LOOKING INTO THE UC BUDGET  -- Report #15      (e-mail version)

by Charles Schwartz, Department of Physics, University of California
  Berkeley, CA 94720.        510-642-4427          January 9, 1995


     With new data, this Report revisits the debate over the 
University's spending for upper level administration.  (See earlier 
Reports #7 and #7a.)  In UC's fiscal year 1993-94, this spending 
category actually increased, contradicting the many official claims 
and promises that administration was being cut, by over 20%, during 
these years of severe budget stringency.

     Moreover, the new UC budgets from the Office of the President 
for 1994-95 and 1995-96 have been found to contain a further large 
increase, amounting to over 15%, in the funds allotted for 

     This writer has persistently asked the UC President to explain 
this set of discrepancies.  A recent exchange of letters and 
statements before the Board of Regents is summarized in this Report; 
and the controversy remains far from resolved.


     Table 1 below shows official figures for the total actual 
expenditures of current funds for Institutional Support - the 
accounting category that covers upper level administration at each of 
the University's campuses and the Office of the President. 
[Source: "U C Campus Financial Schedules", Schedules 11-E, including 
Transfers (Recharges)]

     Table 1.  Total Actual Expenditures for Institutional Support
     1989-90    $758 million
     1990-91    $793 million   4.6%  increase from the previous year
     1991-92    $811 million   2.2%  increase from the previous year
     1992-93    $809 million   0.2%  decrease from the previous year
     1993-94    $817 million   0.9%  increase from the previous year
     Thus, we see an overall 7.7% increase in spending for 
administration from 1989-90 to 1993-94; or an overall 3.0% increase if 
we measure from the base year 1990-91. The definition of 
"administration" used to select the numbers given in Table 1 is in 
accordance with that specified for this purpose by Associate Vice
President Lawrence C. Hershman,  UC's Director of the Budget, in
recent communications.

     Let us now compare these facts with the many previous claims and 
promises made by the University's leaders about cutting the UC budget 
for administration.

                   OFFICIAL CLAIMS & PROMISES

UC President Jack W. Peltason, in a report to the Board of Regents, 
March 18, 1993:
     QUOTE A
     As a result of recent budget cuts, campus and Office of the 
     President budgets for administration were cut by 5 percent in 
     1990-91 and again in 1991-92, for a total cut of 10 percent or 
     $25 million.  An additional cut of 10 percent, or nearly $20 
     million, has been made in 1992-93; further cuts will be made 
     in 1993-94.

The Regents' Budget, issued by the UC Office of the President, 
October 1993, p.94:
     QUOTE B
     As a result of shortfalls in State funding, campus and Office 
     of the President budgets will have been cut by $433 million by 
     1994-95.  In order to protect the instructional program as much 
     as possible, campuses have made deeper cuts in other areas.  
     Administration, especially, has been assigned heavy cuts on the 
     campuses; and on the systemwide level, core administrative 
     activities in the Office of the President are being cut 
     substantially more than campus budgets.  By 1994-95, the 
     University estimates that Institutional Support budgets will 
     have been cut by about 25 percent overall.

Budget Director Larry Hershman, in a letter to this writer, 
January 14, 1994:
     QUOTE C
     There is typically a lag time between assignment of a budget 
     cut and clear evidence of its impact on expenditure patterns as 
     shown in the Financial Schedules.  This is particularly true 
     with respect to recent reductions in the University's budget 
     which were deeper and continued longer than anyone foresaw at 
     the beginning. ... We are ... in the process of phasing in 
     permanent solutions to the problem of a reduced resource base.  
     We do not expect the budget cuts to be fully implemented until 

This letter from Hershman was in reply to a letter I had written to 
President Peltason, on October 7, 1993, in which I questioned the 
accuracy of Quote A above and asked him to provide specific data upon 
which those claims were based.

Provost Walter E. Massey, reporting to The Regents, 
February 17, 1994:
     QUOTE D
     As a result [of recent reductions in State funding for the 
     University], we have cut budgets for the campuses, Agriculture 
     and Natural Resources, and the Office of the President by a 
     total of $433 million.... [We] have applied the reductions on a 
     selective, differential basis.  We have attempted to protect 
     the instructional program to the extent possible, which has 
     meant deeper cuts in other areas, especially administration.
     The permanent impact of the budget reductions will occur 
     through a phased reconfiguration of our academic programs, ... 
     The full effect will not be apparent immediately because, as I 
     have noted on other occasions, restructuring of academic 
     programs is a complex process ...

These remarks by Massey accompanied a UCOP report, entitled "Program 
Impact of Budget Reductions 1990-91 through 1994-95", which contains 
details from each of the University's campuses, highlighting cutbacks 
in Administrative Services as well as Academic Programs and other 
areas of concern.  Typical content: "The permanent budget cut in 
central administrative and support services is equivalent to X 
percent of the 1990-91 State and fee funded base budget for these 
activities."  The values of X varied from one campus to another; the 
overall (weighted) average is 27%.

Budget Director Larry Hershman, in a letter to this writer, 
November 8, 1994:
     QUOTE E
     President Peltason has asked that I respond to your letter of 
     October 17 concerning the amounts budgeted for Institutional 
     Support in the 1994-95 and 1995-96 Regents Budgets for Current 
     There are several basic points that I want to make briefly, and 
     then I will elaborate.
     PHASING.  We have said repeatedly that the cuts are being 
     phased.  In other words, we have always anticipated that there 
     would be a time lag between assignment of budget cuts and full 
     reflection of the cuts in documents such as the Regents' Budget 
     and the Financial Schedules.

Elaborating this discussion of the "phasing" of administrative budget 
cuts, Hershman goes on to quote from his own letter of January 14, 
1994 (reproduced as Quote C above) and also from the February 1994 
report referred to under Quote D above.


     Most apparently, the data in Table 1 show expenditures for 
administration increasing over these recent years, in fundamental 
contradiction to the claims above about cuts in administrative 

     One sees a lot of inconsistencies among these various official 
stataments about when the alleged budget cuts in the administration 
are supposed to occur.  The University's two highest officials have 
described the cuts clearly in the past tense: "budgets for 
administration were cut", "An additional cut...has been made" 
(Peltason); "we have cut budgets", "have applied the reductions on a 
selective, differential basis ... especially administration." 
(Massey).  Some documents allow an ambiguous reading as to when the 
cuts are supposed to be completed: "has been assigned", "are being 
cut" (Quote B); see also the February 1994 report referred to under 
Quote D.

     The greatest agility, however, is demonstrated by Hershman.  In 
his January 1994 letter he says the cuts are being phased in, but 
they will be "fully implemented" in the 1994-95 fiscal year.  This is 
a more definitive commitment than the one made at the end of Quote B.  
But then, in his November 1994 letter, Hershman reneges: "We expect 
that most of the initial cuts will be phased in by 1994-95 and 
reflected in year-end expenditures.  It appears likely, however, that 
there will be additional cuts in 1995-96 and beyond."  Furthermore, 
in his November 1994 letter Hershman claims that the February 1994 
report "addresses the phasing issue"; but the quotation he uses to 
support this claim refers specifically to "budget reductions and 
restructuring for academic programs" and is not about administrative 
budget cuts.  When I questioned him directly about this contradiction 
at the last Regents' meeting he insisted that the February report 
explicitly spoke of "phasing" for administrative budget cuts, and he 
instructed me to read that report again.  I did so and found that he 
was wrong.

     This is not just semantic quibbling.  Over the past few years UC 
students have suffered huge fee increases; faculty and staff have 
suffered a pay freeze, a pay cut, and increased workloads as many of 
their colleagues departed under the VERIPs.  Those measures were sold 
by the UC President and Chancellors under the principle of sharing 
the pain and, as quoted above, allotting larger budget cuts to 
administration.  If those were false promises, or broken promises, 
that is a very serious matter.

     Let us try for a more generous interpretation of the 
contradictions noted above.  Maybe there has been some carelessness 
among the administrators in how they have spoken about this topic.  
Maybe the full implementation of budget cuts for administration has 
taken longer than originally anticipated.  BUT, we still see a very 
big discrepancy when we look at the numbers presented in Table 1.  If 
the promised cuts in administration have not yet (by the end of the 
1993-94 fiscal year) been fully realized, at least some significant 
portion of those cuts should be apparent in this data.  Peltason says 
that these cuts started as early as 1990-91; but the year-by-year 
expenditure numbers in Table 1, with one tiny exception, all show 
increases, not cuts. (As for the promise of the cuts being phased in 
by 1994-95, see the next section.)

     The magnitude of the promised overall cut in administration was 
27%, according to the February 1994 report, referring to 1990-91 as 
the base year.  A 27% reduction from $793 million leaves us with a 
target figure of $579 million - which is $238 million below the 
actual expenditure shown for last year. This is a big debt, it seems 
fair to say, which the top administrators of this University owe to 
the students, the faculty and the rest of the staff of this 
institution.  Each year that the promised target is not achieved 
further increases this debt.


     Now we turn from expenditure data to budget data, from the 
retrospective to the prospective.  This involves a different set of 
numbers and official documents.  Each year, usually in October, the 
UC President presents a University budget plan to the Regents for 
their approval.  This document (typically 100+ pages of prose with a 
few numbers) is then delivered to Sacramento as the basis for the 
University's request for funding in the following year's State 
budget.  Here are the numbers for Institutional Support in the latest 
UC Budget for Current Operations ("The Regents' Budget").

Table 2.  From The Regents' Budget of October 1994

     Budget for               1994-95            1995-96
     Current Operations       Budget             Proposed
     Institutional Support    $334,958,000.      $334,958,000.
And here is the same portion of the previous year's budget.

Table 3.  From The Regents' Budget of October 1993

     Budget for               1993-94            1994-95
     Current Operations       Budget             Proposed
     Institutional Support    $289,520,000.      $289,520,000.

     On October 17, 1994, I FAXed a letter to President Peltason, 
pointing out these numbers and asking, "What is the explanation for 
this discrepancy of $45,438,000?"  At the Regents meeting on 
October 20, having received no response from Peltason, I used my 
three minutes (available to any member of the public who wishes to 
address the Regents on something on their agenda) to lay out this 
problem and ask that it be fully discussed.

     The focus of the problem is on the budget for 1994-95 (the now 
current fiscal year.) As originally proposed and approved in Fall 
1993, Institutional Support was budgeted at $290 million.  Somehow, 
without anyone ever telling the Regents or the public, this same 
budget allotment has been increased to $335 million.  This new 
number, apparently giving a $45 million bonus to the administration, 
appears in the Fall 1994 budget book without any explanation why, or 
even any acknowledgement that, it has been changed from its 
originally approved value.

     But the question is not only, "Why did this year's  budget for 
Institutional Support go up?",  but also, "Why did it not go down, as 
a result of the previously promised cuts in administrative budgets?"

     The Board Chairman directed Larry Hershman to write them a 
letter responding to my concerns; but otherwise the regents praised 
the President and his staff for their wonderful budget, without any 
further question about the $45 million discrepancy.

     In a follow-up letter to Hershman, dated October 24 and cc'd to 
all regents, I calculated that the promised 27% cut in administrative 
budgets based upon 1990-91 figures would lead to a current budget 
figure of $232 million for Institutional Support; and then continued:

     "But the amount shown in the latest Regents Budget is $335 
Million for 1994-95 and the same for 1995-96.  In sum, YOU FACE A
TOTAL DISCREPANCY OF $103 MILLION.  And note that this total does not 
include the administration's share of the additional $53 Million 
budget cut scheduled to be implemented this year, 1994-95.

     "Of the various ways in which 'administration' may be measured, 
the figure for Institutional Support given in the Regents Budget - 
the focus of the discussion above - is the smallest .  Total 
expenditures invariably exceed budget figures, and adding in 
recharges will more than double the result.  I hope you will also 
cover these aspects of the problem in your report to the Regents.

     "It should be obvious that the report you write on this topic 
will be [of] great interest to many people and may have potent 
consequences for the University.  The University's leaders are 
launching an ambitious campaign to the Legislature for full funding 
of this new budget, citing many legitimate and supportable needs of 
this great institution.  However, the chances for success of that 
campaign may be seriously undermined if the UC administration is seen 
to be lacking in credibility.

     "I look forward to seeing your report as soon as it is ready."

     A five-page letter from Hershman, dated November 8, 1994, 
arrived just three days before the Regents' next meeting.  He 
presented his response to my criticisms and questions under five 
headings, two of which concerned the "phasing" of budget reductions 
promised in the past. That issue has already been discussed in the 
earlier section of this Report, where his explanations were found to 
be, at best, inadequate.  Hershman's additional explanations, and my 
reactions to them, follow.

NORMAL BUDGET INCREASES.  "It is our practice each year to request all 
funds for fixed cost increases (e.g., cost-of-living salary 
increases, merit increases, price increases) under the single budget 
function 'Program Maintenance'-- even though these funds, if 
provided, will later be distributed across all budget functions ... 
including Institutional Support..."  Hershman has given no number for 
this correction, but he told the regents that this normal adjustment 
accounts for "almost half" of the $45 million increase in the 
Institutional Support budget for 1994-95, between the October 1993 
version and the October 1994 version.  

     I acknowledge this general consideration but do not agree with 
his conclusion.  I have done a rough calculation, using the best 
numbers available to me, and estimate that this would account for 
about $6 million increase in the Institutional Support budget - far 
less than half of the $45 million in question.

ACTUAL EXPENDITURES.  "Annual budgets represent a plan based on 
estimates, whereas actual expenditures provide information about what 
has happened.  Looking at all fund sources, between 1991-92 and 1993-
94, Institutional Support expenditures as a percentage of total 
expenditures declined from 11 percent to 10.4 percent.  Considering 
the magnitude of the University's overall expenditures, this is a 
truly significant decline in a short period of time."

     This discussion, while interesting for other reasons, is 
irrelevant to the present debate over budget numbers.  The useful 
part is the clear definition Hershman provides for "actual 
expenditures" on administration; and it is this definition which I 
have used in selecting the data for Table 1 of this Report.  His 
notion that one should judge that number as a percentage of total 
University expenditures is something which I reject on both 
theoretical and empirical grounds, but shall not pursue the matter 
here.  Incidentally, though, I have checked the numbers he quotes as 
the result of that dubious calculation (11% and 10.4%) and they 
appear to be in error.

OTHER CONSIDERATIONS,  "We have been working with the campuses to 
review their Institutional Support budgets and, as a result, have 
identified several actions that account for most of the remaining 
difference between the two budgets.  For example, one campus 
inadvertently understated its Institutional Support budget by $7.5 
million in 1993-94;  correction of the error in 1994-95 made it 
appear that a budget increase had occurred.  Another example concerns 
$5 million of new funds that was the result of new contracts with the 
Department of Energy for oversight of the national laboratories. 
Also, one campus increased the amount budgeted for employee benefits 
in Institutional Support by $2 million in order to reflect actual 

     Of course, accounting errors can happen and should be corrected; 
however, I would like to see more specific details on the items cited 
by Hershman.
                      _ _ _ _ _ _ _ _ _ _

     On November 21, 1994, I wrote a letter to Hershman (cc'd to the 
Provost, the President and all other regents) in which I laid out 
most of the criticisms to his November 8 letter which are found 
throughout this Report.  I also asked several further questions aimed 
at clarifying some remaining questions about the current budget, and 
the proposed 1995-96 budget as well.  I am still waiting for his 

     (At the November Regents meeting I also noted some unexplained 
budget discrepancies other than in Institutional Support.  The most 
surprising one: Libraries, which had been cut by 10%, despite 
frequent cries of their high priority status.)