LOOKING INTO THE UC BUDGET  -- Report #13      (e-mail version)

by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.        510-642-4427          September 11, 1994


     A familiar adage of politics says that if you want to know the 
true priorities of the people in charge of some institution, 
disregard what they say but look closely at how they actually spend 
the money under their control.  In this Report I examine principal 
features of the spending habits of the University of California.  
This study covers a period of fifteen years, with particular 
attention to the impact of the budget crisis over the last few years.

     In Part I the University's fiscal operation is divided into 
three sectors: the medical schools and teaching hospitals; all other
academic functions; all administration and support services.  The 
data presented here - all of it derived from official UC documents -
shows that the pain of the current budget crisis has been carried 
most severely by the academic sector, while the medical sector has 
barely been scratched at all.  This finding stands in contradiction 
to repeated statements by UC's leaders, who claim that 
administration has been cut the most while academic activities have
been protected.  The potential for re-allocation of the University's
internal funds is huge: differentials between these sectors 
amounting to several hundred millions of dollars have developed 
during the last few years.

     In Part II the focus is narrowed to three core elements of the
budget: Instruction, again separated into the health sciences and 
general academic portions; and Institutional Support, the central 
administration on each campus and systemwide.  Here we see the same 
pattern of preference, with non-medical academic spending suffering
the biggest cuts and administration being cut only slightly.  In 
addition, we find a surprising pattern of discrepancies between the
amounts of money budgeted for each category and the amounts actually
spent by the end of each fiscal year.  The medical sector and the 
administration always get a bonus while academic instruction gets 
cut; and this pattern of "adjustments" to the budget has become 
intensified during the recent difficult years.

     In summary, it looks like the real priorities of the Regents,
who have full authority for the internal distribution of funds, fit 
the rule, "the rich get richer."  A full public debate about the 
University's budget priorities is long overdue.


     How does one make a budget?  The answer depends upon who you 
are.  Individuals, families, small businesses, large corporations, 
governments and independent public institutions all have their own 
styles of finance management.

     For the University of California, and many other public 
institutions, it seems that each yearly budget is fashioned 
according to an incremental model.  That means: look at last year's 
budget and apply a set of formulas that are supposed to lead, 
"rationally," to this year's budget.  The increments are built upon
three concepts: adjust the current costs of what you were doing last
year (inflation);  adjust for increased number of students, etc., 
according to some agreed-upon formula (workload increases); and ask 
for an augmentation to handle some new demands or initiatives.  This
is the bureaucratic model of budget-making.  It is a  "safe" model,
by which I mean that its proponents do not have to answer hard 
questions: they do not have to justify the dollars that were 
appropriated in previous years.  It is a model that invites the 
canonization of privilege and waste.

     This budget process has worked very well for the University of 
California during the past decades when state money was plentiful. 
But in the present and likely continuing climate of fiscal austerity
one must question this simplistic habit and explore more thoughtful 
modes of budget planning.  The purpose of this report is to build a 
new approach to the University's budgeting.  While not working from
scratch, this effort will: a) Examine the current pattern of 
expenditures in some detail;  b) Look at the historical development
of these patterns;  and  c) Seek to open up a full debate about
priorities within the institution.  This formulation of the budget-
making process strongly challenges the traditional bureaucratic 
model.  There will be conflict, and one can rightly call it 
political conflict, but it is time for this debate to come out into 
the open.

                            PART I

     First, I separate UC expenditures into two primary components: 
Academic Functions  - those directly performed by and managed by 
faculty and other academic staff, including support staff and 
services within the University's academic departments, libraries and
research units; and Administration & Support Services  - those 
performed by and managed by the campus or systemwide administrators
and their staffs.  This is analogous to the separation between 
direct expenses (production costs) and indirect expenses (overhead 
costs) in business accounting.

     Next, within the Academic Functions, I separate out the 
University's five Medical Schools and their associated Teaching 
Hospitals from all the rest.  This is done because of the unique 
financial characteristics of this medical sector: the enormous 
amount of money that flows into the University's hospitals and 
clinics from the business of medical practice.  (In its budgets and
management practices the University regularly separates the Health 
Sciences from other sectors of academic functions.  This larger 
definition also includes the departments of Dentistry, Nursing, 
Pharmacy, Veterinary Medicine, Optometry and Public Health and also 
the Neuropsychiatric Institutes.  These other departments had $324 
Million in expenditures for 1992-93; but I have kept them grouped 
with the Other Academic Functions in the tables below.)

     Table 1a  gives the data I have collected for this study of the
University's spending pattern over the past fifteen years.  Note 
that the first three columns give data at five-year intervals, while
the later columns are at one-year intervals.  This allows us to see 
in greater detail what has happened during these recent years of 
California's budget crisis.   For details about the sources, 
definitions and methods used in extracting this data, see Notes #1,
#2 and #3 in the Appendix.

Table 1a.   UC Current Funds Expenditures - All Funds   ($ Millions)

               1978   1983   1988   1989   1990   1991   1992   1993
Med. Schools
& Hospitals.... 603  1,080  1,794  1,981  2,239  2,523  2,677  2,822
All Other
Acad. Fcns..... 797  1,279  2,040  2,166  2,377  2,495  2,551  2,602
Admin. &
Support Svcs... 525    992  1,567  1,740  1,919  2,001  2,046  2,056
Med/Other......0.76   0.84   0.88   0.91   0.94   1.01   1.05   1.08
     The first thing one sees from Table 1a  is that the 
expenditures in these three sectors of the University are of roughly
equal magnitude - $2 to $3 billion for each of them in 1992-93.  
UC's five medical schools and their associated teaching hospitals 
have only 5 percent of all UC students, but they spend more money 
each year than all the rest of UC's academic enterprises combined. 
Furthermore, the last row of this table shows that this medical 
preponderance has been increasing over the years.

     Before proceeding with a further discussion of UC's budget 
priorities, we must note that this form of the data is not really 
what we want.  The reason is that the data in Table 1a  include a 
lot of "Restricted Funds", whose allocation is fixed by external 
entities and cannot be moved about by the University.  Therefore, I
have subtracted out all the Restricted funds; and in Table 1b  are 
the Expenditures of Unrestricted Funds only.  See Notes #4 and #5 in
the Appendix for further details.

Table 1b. 
    UC Current Funds Expenditures - Unrestricted Funds  ($ Millions)

               1978   1983   1988   1989   1990   1991   1992   1993
Med. Schools
& Hospitals.... 471    869  1,440  1,577  1,794  2,043  2,168  2,279
All Other 
Acad. Fcns..... 560    917  1,507  1,597  1,757  1,816  1,802  1,793
Admin. &
Support Svcs... 512    971  1,544  1,715  1,888  1,964  2,012  2,022
Med/Other......0.84   0.95   0.96   0.99   1.02   1.13   1.20   1.27

     The general features noted in Table 1a are even more pronounced
in Table 1b. The predominance of the medical sector and its rapid 
growth vis-a-vis the other academic functions is even stronger than
before.  The data from Table 1b is shown graphically in Figure 1, 
and here we can see most clearly what has been going on over these 

           m = Medical Schools & Teaching Hospitals  
           o = All Other Academic Functions
           s = Administration & Support Services
2300                                                  m
2200                                              m
2000                                          ms  s   s
1900                                      s
1800                                      mo  o   o   o
1700                                  s
1600                                  om
1500                              so
1400                              m
1000                s
 900                om  
 600  o
 500  sm
      78            83            88  89  90  91  92  93 FISCAL YEAR

     In Figure 1 we see that over the earlier 10-year period, fiscal
years 1978 to 1988, all three sectors had expenditures of 
unrestricted funds of nearly equal magnitudes and they all grew at 
nearly the same rate - about 11% per year.  (I regard the closeness
of these three curves during that early period to be no more than a 
coincidence, which, however, provides a useful benchmark for 
measuring the later developments.)

     The most interesting part of Figure 1 is what has happened 
during the last few years, under the impact of California's budget 
crisis.  The medical sector has just kept galloping ahead, its 
expenditures seem almost unaffected by the budget crisis.  The 
administrative sector has leveled off, but still comes in second in 
this "horse race".  The clear loser among these three sectors of the
University is all the rest of the academic enterprise, which alone 
shows an actual drop in expenditures.

     These are very large dollar amounts when we measure the gaps 
between the three lines in Figure 1 at the latest year shown, 1992-
93.  The administration sector got  $229 million more than the 
non-medical academic sector; and the medical sector got $486 million
more than the non-medical academic sector.  Thus, over the last five 
years shown here, the non-medical academic sector has lost out to 
the rest of the University by an annual amount of over $700 Million. 

     This data, showing the apportionment of unrestricted funds, is
a clear manifestation of the actual priorities of the University's 
leaders.  We can compare these facts with the proclamations 
frequently made by UC's President and his staff.  They have 
repeatedly claimed that all sectors of the University share the pain
of budget cuts, that administration has been cut the most, and that
core academic operations have been protected the most.  The data 
presented above contradict every one of those claims.

                            PART II

     Now I turn to a more focused look at UC's finances. Instead of 
looking at all academic functions, I select only Instruction, 
leaving off Research, Public Service, Academic Support and Teaching 
Hospitals.  This category covers more than just teaching: it is the 
very heart of the whole academic enterprise, including all of the 
salary for regular faculty members as well as their departmental 
support.  This will again be separated into two portions: Health 
Sciences Instruction (medical schools plus the other departments 
listed earlier) and General Campus Instruction, which is all 
the rest (excluding University Extension and Summer Session.)  Also,
instead of all the support services covered in Part I, I now select 
only the category named  Institutional Support, which covers the 
central administration on each campus and systemwide.

     Here, again, I take only the expenditures of unrestricted 
funds; but this time I do not include any Transfers of funds.  With 
these definitions I can compare the expenditures data for these 
three selected categories from UC's accounting documents with the 
same categories of data given in UC's annual budget document ("The 
Regents' Budget").  I take the budget figures not as prospective 
budget proposals, but as already-approved budgets, following 
appropriation by the State Legislature and formal adoption of the 
current year's budget by the Board of Regents.  This new data is 
presented in Table 2 and is also displayed in graphical form in 
Figures 2, 3 and 4  to facilitate analysis and interpretation.

Table 2.  Comparison of Budgeted Amounts & Actual Expenditures 
  of Unrestricted Funds for Three Principal Categories  ($ Millions)

Year     Budget  Expend.       Budget  Expend.       Budget  Expend.
1978       297     271           130     138            92     103
1983       498     428           217     250           145     164
1988       877     729           371     416           252     294
1989        NA     779            NA     440            NA     331
1990     1,032     855           426     496           319     352
1991     1,093     898           447     516           318     376
1992     1,140     872           460     523           329     376
1993     1,063     867           468     540           292     367

           B = Budgeted Amount    X = Actual Expenditure

1150                                             B
1100                                         B
1050                                     B           B
 900                             B           X
 850                                     X       X   X
 800                                 X
 750                             X
 500                B
 450                X
 300  B
      78            83            88  89  90  91  92  93 FISCAL YEAR

           B = Budgeted Amount    X = Actual Expenditure

 550                                                  X
 525                                          X   X
 500                                      X
 475                                                  B
 450                                  X       B   B
 425                              X       B
 375                              B
 250                X
 225                B
 150  X
      78            83            88  89  90  91  92  93 FISCAL YEAR

           B = Budgeted Amount    X = Actual Expenditure
 375                                          X   X   X
 350                                      X
 325                                  X   B   B   B
 300                              X                   B
 250                              B
 175                X
 150                B
 100  XB
      78            83            88  89  90  91  92  93 FISCAL YEAR

     First, let's look at the above data for Actual Expenditures in 
the three categories over these 15 years.  For the first 10 years, 
1978-88, they all grew at the rate of 10% to 11% per year, like the 
earlier data studied in Part I.  Also, like the previous data, we 
see significantly different behavior among the three categories 
during the most recent years of the budget crisis: over the last 
2-year period, 1991-93, General Campus Instruction has dropped by 
$31 Million, while Institutional Support has dropped by only 
$9 Million and Health Sciences Instruction has increased by 
$24 Million.

     Next, let's compare Actual Expenditures with Budgeted Amounts.
In Figure 2 we see that the actual expenditures for General Campus 
Instruction fall below the amounts budgeted for that category.  This
discrapancy has grown sharply over the years, amounting to a gap of 
$196 Million in FY93.  In Figure 3 we see that actual expenditures 
for Health Sciences Instruction exceed the amounts budgeted; and the
gap rises to $72 Million in FY93.  In Figure 4 we see that actual 
expenditures for Institutional Support (Administration) exceed the 
amounts budgeted; and the gap rises to $75 Million in FY93.

     One might ask, How can there be any discrepancy at all between 
the amount allocated in the budget and the amount actually spent?  
The University President is the person to answer that question in 
detail.  I assume that these discrepancies represent an accumulation
of "revisions" to the budget, approved throughout the fiscal year 
under the standing authority given to the President by the Board of
Regents (and perhaps partially delegated by him to the Chancellors.)


     The point of this study was to find out what the University's 
own financial records could tell us about the true priorities of
UC's leaders.  The lesson learned is very clear:  while the great 
majority of the University's faculty, staff and students suffer 
serious financial hardships, the rich (the medical schools) get 
richer and the powerful (the administrators) protect themselves.  
The Regents, as legal custodians of this public institution, are 
fully responsible for this situation;  these have been their 
priorities for the University of California.  But it is also 
possible that they can be changed.

     It is worth observing how crucial it was in this study to 
separate the medical sector from the rest of academia.  If they were
left mixed together, the sharp distinctions seen in the tables and 
graphs of this Report would virtually disappear.

                  APPENDIX - TECHNICAL NOTES

NOTE #1 - SOURCE:  The data in Tables 1a  and 1b  were gathered from
the annual UC publication, "Campus Financial Schedules," published 
by the Office of Corporate Accounting in the University of 
California Office of the President.   "1993" means the fiscal year 
July 1, 1992 - June 30, 1993.  These data are expenditures of  
"Current Funds,"  that is, annual operating funds, as distinct from 
the University's Plant Funds, Endowment Funds, Loan Funds and
Retirement Funds.

NOTE #2 - CATEGORIES: These UC accounting reports categorize annual 
expenditures according to ten standard functions, which I have 
grouped as follows:  "Academic Functions" = Instruction, Research, 
Public Service, Academic Support, and Teaching Hospitals; 
"Administration & Support Services" = Student Services, Institutional
Support, Operation & Maintenance of Plant, and Auxiliary Enterprises.
I have left out the accounting category Student Financial Aid.

NOTE #3 - TRANSFERS: In the data for Administration & Support 
Services I have included the "Transfers" (recharges) in order to get
a better representation of the total expenditures of this sector.  
This is open to debate since it may produce some double counting. 
For example, I would not include transfer amounts in the data for 
the Academic Functions - to do so would significantly exaggerate the
figures for the Medical Schools & Hospitals, which make large 
transfer payments to each other.  For the Administration & Support 
Services, I have, as a check, examined the data without transfers 
and find that, to a rather high degree of accuracy, it merely scales
down the numbers by a constant percentage - that is, the qualitative
interpretation and the comparison between the evolution of the 
different sectors remain unchanged.

lexicon: "Unrestricted Funds" are UC moneys under the control of the
Regents, to allocate as they see fit; this includes state General 
Funds appropriations, student fees and other UC incomes. "Restricted
Funds" are those provided to UC by external sources for specified 
purposes (e.g., federal research contracts and grants, private 
donations and endowments given for a specified purpose) and cannot 
be reallocated by the Regents.
     Occasionally the term "private money" is used to designate UC 
funds which do not come from the state's appropriation (State General
Funds) but from some private source (unrestricted donations given to
the University to be used at the discretion of the President or a 
Chancellor.)  All UC funds are, nevertheless, public moneys; the 
Regents administer the University of California as a public trust.

accounting publications further detail two components of unrestricted
funds: "General Funds" (mostly from State Appropriations) and 
"Designated Funds" (other incomes collected by UC and under the full 
control of the Regents.)  This separation is significant when UC 
interacts with Sacramento, as in negotiating each year's 
appropriation from the State.  However, the purpose of this Report 
is to study UC's internal budgeting priorities and here the 
distinction between different types of unrestricted funds is 
     I can illustrate this point with a striking example, which I
came upon in the Campus Financial Schedules.  The Berkeley campus 
shows a total expenditure for Institutional Support (the campus 
administration) amounting to $57 million for 1992-93 and the same 
total amount for 1989-90.  The "General Funds" portion of this 
expenditure was $34 million in 1989-90 but dropped to $4 million 
in 1992-93, while the "Designated Funds" portion rose from 
$19 million in the earlier year to $49 million in the recent year.  
The source of this dramatic shift can be found in Schedule 1-D:   
Student Tuition & Fees provided only $3 million for Berkeley's 
Institutional Support expenditures in 1989-90 but provided 
$39 million in 1992-93.  What does this mean? Have we just uncovered
a dastardly secret - that all of the money from the recently 
increased student fees has been grabbed by the Berkeley 
administration to feed their own bureaucracy?  No.  The explanation,
I am sure, is that this was just a bookkeeping convenience, taking 
the student fee revenue handed down to Berkeley from the UC 
President's Office and parking it in this account.  All this money 
is fungible, as the lawyers say.  And that is the same thing I am 
saying: count all of UC's unrestricted funds together, regardless of
their origin - and then see how they are spent.