Securitization, risk management, and the new university

Amanda Armstrong:

The germ for this presentation emerged as I was reading Ruth Wilson Gilmore’s Golden Gulag. Her second chapter argues that the prison construction boom in 1980s California was a response, on the part of those managing capital and governing the state, to four surpluses, including of capital, labor, land, and state capacity. With respect to capital surpluses, Gilmore shows how investment bankers, in search of profitable sites of investment, developed new financial mechanisms in the early eighties that enabled debt-financed prison construction to go forward without voter approval. These new financial mechanisms, called lease revenue bonds, had recently been put to use as well for the funding of construction projects at California colleges and universities.

In what follows, I want to talk a bit about these convergent shifts in prison and university financing, which Gilmore reads as ruling class responses to the protracted economic crisis of the seventies. While formally similar in certain respects, these parallel shifts also indicate a tilting of the state toward policing and incarceration and away from direct support for education and other socially reproductive state functions. I’m interested in the aftereffects of these shifts, and particularly in what has changed over the last five years, following the crisis of 2008 and recent waves of struggle.

With respect to the universities, Gilmore describes how, in 1981 and ‘82, Frederic Prager, a well-connected underwriter in California, “worked with the Association of Independent California Colleges and Universities to issue an innovative revenue bond whose proceeds [constituted] a forward-funded market for student loans” (98). Soon afterwards, the loan arrangement was extended to public universities as well. The terms of this particular revenue bond illustrate some of the emergent parameters of university financing in the early eighties.

At this moment, newly available student aid and loan money – funded and backed by state agencies – provided an incentive for universities to gradually increase tuition, and thus enabled them to secure the unencumbered revenue necessary to undertake debt-financed construction projects – projects that university managers justified on the grounds that new construction would help them compete for students. Prager and his associates at KPMG helped rationalize these new financial dynamics, publishing manuals of “best practices” for university managers. Their 1982 “Ratio Analysis in Higher Education” presented its readers with financial “ratios” that could be used to determine the proper balance of university revenues, operating costs, investments, and bond debts. Unsurprisingly, these apparently neutral ratios pushed university managers to funnel more capital into financial markets and to take on higher levels of construction debt.