LOOKING INTO THE UC BUDGET  -- Report #14     (e-mail version)

by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.        510-642-4427          October 12, 1994


     Last month the UC President's staff gave the Regents a progress
report on their intensive studies of undergraduate enrollment 
planning for the coming 15 years.  Reports on graduate enrollment 
planning are due in a few months; and some sort of policy principles
will be formulated for the Regents' approval in the spring.

     The outlook is grim: undergraduate student demand is expected 
to grow a lot, state funding is expected to be stationary at best, 
and none of the miriad suggestions for improving the efficiency of 
the University's operation hold much promise when subjected to 
detailed quantitative analysis.  Either the University receives more
revenue or students will have to be turned away.  So the Regents 
were told.

     In this Report I present a simple Basic Formula for the annual 
institutional cost of undergraduate instruction.  This macro-model 
lets one bypass the dense thicket of the administration's staff 
papers and see what the essential variables are.  Many of the 
economies previously suggested by UC's faculty and administrative 
leaders are readily seen to be trivial or irrelevant.  Some of the 
calculations in the staff papers are found to be wrong or seriously 
biased in their assumptions.

     The greatest flaw in all that work is that the most famous (and
most controversial) variable - the balance of faculty work time 
between undergraduate instruction and other activities - IS NOT
     It is this writer's view, suggested in earlier work and the 
subject of continuing study, that it may well be possible to 
accommodate the additional undergraduate students, at something 
close to the present level of funding, without seriously damaging 
the quality of the University's research mission.  Even if I am 
unable to "prove" this hypothesis, the UC leadership has an 
obligation to explain in detail why these proposals are not viable
before they move to limit admissions to the University.


     At their September meeting the Regents had another discussion 
of long range planning for undergraduate enrollment at the 
University.  This will be the most important issue facing the Board 
this year, with repercussions for decades to come.  Led by a 
presentation from Provost Walter Massey, who summarized a stack of 
recent technical reports by his staff that total some 300 pages of 
detailed data and analyses, the Board stumbled through a discourse 
that showed how little clear thinking there is about how to organize
the University for the years ahead.

     Massey concluded that undergraduate demand is expected to grow 
significantly through the year 2010, at most a 50% increase, 
probably somewhat less than that, but in any case well beyond the 
capacity of UC to accommodate, given the present and projected 
environment of state funding.  A long list of suggestions for 
economizing, developed over the past year by the combined efforts of
UC's academic and administrative leaders, turn out to provide at 
most a 5% increase in enrollment capacity.

     A mantra repeated in the introductory paragraphs of the UCOP 
Staff Papers is, 

  "The University is facing unprecedented challenges to carrying out
  its traditional mission of teaching, research and public service.
  Planning efforts must focus on strategies that will ensure both 
  preservation of the recognized excellence of UC programs in the 
  face of diminished financial resources, and access to these 
  programs by the largest possible number of qualified undergraduate 
  and graduate students.  The University must seriously consider ALL
  options for providing access for eligible students." 
  [Emphasis in original.]  
And this was echoed by President Peltason at the September regents 

  "I would say that the comments this morning are in a sense a kind 
  of a preliminary progress report on our evaluation of not only the
  Governor's but any other suggestion we have had to improve the 
  delivery of education."
However, some of the most lucrative ideas for saving money and 
making UC accessible to more students have not even been considered.

     This Report will not try to recount, summarize, or criticize in
detail all of the documents produced by the President's office on 
this subject.  My main purpose is to attempt to bring some 
intellectual clarity to this whole issue, letting the reader see 
which are the main ingredients, which ones are irrelevant, and which
ones have been neglected or mis-handled in the official studies.

     The cost of undergraduate education will be outlined in two 
parts: Part I considers the annual cost of operating the University;
and Part II considers the cost of capital investments to house those
operations.  [Time and Space.  Physics meets accounting.]  Part III 
is an Appendix discussing various further details in brief.


     The formula below gives the total institutional cost of 
undergraduate instruction as the product of three factors.

(Total Cost to Institution)   =    (Number of New Admissions)
                                 x (Graduation Requirement)
                                 x (Unit Cost of Instruction)

The Total Cost  (TC) is $ per year cost to the university for 
undergraduate instruction.

The New Admissions (NA) is the number of Freshmen entering each year.

The Graduation Requirement (GR) is now set at 180 quarter-units = 
60 year-units.

The Unit Cost (UC) is the cost of delivering one year-unit of 
instruction to one student. 

(It really doesn't matter whether you measure time in academic years
or semesters or quarters; but, for specificity, I will generally 
speak in terms of years.)

     What is at first surprising about this basic formula is the 
fact that it does not involve the Time-to-Degree (TD), that is, the 
average number of years it takes a student to complete the 
graduation requirement.  This fact can be understood qualitatively 
as follows.  If students take a longer time to complete their 
graduation requirements, there will be more students enrolled at any
time (for a fixed rate of new admissions), but those students will 
be taking fewer classes at any time.  These two effects cancel each 
other, leaving the university with the same total instructional cost
per year.

     Another quantity that does not appear in the basic formula is 
the Enrollment (E), the total number of undergraduate students 
attending classes throughout the year.  The additional relation is
E = (NA) x (TD) ;  and with this one can easily derive the basic 
formula itself.  (See the Appendix for further details about the 
basic formula.)

     We will now use the basic formula to give a first assessment of
various ideas about how the University might lower its total cost of
undergraduate instruction, or accommodate a larger influx of 
students at the same total cost.

     A.  Reducing the Time-to-Degree does absolutely nothing at all!
This is a very significant statement since so many of the 
suggestions that have been proposed to the University - from UC 
faculty and administrative leaders and from the state Legislature - 
have focused on just this idea.

     B.  Reducing the number of students allowed to enter the 
University cuts the total cost proportionately.  This is obvious to 
anyone; and it has been the solution that seems most favored by the 
regents in their earlier discussions.  Putting aside the many issues
of morality and politics involved here, I would just pose the 
practical question: If you close the doors, who will then pay for 
the continued operation of the University?

     C.  Reducing the graduation requirement cuts the total cost 
proportionately.  Thus, if one were to change from a four-year 
(180-quarter-unit) degree program to a three-year (135 quarter-unit)
degree program, this would cut total cost by 25%, or it would allow
admissions to increase by 33% at the same total cost.  Of course, 
the UC undergraduate degree would then become quite a different 
product.  Note that the idea of squeezing a four-year curriculum 
into three years is something different - it is just changing the 
Time-to-Degree, which, we already noted, has no effect at all. 

     Another common idea is to have students complete some portion 
of their graduation requirements elsewhere - in high school (with 
advanced placement tests), at Community Colleges, at UC's Summer 
Session or Extension courses.  This does reduce the University's 
total cost of instruction proportionately to the number of units 
displaced.  But the cost of that additional instruction is also 
displaced, and questions of equity and quality arise.  The 5% saving
estimated in the UCOP staff reports arises from a combination of 
these measures.

     D.  Finally, one can cut the total cost, or accommodate larger 
admissions, by reducing the Unit Cost of Undergraduate Instruction 
at the University.  This is the topic that nobody in the leadership 
of the faculty and administration seems willing to consider.  This 
is certainly controversial, but let's start by laying it out on the 
table in basic economic terms.  There are three primary ways to 
reduce this unit cost.  (See the Appendix for further discussion.)

1) Reduce personnel costs.  Of course we can't cut faculty salaries;
but we might use more low-paid instructors instead of high-paid 
research professors to teach undergraduates; and we could, perhaps,
use new technologies to replace teachers of any human kind.  
Questions of the quality of instruction arise most prominently.

2)  Increase class size.  This lets each faculty member teach more 
students, lowering the unit cost per student.  Again, quality of 
instruction is the major issue.

3)  Increase faculty courseload.  Have faculty spend more of their 
total work time teaching undergraduates and less doing other things.
This has a very large potential for decreasing the unit cost, since 
UC faculty now spend only about 21% of their work time on 
undergraduate instruction.  The concern here is that such a shift 
will degrade the quality of other things that faculty do at the 
University - research, graduate instruction, etc.  (See my Reports 
#8, #9, #10 for some prior analysis.)

     These last ideas are not new at all.  What is needed is a 
detailed and thorough analysis based upon reason and quantified 
wherever possible. So far, UC's leaders have ignored these ideas or 
dismissed them with the vague rhetoric of "quality."

                   PART II.  CAPITAL COST

     In the UCOP staff reports, the question of construction costs 
to accommodate additional undergraduate students comes up in two 

     A.  It has been suggested that the University can make fuller
use of its existing facilities by holding classes during the summer,
on weekends and in the evening hours.  This capital idea is put down
for two reasons.  First, experience shows that in the past students
have not responded very well to such non-traditional class offerings; 
but if there is no alternative, i.e., if it becomes mandatory on 
some equitable basis, then they may behave differently.  Second, the
UCOP staff reports point out that providing more available class 
space is not enough: more teachers must be hired and that costs more
money, money which they see the state as unable to provide.  This 
correctly links the problem of capital costs and the problem of 
operating costs.  However, it is a seriously flawed analysis because
it does not allow for the possibility of increasing instructional 
efficiency, as discussed above.

     B.  This same blind spot infects the other discussion of 
capital costs in the UCOP staff papers: If more students are to be 
admitted, then more faculty must be hired and more space for their 
offices, support staff, research labs, etc., must be constructed.   
This formulation is based upon the old assumptions about the balance
between teaching and research for faculty members; but all of that 
must be open for discussion, not frozen. (See more details in the 

                    PART III.  APPENDIX

     A.  The basic formula assumes that every entering student 
completes the degree program and graduates at some time.  The 
entering class will consist of students who will complete their 
degree over various time scales;  thus the Time-to-Degree is to be 
understood as an average over all students but this doesn't affect 
the basic formula itself.  Also, students enter with different 
degree requirements (e.g., transfer students come in needing to 
complete only half their total units at UC) and so the product
(NA) x (GR) in the basic formula should be understood as the sum 
over different student populations.

     B. The basic formula should be easily comprehensible to
students at California's Community Colleges, where they are charged 
for the number of units they take, regardless of when they complete 
their degree requirements.  It is us sophisticates at UC who may 
have some trouble in learning this formula.

     C.  UCOP's Staff Paper #3 presents a calculation to answer the
hypothetical question, "How much additional enrollment capacity 
would be generated if all regularly-admitted new domestic freshman 
were to graduate in three years?"  When I first read that portion I
was confused about the validity of their calculation.  Now, by 
referring to the basic formula, I can see that their calculation is 
not just wrong, it is nonsensical: it does not distinguish between 
an accelerated four-year program and a restructured three-year 
program. (See my earlier discussion Part I, paragraph C.)

     D.  The concept of Full-Time-Equivalent (FTE) student 
enrollment is regularly used in UC's budget negotiations with the 
State, and this makes sense in the year-to-year process of 
incremental budgeting.  However, for long range planning FTE is not 
a good concept because it creates unnecessary confusion.  For 
example, the basic formula could be re-written this way:

(Total Cost)  =  (FTE Enrollment) x (Standard courseload = 15 units)
                x (Unit Cost)

But if you ask the questions, What is the effect of shortening 
Time-to-Degree, or of reducing the number of units taken at UC?,  
the answers are not at all obvious from this reformulation because 
the FTE obscures those basic elements.  Furthermore, the original 
form of the basic formula uses NA, the actual number of new students
admitted each year, and this is the real quantity to be dealt with, 
both humanly and politically.

     E.  The unit cost of instruction involves more than just 
faculty salaries/time.  There is the cost of instructional support 
(TAs, etc) and of libraries that must be added in.  Also, if one 
needs more classrooms to accommodate more students, that will be a 
new cost; but I note from the Staff Reports that classrooms and 
teaching laboratories account for only 9.5% of the assignable square
feet in non-residential facilities at UC's eight general campuses. 
The cost of student services at the University and the cost of 
housing and dining, etc., for increased numbers of students is 
important but it is not part of instructional cost; this is usually 
paid for by direct levies upon the students themselves and thus need
not enter our present calculations.  The question of University 
"overhead", e.g. administrative expenses, must also be addressed.  I
have previously opined that this is now inflated and should be cut 
down; more study on this point is needed.

     F.  One topic that took a lot of time at the regents' 
discussion was "technology and distance learning."  My impression is
that there is a fundamental split on this topic.  Some people 
imagine this as a way for the University to save money (decreasing 
the unit cost of instruction) but the faculty establishment 
apparently views it only as a possible way to enhance the quality of
instruction.  Dare I mention that this disparity looks like a 
classical labor union dispute?

     G.  All my analysis so far has treated the whole University of 
California as a single uniform entity;  but, of course, its 
individual campuses present different circumstances.  Physical space
to accommodate more students is one topic that will need deeper 
study.  Another, more controversial, idea is that different campuses
might evolve along different academic tracks.  The President has 
taken a formal position opposed to this proposition but no reasoning
or analysis has been presented either for or against it.

     H.  I would be reluctant to apply the basic formula to graduate
instruction in the PhD programs of the University.  The process of 
writing a dissertation is so individual, for both student and 
teacher, and so varied from one case to another that I would not 
think the "production line" model underlying the basic formula is 


CORRECTION.   In Report #12  I gave data for UC's expenditure for 
Public Information activities totaling $11,863,000 in 1992-93.  
That calculation left out the transfers (recharges), which are 
needed to give a complete picture of the actual expenditures.  
The corrected total is $26,275,000.