students. Lose the UW’s reputation and we lose these grad students and our future.

Most university employees haven’t gotten pay raises in years. This wasn’t a problem because all states and universities were in a financial bind during the recession. Now, well-governed states like Minnesota are sitting on huge surpluses. Governor Walker is creating wonderful opportunities for other states at Wisconsin’s expense.

So what about Governor Walker’s stereotypical do nothing professor that hasn’t had a creative thought since getting tenure 25 years ago? If there are actually any of these to be found, we are stuck with them. Other universities want our brightest and best, they’ll leave the others for us.

Walker and his supporters also try to build support for their university budget cuts by bringing up the $684 million “slush fund” the UW had. Most of this money was already committed to approved building projects and some was kept to match outside offers for superstar researchers and to pursue outstanding researchers at other universities. In this turned upside down world, having a $2.2 billion budget shortfall gets a blundering incompetent elected while managing wisely and maintaining a budget surplus costs a great university its future.

The bottom lines

The University of Wisconsin System leadership has done a wonderful job of lobbying for smaller cuts. By the time Walker gets the final budget, it will likely have a smaller than $300 million cut. Unfortunately, because of Walker’s management by crises, any budget cut reductions will be small.

Much about academia is perception. Unfortunately, the perception is that Governor Walker, using a combination of tuition freezes and more budget cuts over at least the next four years, will achieve his goal and destroy a great institution. Combined with less prepared and qualified high school graduates, expect to see a self-fulfilling prophecy.

Wisconsin’s most valuable export is our young people. They are the biggest losers out of this whole mess. Many University of Wisconsin graduates go out of state for jobs because we don’t have enough high end ones here. In the past, this wasn’t a problem because a University of Wisconsin-Madison degree is recognized worldwide. It still may be recognized  worldwide 10 years from now, but sadly, not for the same things.

Appendix

* Quantile Treatment Effects of College Quality On Earnings: Evidence from Administrative Data In Texas: Rodney J. Andrews, Jing Li and Michael F. Lovenheim


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