LOOKING INTO THE UC BUDGET  -- Report #19    (e-mail version)


by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.        510-642-4427          January 6, 1997



                             SUMMARY

     UC spending for administration was the first major topic when 
this series of Reports started four years ago.  This is an update on 
the continuing controversy over the big-dollar discrepancy between 
what the University President and his staff say and what they 
actually do with the budget money.  Three aspects of this subject 
are discussed here:

I.  Throughout the period of UC's recent budget crisis, the leaders 
of this University made the repeated commitment that administrative 
costs were being cut the most severely in order to protect the 
instructional program. Examination of the data for actual 
expenditures on administration over the last several years proves 
that those promises were fraudulent.  And this problem can be 
related to the large increases in student fees.

II. Long term studies of the growth of administration at the 
University, compared to the growth of the academic program, indicate 
a wasteful history of bureaucratic accretion.

III. A sudden rise (by 16% = $66 million) in last year's expenditure 
for administration raises new questions about the priorities of 
those in charge of managing the University's finances.


     At the end of this paper is an index of previous Reports in 
this series.



                           Definitions

     In the University's budgeting and accounting system funds for 
top level administration are counted under the heading of 
Institutional Support (IS).  Here is how that category is defined in 
the latest UC Budget for Current Operations 1997-98 - "The Regents 
Budget" - prepared by the Office of the President (UCOP) in October 
1996  and now on its way to Sacramento.

"Institutional Support includes numerous campus and systemwide 
activities under five sub-programs.  The sub-programs and examples 
of typical activities included in each are listed below.
 EXECUTIVE MANAGEMENT:  Offices of the President, Vice Presidents, 
Chancellors, and Vice Chancellors; planning and budget offices.
 FISCAL OPERATIONS:  accounting, audits, and contract and grant 
administration.
 GENERAL ADMINISTRATIVE SERVICES:  computer centers, information 
systems, and personnel.
 LOGISTICAL SERVICES:  purchasing, mail distribution, and police.
 COMMUNITY RELATIONS:  development and publications."

     This does not cover all administrative activity at the 
University but only that portion controlled directly by the top 
level of authority on each campus and systemwide.  Administrative 
services at the level of academic schools, colleges, departments, 
research centers and other functional units and enterprises of the 
University are included within the financial accounts of those units 
and are not part of IS.

            What the Regents' Budget Says About This Money

    The question is, How much money goes into Institutional Support? 
The budget number for Institutional Support given in The Regents' 
Budget - for both fiscal years 1996-97 and 1997-98 is  $328,694,000. 
The document explains, as follows, why this amount is barely 
adequate for the University to meet its management obligations.

"Erosion of Institutional Support budgets during the 1980s was 
further compounded by the University's severe fiscal problems during 
the early 1990s. ... The budget cuts sustained in the early 1990s 
were deep and affected every aspect of University activity.  In 
order to protect the instructional program as much as possible, 
campuses made deeper cuts in other areas.  Institutional Support, 
especially, was assigned heavy cuts on the campuses.  On the 
systemwide level, core administrative activities in the Office of 
the President were reduced substantially, including a 20 percent cut 
over the two-year period 1993-94 and 1994-95. ...

"Looking at all fund sources, Institutional Support expenditures 
declined from 12 percent of total expenditures in 1971-72 to 11.5 
percent in 1983-84.  From 1983-84 to 1991-92, the percent 
fluctuated between 11 and 12 percent.  By 1995-96, Institutional 
Support expenditures as a percentage of total expenditures had 
declined to about 10 percent.  Considering the magnitude of the 
University's overall expenditures that is a significant decline in a 
short period of time."

 [Quotations are from pages 152,3 of the October 1996 budget
document.]

     The statements and numbers just quoted from The Regents' 
Budget, about the amount of administrative spending at UC, are very 
inaccurate and highly misleading.  


                     The Real Numbers

     In November, UCOP issued the "University of California Annual 
Financial Report" for 1995-96, in which the amount of expenditure 
for Institutional Support in that fiscal year is reported as  
$473,602,000.  This number should be compared to the amount 
$320,704,000 given in The Regents Budget for that same fiscal year.  
The discrepancy is huge; and one must learn to look at any 
"budgeted" numbers with great skepticism.

     Further details are found in the official "Campus Financial 
Schedules" for 1995-96.  Expenditures for Institutional Support 
(total $474 million) came from various sources:
$268 million from General Funds (The Regents Budget said only 
            $196 million);
$40 million from Tuition and Fees;
$23 million from Private Gifts, Grants and Contracts;
$20 million from Endowment and Similar Funds;
$14 million from Reserves;
small amounts from five other categories; and
$103 million from unspecified "Other Sources."

     The most interesting study is to see how this official 
expenditure figure has varied over recent years. This data is shown 
in Table 1.

  Table 1.  Expenditures for Institutional Support 
               - UC Totals by Fiscal Year

   1989-90    $ 369,665,000
   1990-91    $ 393,877,000    changed by + 6.5% from previous year
   1991-92    $ 394,345,000       "    "  + 0.1%   "     "      "
   1992-93    $ 384,722,000       "    "  - 2.4%   "     "      "
   1993-94    $ 387,704,000       "    "  + 0.8%   "     "      "
   1994-95    $ 407,361,000       "    "  + 5.1%   "     "      "
   1995-96    $ 473,602,000       "    "  +16.3%   "     "      "
[Source:  annual University of California Financial Report]


               False Claims and Broken Promises

     Where is the evidence for the especially deep cuts supposedly 
assigned to Institutional Support during the period of UC's severe 
budget crisis in the early 1990s?  This question has been at the 
center of a running debate with the UC President's Office over the 
history of this series of Reports.  In Report #7, over three years 
ago, I displayed data up through the 1992-93 fiscal year and quoted 
former UC President Jack Peltason (reporting to The Regents on March 
18, 1993) as follows:

"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."

     When I pointed out the discrepancy between the facts shown by 
the actual spending data and these administrative claims about cuts 
in their own budgets,  UC's Budget Director Larry Hershman, in a 
January 14, 1994, letter, explained,

"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. ... We do not expect the budget cuts to be 
fully implemented until 1994-95."

     In February 1994 the President's Office presented a detailed 
report to the Regents, titled "Program Impact of Budget Reductions 
1990-91 through 1994-95."  This highlighted the quantitative 
cutbacks in spending for administrative services on each campus and 
at UCOP.  The cuts in the permanent budget for administration 
spending throughout the University, as presented in this report, 
amounted to an overall average of 27% reduction.

     Again, in a November 8, 1994, letter, Hershman answered my 
complaints:

"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."

     Later that same month, I wrote to Hershman detailing many 
inaccuracies and contradictions I had found in his defense of the 
then current budget for Institutional Support. This debate may be 
found in my Report #15, issued January 9, 1995, where I presented 
newer data and stated,

"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 
[on expenditures]. ...  but the year-by-year expenditure numbers, 
...,with one tiny exception, all show increases, not cuts."

     In his last letter, dated January 13, 1995, Hershman said that 
he and his staff did not have time to answer my criticisms and 
questions; and he wrote:

"My letters to you have emphasized the fact that we are in the 
process of phasing in permanent solutions to the problem of a 
reduced resource base.  As I said in my November 8 letter, 'When we 
have the 1994-95 actual expenditure data (on Institutional Support), 
we will again review the situation.'  My November 8 letter also 
said,  
     The University has made a commitment that Institutional Support 
     expenditures will be reduced.  Progress has clearly been made.  
     We will continue to evaluate the situation on an annual basis 
     and will be prepared to report the facts to The Regents.
I stand by that statement."

     Now, another two years have passed; and from the data in Table 
1 we still see no evidence whatsoever that the promised cuts in 
Institutional Support, at the level of nearly 30%, ever occurred.  
(The sharp increase in spending shown for last year, 1996,  will be 
discussed separately later on in this Report.)

     The word "discrepancy" is really inadequate to describe this 
situation. Recall the history. As the severity of UC's budget crisis 
became clear, in the early 1990s, the University's President, backed 
by The Regents, laid out a plan for "sharing the pain" of budget 
cuts that came from the state's financial crisis. Student fees were 
to be raised dramatically; faculty and staff salaries were frozen, 
and then actually cut; there was a massive early retirement program 
and layoffs. The proclaimed priority was to protect the academic 
programs and so administrative budgets were to be given the deepest 
cuts of all.  There was compelling talk about a new social compact 
between the University and the citizens of California - this meant 
that UC's undergraduate students and their families would have to 
take on the financial burden of maintaining the excellence of this 
great university.

     When it was pointed out in these Reports in 1993, 1994, 1995, 
that the administrative bureaucracy of the University had not kept 
its part of the promise, the repeated reply was that the cuts in 
Institutional Support were being "phased in" and this takes a little 
time. (The check is in the mail.  Sorry about the delay, the check 
is in the mail now. The check is definitely in the mail now, trust 
me.)

     I have been blowing my little whistle about this for some time 
but the "responsible" officials have ignored the facts.  There is 
major FRAUD here.  What is the dollar value of the purloined budget 
savings?  If you take the promised 27% of the amounts shown in 
Table 1, it comes to over $100,000,000 per year.


                   Even Larger Numbers

     Return now to the last paragraph quoted earlier from the 
Regents' Budget, where it claims that the actual total expenditure 
for Institutional Support, counting all fund sources,  has declined 
significantly in recent years when viewed as a percentage of total 
UC spending.  The numbers referred to here are not those shown in 
Table 1 but rather those shown in Table 2, below.


  Table 2.  Actual Total Expenditures for Institutional Support 
                    - All Fund Sources

   Fiscal    Inst. Support    % Change from      As a % of Total
   Year      Expenditure      previous year      UC Expenditures

   1989-90   $ 758,156,000                         12.5%
   1990-91   $ 793,075,000     +4.6%               12.1%
   1991-92   $ 810,821,000     +2.2%               11.9%
   1992-93   $ 809,636,000     -0.2%               11.5%
   1993-94   $ 816,920,000     +0.9%               11.5%
   1994-95   $ 840,382,000     +2.9%               11.3%
   1995-96   $ 908,962,000     +8.2%               11.3%

[Source:  annual University of California Campus Financial 
Schedules]

     The large difference between the data in the two tables is due 
to counting the Transfers of funds (also called Recharges) from one 
account within the University to another.  On each campus, 
administrative services such as duplicating, computer centers, 
materiel management, mail, telephones, etc., are carried out by the 
Institutional Support infrastructure; but the cost, in part or in 
whole, is recharged to the accounts of the departments and other 
users on the campus.  Similarly,  part of the actual cost of the 
systemwide administration is passed on (recharged) to the campuses 
or elsewhere.

     The data in Table 2, just like that in Table 1, fails to show 
any significant decrease in spending for Institutional Support 
during or since the years of the budget crisis.

     The numbers shown in the last column of Table 2, furthermore, 
contradict the claim cited above that this spending, as a percent of 
total UC spending, had declined from around 12% to about 10% since 
1991-92.  The lowest percent figure shown here is 11.3%, which gives 
a drop of less than half the amount claimed in the Regents Budget. 
I have pointed out this mistake in previous communications with Vice 
President Hershman (see Report #15) but they continue to cite those 
erroneous numbers.

     In addition, there is need to be wary of any such comparisons 
involving numbers that cover a large aggregate of disparate 
activities.  For example, in Report #16 I studied the changes in 
expenditures for selected University activities, comparing data 
for 1990-91 (just before the budget crisis was felt) with data for 
1993-94.  Looking at the UC expenditures of unrestricted funds for 
all academic programs, the aggregate data showed an increase over 
that period of 5%; and in that same time interval expenditures for 
Institutional Support (as shown in Table 2 above) increased by only 
3%.  However, when I separated out the academic programs into two 
portions - Health Sciences (dominated by the medical schools and 
their hospitals) and all the rest - then a completely different 
picture emerged.  The Health Sciences sector had increased its 
spending of unrestricted funds by 12% while all other academic 
programs saw their expenditures decrease by 6% !

     Following the previous discussion about the administration's 
default on their promises to cut expenditures for Institutional 
Support, use of the data in Table 2 instead of that in Table 1 leads 
to the conclusion that over $200,000,000 is being misspent each year 
by the UC administration.  To put this number in some perspective: 
it amounts to well over half of UC's annual net income arising from 
all the student fee increases of this decade.


                   II.  LONG TERM STUDIES

     A recent article in the Journal of Higher Education reports on 
a study of the last 25 years of administrative spending at the 
University of California.  This research was conducted by Patricia 
J. Gumport and Brian Pusser of Stanford University's School of 
Education and the article is on pages 493-520 of Vol. 66  No. 5  of 
the journal, dated September/October 1995.  Their study of financial 
and employment data found in the UC archives confirms and elaborates 
the results of my own earlier study (see my Reports #2, #2b), 
showing that over this history the growth in UC's Institutional 
Support function has significantly outpaced the growth in 
Instruction, enrollment, and total staff FTE.  Beyond these numbers, 
the authors explore various hypotheses to explain this excess 
expansion of administration, with reference to the scholarly 
literature on higher education and general management theory.  In 
particular they are dubious about the assertion that this 
"bureaucratic accretion" can be justified by increases in the 
complexity of administrative functions over the years.

     I brought this new study to the attention of President Atkinson 
and the regents, and repeated my earlier recommendation that outside 
management efficiency experts should be brought in to perform the 
necessary liposuction on UC's administrative apparatus. In response, 
Atkinson wrote a letter to Professor Gumport, criticizing her 
paper; and he sent me a copy.  That letter consisted of vague 
generalities and outright mistakes and I will do the UC president a 
favor by not dissecting his letter here in detail.  There was, 
however, one general notion he put forward that should be 
commented on:  "Our costs [for administration] compare well with 
those of similar universities."

     This assertion, of course, can not prove anything about whether 
UC's administrative expenditure is excessive.  While the studies 
cited look only at UC, I would not be at all surprised to find that 
comparable institutions show a comparable pattern in their 
administrative spending.  The management of large research 
universities has evolved into a specialized profession of its own.  
There are national professional associations for university business 
officers; they have conventions, exchange papers, give awards.  
As with any other profession, this leads to a high degree of 
uniformity.

     It should be emphasized that this debate is not about 
personalities but rather about financial facts and their 
implications regarding institutional behavior.  Good people in 
responsible positions in respected institutions ought to have their 
chains yanked once in a while - and this is a proper role for 
independent academic researchers.  At issue then is the character of 
the officials' response.  If the sitting administrators can present 
facts and logic to rebut their critics, then they should do so 
forthrightly.  However, on this issue of administrative 
expenditures, the response of UC officials has mostly been 
short on substance and long on bureaucratic defensiveness.


                 III. THE LATEST INCREASE

     When I first saw the bottom number in Table 1, I was shocked - 
not just that expenditure for Institutional Support had gone up 
again, but that the jump was so huge:  $66 million.  This 16% 
increase over the previous year was by far the largest percent 
increase in any of the expenditure categories reported in the UC 
Financial Report for fiscal year 1995-96.  

     At the November meeting of the Board of Regents I took my 3 
minutes worth of Public Comment time to wave this newly released 
report, quote this number, and ask what was going on, reminding the 
Board of the past controversy over this same subject.  I said that I 
planned to write a new Report on this topic but suggested that 
perhaps the President or his designated staff would like to meet 
with me first and offer some explanation for this huge jump in 
spending for administration.

     President Atkinson responded immediately and affirmatively, and 
the Chairman of the Board added his assurances that this would be 
attended to.  Later in that regents' meeting when another vice 
president was presenting the Financial Report, there was a very 
brief acknowledgment of this $66 million jump and it was described 
as a "non-recurring expenditure."

     That evening I wrote by email to President Atkinson:

"This is the letter you asked me to write to you when I spoke at the 
Regents meeting earlier today.
"Please arrange for me to meet with the appropriate person on your 
staff for a frank and detailed discussion of the recent increase in 
UC expenditures for Institutional Support - as shown in the 
latest UC Financial Report - as well as explanation of the absence 
of the steep cuts in administrative spending that were claimed and 
promised by UCOP a few years ago."

     Two weeks later, hearing no reply, I sent this letter again to 
President Atkinson, asking him to respond as he had promised at the 
last Regents meeting.  Two weeks after that, still hearing no reply, 
I faxed Atkinson this same letter a third time, adding  "FINAL 
NOTICE" at the top and further admonishments at the bottom.  The 
next day I received a call from Vice President Hershman's office to 
set up a meeting with me and the Budget Director for sometime in the 
first couple of weeks in January.  The meeting was set, moved, moved 
again and is presently scheduled for January 14.  

Patient reader, I hope to report further interesting developments.



--------------------------------------------------------------------

     Subject Index  to  "LOOKING INTO THE UC BUDGET"

    Reports  #1 - #19      December 1992  to  January 1997

Expenditures for Administration:  #  2, 2a, 2b, 3, 7, 7a, 15, 19
Alternative Budgets:  #  4, 5, 5a, 5b, 6, 6a
Recent Budget Priorities:  #  13, 16
Student Fees:   #  8, 8a
Long Range Planning:   #  9, 10, 14
Medical Schools and Hospitals: # 17, 18
Office of the General Counsel:  # 1
Open Meetings:  # 11
Miscellaneous:   # 12

These reports are also available via e-mail from    
schwartz@physics.berkeley.edu