After Divestment, What Comes Next for College Campuses?

May 20, 2015Torre Lavelle

From championing civil rights through Freedom Summer to fighting sexual assault, college students have long made a name for themselves as leaders of ideas, activism, and innovation.

From championing civil rights through Freedom Summer to fighting sexual assault, college students have long made a name for themselves as leaders of ideas, activism, and innovation. It should therefore come as no surprise that the fossil-fuel divestment movement—the campaign to get institutions to pull their financial investments from fossil fuels and redirect that money to clean, renewable energy as a way of tackling climate change—has its roots in U.S. college campuses. With a total of $50 billion from 837 institutions and individuals divested so far, the campaign has succeeded at an unprecedented rate, growing faster than the divestment movements against both South African apartheid and tobacco.

Last fall’s stunning news that the heirs to the Rockefeller fortune were pulling their philanthropic funds out of fossil fuel officially confirmed divestment’s transition from campus movement to the financial mainstream. Combined with the commitment of more than 25 universities to move beyond coal, with more to follow in the upcoming year, student leaders and activists should carefully consider their role in deciding where climate change policy goes from here. After successfully pressuring the administration of my own school, the University of Georgia, to shut down its coal-fired boiler, the campus Beyond Coal group effectively called it quits and disbanded. But as pipelines for progressive environmental solutions, campus groups should just be getting started.

The Hoover Institution published The State Clean Energy Cookbook in 2014, which includes a dozen “recipes” for cost-effective and easily supportable policies that have already been implemented in both blue and red states with strong overall results. Now we need a new wave of student activism focused on building media strategy, coalitions, and administrative and legislative relationships to take this natural next step and enter a larger policy arena.

On the heels of Senate Majority Leader Mitch McConnell urging governors and state officials to “think twice” before submitting plans for state compliance with the EPA Clean Power Plan, college students should examine the role of states and regional networks in advancing clean energy policy. The work of UGA’s Beyond Coal group and others must extend beyond individual campuses, and should strongly oppose any calls to ignore federal deadlines for state carbon plans.

Regional cap and trade systems are another critical area for post-divestment work. The Regional Greenhouse Gas Initiative (RGGI) among nine Northeast and mid-Atlantic states became the first market-based approach to reducing pollution by selling carbon credits and reinvesting the revenue into clean energy technology and consumer benefits. With a goal of reducing 10 percent of power plants’ greenhouse gas emissions across the northeastern U.S. by 2020, the RGGI instead caused emissions to drop more than 40 percent from 2005 to 2012 and generated $102.5 million in revenue. An estimated $1.4 billion in lifetime energy bill savings are coupled with bill credits to low-income families and clean energy job training for workers. RGGI also served as the baseline policy model for California’s cap and trade system, the first state with a program of this kind.

State adoption of these programs has so far been lacking in leadership and provides an excellent road map for student involvement. I’m not calling on students alone to make this happen, though; I’m also calling on the Sierra Club, 350.org, and other environmental organizations with strong student involvement to step up to the next challenge. Let’s celebrate our victories while capturing the momentum focused on divestment and recognize that it’s time we expanded our reach.

Torre Lavelle is the Roosevelt Institute | Campus Network Senior Fellow for Energy and the Environment. She is majoring in ecology and environmental economics at the University of Georgia.

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Better Community Investment Will Pay Dividends for Colleges

May 19, 2015Emma Copeland

We need to start holding colleges accountable as anchor institutions that provide economic growth and stability to their communities.

We need to start holding colleges accountable as anchor institutions that provide economic growth and stability to their communities.

In recent weeks, the debate about holding colleges accountable has focused on schools’ responsibilities toward failing students, continuously rising tuition, and increasing student debt. What’s been overlooked is the role of colleges as a potential force for good within their more immediate communities. Indeed, one of the most profound ways a university can improve the holistic experience of its students is to invest more in the surrounding community.

Presently, many four-year institutions entrust the bulk of their money to low-risk funds or national banks like Bank of America. The money that flows into a school never directly returns to the community, and it is often the case that low-income residents near a college must battle gentrification, stagnation, or both. For example, New York University’s $3.5 billion endowment is currently invested in national banks such as Bank of America, Chase, and Citibank, none of which are directly involved in developing the community around NYU.

Outside of investment, universities and colleges spend a huge amount of money that has the potential to directly affect the communities around them. Big schools like Michigan State University, which purchases nearly $87 million worth of goods and services annually, could spend mere fractions of this number on local small businesses, causing them to flourish like never before.

As a student at a four-year public university in Northern Virginia, I know a few things about debt and personal economic stagnation. To say “the United States can’t afford the status quo in higher education” might be the understatement of the decade. So how can we shake up the status quo?

We need to start holding colleges accountable not just to the government but to their communities. As anchor institutions, they have the power to provide economic growth and stability and serve as cornerstones of their communities due to their role as large permanent employers with significant investment capabilities. They are also permanent physical landmarks that serve as points of pride for their members as well as nearby residents.

Colleges and universities tend to be huge anchor institutions due to their extensive reach in a variety of commercial activities, immense diversity of employment throughout their numerous departments, and the vital exchange of wealth between students, alumni, trustees, fans, and neighbors to the school. It is time for these institutions to begin making a concerted effort to develop and invest locally for the long term.

The first way we can hold colleges accountable as anchor institutions is by encouraging and facilitating responsible purchasing from locally owned and operated businesses for anything from food to office supplies. This would allow small businesses to leap into the big leagues, and colleges have a responsibility to support the entrepreneurial efforts of graduates who choose to settle nearby as well as the local business owners who employ their students and alumni. Even 10 percent of the funds earmarked for paper products for a large public institution such as the University of Michigan would be the number one account for a local business struggling to compete with national suppliers. Working with these businesses to help increase their production capacity and streamline various processes would ultimately result in a symbiotic exchange of tailored quality for vital business development. Colleges have too long relied on one-size-fits-all corporations to supply their food, office supplies, cleaning services, and more. In the long-run, establishing relationships with local providers enables both the institution and the businesses to thrive as each respects and relies on the other.

Second, universities should be responsible for investing locally. Universities often have access to far more capital than the cities and towns that surround them, but they invest in distant fossil fuel companies, huge national banks, or even Israeli military efforts.  As anchor institutions, colleges should invest in their communities through community development financial institutions (CDFIs). By promising to invest a majority of its cash-on-hand in the surrounding community, a CDFI is able to safely give loans to small businesses, prospective college students and families, and new homeowners. These kinds of investments improve the lives and livelihoods of community members not directly affiliated with the anchor institutions. This is particularly vital because non-anchor institutions like large-scale banks are often unwilling to invest in these low-income communities because of the economic risk.

Colleges are institutions that can help a struggling or non-competitive community find its feet. If we hold them accountable in the right way, as institutions of economic growth for the long-term, colleges can begin to boast many more achievements and far fewer failures.

Emma Copeland is a junior at George Mason University, a 10 Ideas author, and a member of the Campus Network's Braintrust.

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Beyond Divestment: How NYU Can Still Invest in the Public Good

May 12, 2015Eugenia Kim

The fossil fuel divestment movement on college campuses highlights two distinct aspects of the problem of climate change. The first and most obvious is that climate change and environmental issues are drastically changing our planet and require immediate action. The second is the responsibility of our colleges and universities to be stewards of responsible social change.

The fossil fuel divestment movement on college campuses highlights two distinct aspects of the problem of climate change. The first and most obvious is that climate change and environmental issues are drastically changing our planet and require immediate action. The second is the responsibility of our colleges and universities to be stewards of responsible social change. While climate change appears to have caught the public eye in recent weeks, this question of responsibility continues to be overlooked. Both of these issues are now coming to a head at New York University (NYU).

On March 26, a working group of NYU’s University Senate voted to recommend not divesting from fossil fuels. On April 30, the larger University Senate, which encompasses both student representatives and faculty, will also vote on divestment.

The stated argument against divestment is twofold: political and fiduciary. The report released by NYU’s working group is emblematic of the faulty assumptions school administrations across the country have about divestment. The report claims that it is not in the nature of a university to take a stand on a political issue such as climate change, and that NYU would be better suited to combat climate change through increased research investments. Further, the report states that it would be financially irresponsible for the university to divest.

However, the working group’s argument is self-contradictory. The university cannot simultaneously claim to have no position on climate change and actively fund research that works to combat it. Further, the sheer existence of climate change is no longer a debate; broad consensus has been reached among independent agencies and scientists that climate change is real. The political question that does arise is what the institution is going to do about it. The working group also fails to recognize that divesting from fossil fuels and investing in research are not mutually exclusive. The administration has the power to do both while maintaining its fiduciary responsibilities.

NYU’s arguments against divestment are in no way unique; they exemplify the fundamental assumption of college administrations that an institution must choose between the social good and economic profitability. This is not the case, but the divestment movement has failed to demonstrate that university investments can be both profitable and environmentally friendly. Advocates committed to the divestment movement must provide more guidance as to how administrators can better spend their money.

While divestment is an important symbolic gesture toward a university’s commitment to sustainability, meaningful investments in green energy businesses are a more tangible request, if perhaps less likely to inspire rallies. Investment alternatives offer practical solutions that enable activists to work with, rather than against, administrations. For example, Ohio’s Case Western Reserve University has not divested from fossil fuels, but it has invested in the Evergreen Cooperatives, thereby promoting economic growth in the Cleveland community, and still maintains a commitment to tackling larger questions around sustainability and climate change.

While these investment campaigns are harder to organize around, there are students who are interested in analyzing the economic responsibility of their universities, and student involvement in this process is vital. The Roosevelt Institute | Campus Network’s Rethinking Communities initiative is geared toward identifying and developing smarter economic decision-making practices for colleges and universities. The project is led by students who support divestment but offer smart and socially responsible local investment solutions.

NYU, for example, could stand to gain higher returns on its investments if it would simply move some of its funds from large banks like Chase into community development banks. By divesting just $500,000 (0.014 percent of NYU’s $3.5 billion endowment) from fossil fuels and moving it to community development banks, NYU could increase its returns while helping middle- and low-income residents get loans, promoting financial literacy, and providing secure financial services. This idea that investments can be both socially responsible and profitable holds true for universities across the nation.  

Students are important but overlooked stakeholders in university policy. They are the ones doing the research and asking the important questions about their schools’ social responsibility. Sit-ins, protests, and rallies across the country are the product of a large number of young people feeling left out of the decision-making process at institutions designed to serve them. These students want to participate and engage with their school administrations in making financial decisions and developing viable solutions, In short, these students want to be part of universities that embody the values they teach.

Eugenia Kim is student at New York University and a member of the Rethinking Communities Brain Trust.

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Online Learning Is No Substitute for Campus Community Engagement

Apr 22, 2015Zach Lipp

“Within 5 years the world's best education will be available online and it will be free,” said George Mason University professor Tyler Cowen in a September 2013 interview. “Arguably that's already the case.”

“Within 5 years the world's best education will be available online and it will be free,” said George Mason University professor Tyler Cowen in a September 2013 interview. “Arguably that's already the case.”

When I heard the claim last summer, I took notice. I was and continue to be an undergraduate with a love for online learning. I have watched dozens of lectures recorded on YouTube, enrolled in an unrealistic number of edX, Udemy, and Coursera courses, and taken a Codecademy track or two. But while I love digital learning, I also love the traditional campus experience, and I do not believe the former alone can suffice.

The public sphere is rife with claims that online education opportunities can subvert the American higher education system. The most recent barrage comes from Kevin Carey’s new book The End of College, which has generated many media reports and reactions. Missing from the debate are the voices of students: not just traditional college students, but digital learners as well. As a representative of both groups, I see the gaps in online learning.

While record numbers of students are attending colleges, they remain a relatively elite set of institutions. The costs of attending college are high and only growing, and student loan debt has expanded dramatically in recent years. Meanwhile, a treasure trove of learning opportunities is available online for free. Some see this as spelling the demise of the college; however, MOOC (Massive Open Online Course) completion rates are alarmingly low.

Yet even if MOOCs had the demographic pull and (at least) the completion rates of American colleges, they would still earn the scorn of academics. Digital course companies and colleges support competing purposes of education. As Harvard College Dean Rakesh Khurana said in his opening address this year, college can be either transactional or transformational. Yes, some students will always approach college as transactional, but a digital education, I believe, is necessarily transactional.

The college experience consists of much more than courses: as I have mentioned before, campuses teem with opportunities for civic engagement. Colleges around the country host speakers, rallies, and student organizations like the Roosevelt Institute | Campus Network, engaging students in communities in ways an Internet connection cannot. Moreover, these communities extend beyond their campuses. By fostering student education and activism, campus organizations foster citizenship.

Colleges are anchored in diverse communities that provide ample learning experiences. My involvement with the Rethinking Communities project , which provides a framework for students to expand and improve their college’s impact in their local communities, leads me to question how to leverage these relationships. My most meaningful lessons took me into the cities beyond my campus. We can learn an immense amount by engaging in our local communities, and there is no opportunity for this type of learning in an exclusively digital college. My experiences tell me digital education falls short of developing and engaging citizens, and as a result, so does the claim that online courses will replace physical ones.

Zach Lipp is a junior at Concordia College and a Rethinking Communities Braintrust member.

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For U.S. Women, Inequality Takes Many Forms

Apr 14, 2015Ariel Smilowitz

The gender wage gap is a complex problem, and we'll need to address factors like race and region to solve it.

The gender wage gap is a complex problem, and we'll need to address factors like race and region to solve it.

Although we are only a few months into 2015, it has already proven to be a watershed year for women’s rights around the world. On the heels of the International Women’s Day March for Gender Equality, the He for She and Planet 50-50 by 2030 Campaigns, and the twentieth anniversary of the Beijing Declaration and Platform for Action, international advocates and officials alike are coming together to evaluate the progress that has been made over the past several years. This raises the question: what is the current status of women in the United States?

The Institute for Women’s Policy Research (IWPR)—in partnership with a multitude of organizations including the Ford Foundation, the Roosevelt Institute Campus Network, and the Center for American Progress—just released the 2015 edition of its project on the Status of Women in the States, with newly updated data and trend analyses on women’s economic, social, and political progress in the United States. The findings? Although we have indeed experienced progress toward gender equity, it’s likely that we won’t see equal pay for American women within our lifetime. (For more on this topic, see this post by Roosevelt Fellow Andrea Flynn.)

The road to achieving gender equality in the U.S. is quite clearly checkered with significant potholes.

Over the next several weeks, IWPR will be releasing a series of reports that include data on U.S. women’s employment and earnings, poverty and opportunity, work and family, violence and safety, reproductive rights, health and well-being, and political participation. The data and trend analyses found in these reports can be explored by topic and differing demographics (women of color, older women, immigrant women, and Millennials, to name a few), as well as on a national or state level. The first two chapters on employment and earnings and poverty and opportunity have already been released, revealing a number of insights on the state of women within this country. Some highlights:

  • In just about every state in the country, Millennial women are more likely than Millennial men to have a college degree, yet Millennial women also have higher poverty rates and lower earnings than Millennial men.
  • Although more women are receiving high school diplomas and completing college than ever before, a considerable proportion of women either do not graduate high school or finish their education with only a high school diploma.
  • By the time a college-educated woman turns 59, she will have lost almost $800,000 throughout her life due to the gender wage gap.

There are incredibly large disparities throughout different regions of the United States; southern women are the worst off with regard to employment and earnings. Furthermore, the status of women differs notably by race and ethnicity, with Hispanic women having the lowest median annual earnings compared to other women.

In general, women’s economic security is directly linked to their family income, which includes earnings from jobs, but women tend to be concentrated in fields that lead to jobs with relatively low wages. Even women who do go into higher-paying fields still earn less than their male peers. This helps explain why, in 2013, about 14.5 percent of women ages 18 and older had family incomes that placed them below the federal poverty line, compared with 11 percent of men. However, even this estimate does not fully capture the extent of the hardship that women continue to face in the U.S.

What can we conclude from this data? As a recent article in The Washington Post puts it: “When it comes to equal pay, the American woman is stuck in a proverbial waiting room. But the number on her ticket, the length of her stay, largely depends on where she lives and to whom she was born.” In other words, the status of women in this country is incredibly complex, and as a result, there is no simple, one-size-fits-all solution to achieving gender equality.

Gender equality is an intricate mosaic, a picture that cannot be complete without understanding and exploring the dynamic regional, national, and demographic factors at play. As a result, we cannot approach these issues without thoroughly peeling back and exploring each layer. It is necessary for all of us to reassess how we measure, monitor, and evaluate the status of women so that we can effectively determine both the progress that has already been made toward achieving full gender equality and the challenges and obstacles that lie ahead.  

Ariel Smilowitz is a senior at Cornell University and the Northeast Regional Policy Coordinator for the Roosevelt Institute | Campus Network.

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Predatory Finance Has Hurt Our Universities, But Students Can Fight Back

Apr 13, 2015Dominic RusselRyan Thornton

Our tuition checks shouldn't be going to pay off debts from Wall Street's bad deals.

Our tuition checks shouldn't be going to pay off debts from Wall Street's bad deals.

The last few decades have not been kind to America’s local public institutions. Cities that once built state-of-the-art infrastructure are now struggling to fix potholes in the street. Public schools that were once the best in the world are lagging behind. Even our universities, which used to be gateways to a shot at a better life, are increasingly becoming too expensive for much of the population.

There’s no shortage of explanations for these problems, ranging from globalization to government waste to an aging population. These answers, however, all overlook the role that a growing Wall Street has played in changing the picture for public institutions.

In 1950, the financial sector accounted for about 3 percent of U.S. GDP; it now accounts for more than 6.5 percent. This financialization has given the big banks on Wall Street immense wealth and power, allowing them to extract greater and greater earnings from public and private borrowers. While the financial industry is reaping huge profits, it is individuals, not corporations, who pay an increasingly large share of the taxes that are supposed to support our public institutions. Since 1950, corporate tax contributions have dropped from 32 percent to only 17 percent despite corporations claiming a growing share of GDP. In contrast, individuals now pay 63 percent of taxes, up from 45 percent in 1950.

Our cities and schools—and all public institutions that rely on taxes to provide essential services—have felt the impact of this change. Facing slashed budgets, they have been forced to turn to the financial industry for loans. Undoubtedly, borrowing is necessary for financing extensive long-term capital projects; however, public institutions are increasingly compelled to secure loans for their short-term spending as well. Big banks are more than happy to accept the business of cities and universities desperate for funding, especially when the banks get to write the terms of the deal.

Wall Street’s profits are no longer solely built on interest from traditional “vanilla” loans. Instead, its banks have turned to high-risk, high-cost, and unnecessarily complex deals to further inflate their profits. Take interest rate swaps, for example. Swaps are a financial instrument devised by banks that allows cities and universities—those issuing bonds to finance long-term projects—to “swap” a variable interest rate for an agreed-upon fixed interest rate.

These interest rate swaps were deceptive from the very start. They were sold as protection from changing interest rates, but because exorbitant termination fees made refinancing extremely costly, they were essentially dangerous bets that would have only worked out if interest rates rose. And the deck was stacked against the cities and universities making these bets.

Banks illegally manipulated the London Interbank Offered Rate (LIBOR), which was tied to many deals, and helped precipitate a financial crisis that led to near-zero interest rates that continue today. Because banks had negotiated the swaps contracts so that they would be paying the variable market rates, cities and universities ultimately ended up locked into deals in which they were paying as much as 50 times what the banks were paying—all of which went to Wall Street as profit.

Both of the schools we attend—the University of Michigan and George Mason University—entered into swap deals that have costs them millions. One swap at Michigan even protected banks by allowing them to terminate the deal if variable rates hit just 7 percent, while offering no protection for the university when rates actually sank near zero.

The current imbalance in power need not be the case. Increased transparency surrounding the fees and terms of public finance deals would allow students and taxpayers to oversee the officials and banks who use their money and hold them accountable. When university regents, trustees, or other executives receive or have received compensation from the financial institutions their school does business with (as was the case in a series of University of California swaps), they should immediately recuse themselves from financial decision making to avoid conflicts of interest. Cities, states, and universities can work together to bargain with banks or create public options for bond underwriting and borrowing.

In situations in which our public entities have been targeted by banks, we can organize and pressure our public leaders to regain the money we lost. The city of Detroit was able to reduce its bank payments from $230 million to $85 million by exposing the invalidity of a swap.

Because swaps were often marketed to public institutions as a safe protection from variable interest rates—not as risky bets—it may be possible to pursue legal action to reclaim some of the losses. One avenue to reclaim public funds is the regulatory framework of the Municipal Securities Rulemaking Board, which mandates that municipalities be made fully aware of the risks and possible costs of entering into financial deals.

As students, we feel the impact of Wall Street every time we pay tuition. We put ourselves in thousands of dollars of debt to pay for school, but because most university borrowing is backed by student tuition, this personal debt simply begets institutional debt. All this borrowing means huge profits for the banks that finance debt, much of it coming from hidden fees and inflated payments on long-term deals with our schools.

However, as students we also have the unique opportunity to band together and make our collective voice heard. For a few years our well-being is the primary focus of a massive anchor institution, and our dollars are often the main source of its funding. We can demand better than the status quo by pressuring our schools to reclaim that money from wealthy bankers and put it back into our institutions.

If borrowing from the big banks was on fair terms and intended for long-term capital projects, it wouldn’t be a problem. Unfortunately, instead of using our nation’s wealth to pay for education, increase our human and physical capital, and build our long-run potential for growth, we are using it to increase incomes for the wealthiest bankers.

We've reached a worst-case scenario, but it doesn't have to stay that way. By holding Wall Street accountable for how it plays with tuition and tax dollars, we can bring things back around so that public investment means improving society, not improving Wall Street's balances.

Dominic Russell is a sophomore at the University of Michigan and the Roosevelt Institute | Campus Network's Policy Impact Coordinator for the Midwest. Ryan Thornton is a junior and Campus Network chapter head at George Mason University.

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Why Is Lehman Brothers Suing Georgetown from Beyond the Grave?

Apr 9, 2015Alan SmithAditya Pande

The ghost of Lehman Brothers is still haunting colleges and universities around the country, continuing to extract money from institutions even though the financial firm itself is long dead.

The ghost of Lehman Brothers is still haunting colleges and universities around the country, continuing to extract money from institutions even though the financial firm itself is long dead.

When Lehman Brothers Holdings declared bankruptcy in 2008, it was the fourth largest investment bank in the United States. The giant’s collapse was felt in all corners of the global economy, but at least that collapse was thought to be a thing of the past. Now, it turns out that Lehman Brothers lingers on as a bankruptcy group trying to collect debts from the schools it already fleeced in 2008.

In St. Louis, the haunting is public: Lehman is suing St. Louis University because it doesn’t feel the school paid a fair market value (equivalent to the termination fee at a given time) on some interest rate swap derivatives in 2008.

Let’s look at that transaction: the school paid about $25 million in early termination fees on its interest rate swaps.* SLU didn’t necessarily want to bail out of these swaps, even though they were costing the school millions; it had to terminate them because Lehman Brothers, the counterparty to the deals, was going belly up. But in a lawsuit filed in December 2014, Lehman alleges that SLU’s termination payments were short of market value and that Lehman is in fact owed another $17.5 million on these swaps. 

Let's say that again: These swaps triggered in 2008 because of the Lehman bankruptcy. The school had to pay a termination fee because the firm that owned the swaps had effectively ceased to exist. And now that firm is suing the school because it wasn’t adequately compensated for its own failure.

Here’s where the story (and related research by the Roosevelt Institute | Campus Network) gets really interesting: The ghost of Lehman isn’t just in St. Louis. Looking at the financial records of Georgetown University, there appears to be a similar story playing out in private but with even larger stakes.

Georgetown’s financials from 1998 onward are rife with big bond projects, but for now let’s focus specifically on auction rate security (ARS) bonds. These are economic devices where the interest rate paid on the bond is regularly reset through a public auction. The theory was that these auctions would allow the market to drive the interest rates to the lowest possible bidder each period; some even reset every week. These bonds were being marketed (sometimes by Lehman Brothers) as a highly liquid way to get some safe cash.

We’ve since learned that nothing could be further from the truth, as the rate markets for ARS bonds locked up in 2008 and borrowers like Georgetown were stuck paying double-digit interest rates. These bonds were more than simply investments that didn’t pan out; banks that sold the ARS bonds were also propping up the market by bidding on the rates in their own auctions, which created a false impression for buyers that the market was stable. These were bad deals made worse by illegal activity, and universities and municipalities across the country were suckered into them. When the banks eventually stopped keeping the market afloat, most such auctions failed, and the ARS market has been largely frozen since.

Although Georgetown is now almost entirely out of the ARS market and has brought down its variable-rate debt, getting rid of these increasingly expensive ARS bonds appears to have cost the schools millions in fees and even more in borrowing to pay off that debt.  Some of those bonds were underwritten by Lehman; some by other investment banks.

None of this even begins to capture the costs of the swaps, which is where this story started. The ARS bonds were cheap but had highly volatile interest rates. To mitigate these risky fluctuations, Georgetown bought interest rate swaps with Lehman Brothers. But like SLU, Georgetown did not realize it had made a deal with a potentially catastrophic downside. As the economy went into a tailspin in 2008, the Federal Reserve cut interest rates to the bone and has kept them low since; money became available for next to nothing in an attempt to keep banks from freezing up completely. This also served to drive the fair value of interest rate swaps through the roof. The worse the economy got, the more the fair market value of Georgetown’s debt hedges grew. A final insult: As the ARS rates locked up ever higher, the floating index rates that the swaps were indexed to went down, so Georgetown was losing money on every part of every deal.

And finally, finally, Lehman Brothers, which had sold swaps to so many different colleges and universities around the country, went out of business, which resulted in Georgetown having to pay Lehman more than $53 million to terminate the seven swaps it had on May 12, 2009—again, swaps that were meant to hedge against the risky ARS bonds that were also, in some cases, sold by Lehman.

Fast forward to 2012, and a lawsuit from Lehman Brothers appears on Georgetown’s financial documents. This lawsuit is only mentioned in the financial statements and has not yet gone public, so we cannot say with certainty that the story is the same as in St. Louis. However, it appears as if the disparity between the “fair market value” calculation of what the swaps were worth in 2008 and the eventual payment Georgetown made to Lehman is about the same as in the SLU case.

For those keeping score at home, this means that Georgetown was hemorrhaging money to Lehman Brothers in at least four different ways:

  1. ARS bonds marketed by Lehman cost the university $6 million in interest rates and $8.34 million in debt restructuring costs.
  2. Approximately $77.8 million in payments on the seven interest rate swaps terminated in May 2009.
  3. More than $53.4 million in swap termination fees.
  4. Though still unconfirmed, all signs point to a lawsuit from Lehman to recoup what it claims are underpayments on the “market rate” of its swaps.

The full cost is probably even higher, as these calculations do not account for the fees Georgetown paid each time it got into a bond deal, nor for other deals that Lehman did not underwrite. Still, the bill is already north of $140 million, and we’ve only been looking at publicly available records.

It certainly seems as though Georgetown was hard done by in this case, and we plan to continue our research until we can present a full tally of how much Georgetown has lost and is continuing to lose to Wall Street.

Why does this matter? After all, Georgetown is a stable institution—not like Sweet Briar or liberal arts schools, where losses in the hundreds of millions could mean the difference between solvency and closing their doors. Neither is this a public institution, where public tax dollars are being funneled into Lehman’s grave. But even a storied private institution like Georgetown is feeling the pinch of millions of dollars being extracted, and that pinch is being passed on to students.

Tuition and fees will increase 4 percent at Georgetown next year, contributing to a nearly 40 percent increase since 2006 that shows no signs of slowing down. While there are many factors in the rapid rise of education costs borne by America’s students, including the “amenities arms race” and administrative bloat, the massive debt private colleges like Georgetown have accrued and the unbelievably expensive financial engineering that has come with it deserve a lion’s share of the blame. Lehman Brothers, having already managed to scrape more than $140 million from Georgetown’s coffers, is audacious in asking for more from beyond the grave. We must be equally audacious in demanding that Wall Street pay some part of the bill it’s left students since 2008.

Is your college or nonprofit involved in an ongoing lawsuit with Lehman Brothers? Let us know!

*Interest rate swaps are a type of derivative that allows an institution to lock in a loan at a fixed rate by “swapping” its existing variable-rate loan with a bank, an idea that becomes particularly toxic when the market crashes and interest rates plummet like they did post-2008. It’s the equivalent of taking out a mortgage at 5 percent a year and then finding out the next day that mortgages are now available at 1 percent. But, unlike mortgages, swaps cannot be refinanced or even “paid off” at will. To do so, one must pay an expensive termination fee equal to the total amount the bank expects to make over the entire life of the swap. It was a lose/lose proposition for the school once its bet that interest rates would stay high didn’t work out. 

Alan Smith is the Roosevelt Institute | Campus Network's Associate Director of Networked Initiatives.

Aditya Pande is a freshman in the School of Foreign Service at Georgetown University, where he studies international economics.

Thanks to Carrie Sloan and Alexandros Taliadoros for their contributions to this post.

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What Policies Do Young People Want? Let Them Tell You.

Apr 8, 2015Joelle Gamble

As another presidential campaign season heats up, and candidates scrambled to create messaging, structures, and even gimmicks and swag in an attempt to engage young people, I can’t help but think about why we do what we do here at Roosevelt.

As another presidential campaign season heats up, and candidates scrambled to create messaging, structures, and even gimmicks and swag in an attempt to engage young people, I can’t help but think about why we do what we do here at Roosevelt.

Young people on college campuses are often asked to make phone calls, knock on doors, and campaign for existing agendas, but they’re rarely asked about their own policy ideas. Since 2004, we have been working to change that norm. At its core, the Roosevelt Institute | Campus Network seeks to defy the public’s expectations of young people in politics today.

Over the past 10 years, we have built an engaged, community-driven network of students who are committed to using policy to transform their cities and states now and build the foundation for a sustainable future. We believe that broader participation in the policy process will not only improve representation but produce more creative ideas with the potential for real impact.

In this year’s 10 ideas journals, we present some of most promising and innovative ideas from students in our network. With chapters on 120 campuses in 38 states, from Los Angeles, California, to Conway, Arkansas, to New York City, we have the potential to effect policy ideas that transcend the parameters of our current national debate. Our student authors push for practical, community-focused solutions, from using pavement to improve sanitation in Louisville, Kentucky, to creating community benefit agreements for publicly funded stadiums in Lansing, Michigan, to building workforce development programs for agricultural literacy in Athens, Georgia. 

Policy matters most when we take it beyond the page and bring it to the communities and institutions that can turn it into reality. Many of the students in this year’s publication have committed to pressing for impact. They’re connecting with decision-makers in city halls and state capitols, armed with the power of their own ideas. 

The next generation of innovative minds and passionate advocates is here, and it’s changing this country one idea at a time.

Check 'em out!

Joelle Gamble is the National Director of the Roosevelt Institute | Campus Network.

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Tobacco Settlement Funds Should Be Used to Fight Smoking in North Carolina

Mar 31, 2015Emily Cerciello

North Carolina continues to risk the health and economic wellbeing of its residents by refusing to use Master Settlement Agreement funds for tobacco prevention and control.

North Carolina continues to risk the health and economic wellbeing of its residents by refusing to use Master Settlement Agreement funds for tobacco prevention and control.

Over the last 50 years, more than 20 million Americans have died prematurely as a result of smoking or exposure to second-hand smoke. In the same time period, however, societal attitudes towards smoking have shifted from acceptance of its regularity to disapproval of the behavior as a harmful addiction. Driven largely by a growing body of research illuminating the adverse health effects of smoking and the implementation of widespread interventions that discourage tobacco use, the United States has experienced significant declines in the prevalence of smoking since the 1960s. Despite these successes, one in five adults in North Carolina continues to smoke cigarettes regularly, making North Carolina the 14th highest in smoking prevalence nationwide.

Every year, North Carolina receives $140 million in state funds from the 1998 Master Settlement Agreement, which requires tobacco companies to compensate tobacco-producing states for tobacco-related illnesses. These funds were intended to be used for youth tobacco prevention and control, but due to flexibility in the wording of the agreement, North Carolina has been able to send most of this money to a general fund. North Carolina even sent $42 million in settlement funds to tobacco farmers for marketing and equipment improvements. In 2014, North Carolina was the leading tobacco-producing state, followed by Kentucky, Georgia, and Virginia.

In the past, $25 million of this $140 million went to a Health and Wellness Trust Fund that invested in tobacco prevention and cessation programming. In 2012, however, the North Carolina General Assembly (NCGA) abolished the Health and Wellness Trust Fund and spent only $17 million on tobacco prevention. By 2014, this number had dropped to $1.2 million, or just 1.1 percent of the minimum recommended for tobacco prevention programs by the Centers for Disease Control and Prevention (CDC). North Carolina ranks 47th among the states for reaching CDC-recommended funding levels.

The health and economic impacts of this decision to cut state funds are substantial. In North Carolina, tobacco use costs nearly $2.5 billion in total medical costs and $3.3 billion in lost productivity annually. North Carolinians face an annual tax burden of $564 per household for smoking-related state and federal government expenditures.

North Carolina can look to examples from other states to improve its strategy for spending settlement dollars. Oklahoma, which reaches more than 50 percent of CDC-recommended tobacco prevention funding levels annually, amended its constitution in 2000 to create the Tobacco Settlement Endowment Trust (TSET), which receives no less than 75 percent of annual settlement payments. Oklahoma ranks among the worst for smoking behaviors, but has seen significant improvements in adult smoking rates with the percentage of smoke-free households reaching over 75 percent in 2010, up from 55 percent in 2001.

We’ve seen from other states that funding for youth tobacco prevention works. In Florida, where the state is required to spend at least 15 percent of its yearly settlement award on tobacco prevention, the high school smoking rate dropped to just 7.5 percent in 2014 – one of the lowest rates ever reported by any state. North Carolina’s high school smoking rate remained at over 15 percent in 2014.

While using the money as North Carolina does is not illegal, the state should end this poor practice of using settlement money for unrelated projects. North Carolina has the enormous opportunity and responsibility to use settlement funds to reduce the prevalence of smoking and improve the health and economic wellbeing of millions of residents across the state.

Emily Cerciello is the Roosevelt Institute | Campus Network Senior Fellow for Health Care, and a senior at the University of North Carolina at Chapel Hill.

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Mental Health Care Is an Overlooked Need in North Carolina Medicaid Expansion Debates

Mar 27, 2015Emily Cerciello

Medicaid expansion could bring relief to 190,000 uninsured North Carolinians with mental health conditions.

Advocates for Medicaid expansion in North Carolina have the opportunity to add a new and urgent argument to their already robust arsenal – that Medicaid expansion will create a newly affordable option for thousands of individuals with mental health needs who currently cannot afford treatment.

Medicaid expansion could bring relief to 190,000 uninsured North Carolinians with mental health conditions.

Advocates for Medicaid expansion in North Carolina have the opportunity to add a new and urgent argument to their already robust arsenal – that Medicaid expansion will create a newly affordable option for thousands of individuals with mental health needs who currently cannot afford treatment.

The North Carolina Medicaid Expansion Coalition – a collection of progressive groups including Planned Parenthood South Atlantic, the League of Women Voters of North Carolina, and the NAACP, among others – is fervently pushing back against a North Carolina legislature that has repeatedly declined expanding Medicaid to 500,000 would-be-eligible North Carolinians. Debates have focused on the high out-of-pocket prices required of uninsured patients for physical conditions like heart disease, asthma, musculoskeletal problems, or cancer, as well as the millions in federal money being turned away every year that North Carolina decides not to expand. In this high-profile role, coalitions also have the opportunity shed light on the devastating effects of untreated mental illness and the relief that Medicaid expansion could bring to 190,000 uninsured North Carolinians with mental health conditions.

In 2009, 75 percent of individuals with mental health needs in North Carolina were left untreated. Early intervention for mental illness can improve a patient’s physical and emotional wellbeing and can prevent destructive consequences for themselves, their families, and their communities in the future. Medicaid expansion will allow individuals to be secure in their access to primary mental health care and reduce their utilization of the emergency room when they experience an acute episode or when their chronic conditions become too debilitating.

Mental illness disproportionately affects individuals with lower family incomes, the same families who are most impacted by Medicaid expansion. States that have expanded Medicaid have seen pent up demand for mental health care, indicating a high need for mental health care among newly eligible Medicaid beneficiaries.

North Carolina has the capacity to accommodate newly eligible individuals who seek treatment for mental illnesses given that only 11 of North Carolina’s 100 counties are considered to have a shortage of mental health providers. While systems will need to expand to meet the demand from new patients, North Carolina can be an example for turning the challenge of Medicaid expansion into an asset for increased access to health care among its most vulnerable residents.

Advocates for Medicaid expansion in North Carolina have already made great strides in swaying reluctant legislators to consider the issue in 2015. In the most recent election debates, Republican Senator Thom Tillis agreed that the state of North Carolina is trending in a direction that warrants discussions about Medicaid expansion. In January, Governor Pat McCrory met with President Obama and several other Republican state leaders to discuss the adaptability of Health and Human Services waivers to state-developed Medicaid expansion plans. And just last week, thousands of North Carolina residents marched at the ninth annual Historic Thousands on Jones Street (HKonJ) Moral March in Raleigh, hoping to influence legislators to consider Medicaid expansion.

Legislators need to take significant steps to reform mental health care both in North Carolina and across the nation. The North Carolina Medicaid Expansion Coalition, mental health providers and advocacy groups, and others supporters can work together with the legislature to make affordable mental health care a reality for low-income individuals and families. North Carolina cannot wait until the system is perfect to implement changes that can improve the mental health of its residents and the economic wellbeing of the state.

Emily Cerciello is the Roosevelt Institute | Campus Network Senior Fellow for Health Care, and a senior at the University of North Carolina at Chapel Hill.

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