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
SUMMARY
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
administration.
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.
THE NUMBERS FOR PAST YEARS
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
1994-95.
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
Operations.
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.
DISCUSSION
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
budgets.
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.
THE NUMBERS FOR THIS YEAR & NEXT
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
expenditures."
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
reply.
(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.)