LOOKING INTO THE UC BUDGET -- Report #2 (e-mail version) by Charles Schwartz, Department of Physics, University of California Berkeley, CA 94720. 510-642-4427 January 4, 1993 SUMMARY An independent study of the University of California's financial records reveals an enormous expenditure for administration, and estimates that a large portion of this money is being wasted on an excessive bureaucracy that has grown steadily over the years. The total expenditure for administration - central management offices set up by the UC President and by the Chancellors on each campus - amounted to at least $523,508,000. for the year 1991-92. (UC's published financial documents contain ambiguous data which implies that the actual total expenditure may be significantly larger.) This figure may be compared with the amount that UC spent for Instruction - $1,635,934,000. - covering the costs of faculty and their support staff at the departmental level throughout the University. The total expenditure last year, covering all UC enterprises except for the DOE laboratories, amounted to $6,792,044,000. By examining the record of UCUs budget allocations over a 25 year history, this study reveals a persistent pattern of growth in the administrative bureaucracy. Analysis of this detailed numerical data leads to the estimate that perhaps one-half of the present administration is excess fat that can be trimmed. A saving of this magnitude - $262 million per year (which averages out to $1600 per student) - would completely cover UC's present budget deficit. It is recommended that outside management experts be brought in to assess this problem in detail. ---------------------------------------------------------------------- Report #1 in this series, dated December 10, 1992, dealt with a single administrative unit: the Office of the General Counsel of the Regents, which consists of 37 attorneys, plus staff, and spent $9,174,000 in fiscal year 1991-92. Over the past 15 years, this office has grown two to three times more than the clientele it is presumed to serve. In addition, 7 out of the 12 campuses and major laboratories run by UC now have their own legal officer(s) as Assistant Chancellors, etc., while there was only one such officer 15 years ago. This indicates a severe case of bureaucratic bloat that ought to be questioned. While I alone am responsible for everything contained in this report, I wish to acknowledge the invaluable help received from a number of UC experts. Donald Alter, Director of Corporate Accounting, and Ralph Young, Director of Resource Administration, both situated in the Office of the President, have been generous in giving me instruction and advice on the University's accounting and budgeting systems; William Roberts, the University Archivist, has been a great help to me in getting hold of the needed documents; and a number of other UC staff members have assisted me throughout this project. Professor Wallace Smith, of Berkeley's School of Business Admninistration, read a draft of this report and gave me his very helpful comments and advice. Charles Schwartz, Professor Emeritus -------------------------------------------------------------------------- The QUESTION Last year the University of California suffered a protracted scandal over the issue of excess compensation for its top executives. In addition, the severe budget crisis which continues to confront the university provides an impetus for all its friends and its critics as well to take a thorough look at other areas where money may be wasted. Many people who have been in UC for a long time have expressed the belief that the upper management levels have grown unjustifiably large and ought to be severely cut back. President Peltason has recently announced that he will apply a 10% reduction in the funding of his office, so as to "share the pain" with the university's staff and students who are presently being saddled with the burden of making up the budget deficits with pay freezes and layoffs and increased fees. The question addressed by this study is, Has there been a long-term growth in the size and cost of UC's administration which exceeds the real needs of the university - its faculty and students - and therefore presents us with a bloated bureaucracy that ought promptly to be trimmed? The SOURCES of FINANCIAL INFORMATION The University of California's financial system is very complex, and its record system is immense. While formally open to public inspection, the several layers of financial records are not readily found or easily understood. Two summary reports are presented each fall by the Office of the President to the Board of Regents. The most recent volumes are: "The University of California Financial Report 1991-1992," and "1993-94 Budget for Current Operations" (often called "the Regents' budget"). Behind these are two much more detailed documents (computer print- outs): "The University of California Campus Financial Schedules 1991-1992," and "1992-93 Departmental Allocations, University of California Budget for Current Operations" (in one-volume and two-volume versions.) The underlined phrases will be used as shorthand names for these documents. These annual reports (with only a few missing) may be found at the University Archives, located in the Bancroft Library on the Berkeley campus. In addition, the UC "Accounting Manual" and the "Planning and Budget Manual" provide detailed information that is helpful in decoding these financial records. Advice from a number of knowledgable people on the university's staff has also been of great value to me in exploring this territory. SELECTING the DATA In order to study trends over many years, it is best to focus on the number of people employed, rather than dollars spent, so as to avoid the complications of allowing for inflation. This leads me to use Departmental Allocations, which contains details of FTE (full time equivalent) employees budgeted for the many sub-units of the university. The data in these documents are grouped and tallied by function, according to a numerical classification code. The outline of this scheme is as follows. 40 Instruction (faculty and supporting staff at the departmental level) 41 Summer Session 42 Teaching Hospitals 43 Academic Support (museums, clinics, labs, shops, academic computing) 44 Research 60 Libraries 61 University Extension 62 Public Service (Arts and Lectures, Cooperative Extension) 64 Maintenance and Operation of Physical Plant 66 General Administration (campus- and system-wide management) 68 Student Services (cultural, recreational, counseling, placement, admissions, health) 72 Institutional Support (campus- and system-wide supervision and services) 76 Auxiliary Enterprises (stores, cafeterias, residences, parking, intercollegiate athletics) 78 Student Financial Aid 80 Provisions for Allocation What the document Departmental Allocations presents is not a complete budget for the University, but only that portion which is called "permanently budgeted." This includes positions supported by State General Funds and other funds under the control of the University itself; but it excludes "Extramural Funds" - federal and private funding for research and some other sources. The data which I will use is that denoted as Current Year allocations, compiled at the close of a given fiscal year, on June 30. Categories 66 (General Administration) and 72 (Institutional Support) are the ones of interest, representing the administrative functions of the university. Category 40 (Instructional Staff) as well as the Total Staff numbers will be taken for comparison. The document also gives total allocations by "Subaccount Code", from which I select the total of those employees who are on Academic Salaries ("Academics"), mostly faculty but including teaching assistants and librarians. Finally, for further comparison, I take numbers for student enrollments each year as given in the Budget document. These are Actual, Year Average, FTE, for students at all levels in General Campus and Health Sciences enrollments. [For 1971-72 enrollment data I could not find this particular document, so I took data from another source, the "Statistical Summary, Students & Staff", adjusted by comparing the two data sources for 1966-67.] RESULTS and ANALYSIS The raw data on budgeted numbers of total U.C. employees in the selected categories and students (as FTE = Full Time Equivalent), from Departmental Allocations and the Budget over 5 year intervals, is presented in Table 1. Table 1. U. C. STAFF & STUDENTS (FTE) AS BUDGETED OVER 25 YEARS YEAR Total Staff Instr.Staff Gen.Admin. Inst.Supp. Academics Students 1991-92 68024 21375 4000 4629 16629 156371 1986-87 61986 19573 3361 3959 15268 141846 1981-82 57454 17873 2991 3441 14001 127985 1976-77 52625 16452 2710 3137 13157 119369 1971-72 41348 14168 2274 2826 11273 98904 1966-67 33305 13301 1795 1642 9908 79293 I have processed this data to let us see more clearly how much the numbers in each category have grown over the years. See Table 2. Table 2. GROWTH IN U. C. STAFF & STUDENTS (FTE) OVER 25 YEARS Increase over the last 5 years Students ***** 10% Academics ***** 9% Instr.Staff ***** 9% Total Staff ***** 10% Gen.Admin. ********** 19% Inst.Supp. ********* 17% Increase over the last 10 years Students *********** 22% Academics ********** 19% Instr.Staff ********** 20% Total Staff ********* 18% Gen.Admin. ***************** 34% Inst.Supp. ****************** 35% Increase over the last 15 years Students **************** 31% Academics ************* 26% Instr.Staff *************** 30% Total Staff *************** 29% Gen.Admin. ************************ 48% Inst.Supp. ************************ 48% Increase over the last 20 years Students ***************************** 58% Academics ************************ 48% Instr.Staff ************************** 51% Total Staff ********************************* 65% Gen.Admin. ************************************** 76% Inst.Supp. ******************************** 64% Increase over the last 25 years Students ************************************************* 97% Academics ********************************** 68% Instr.Staff ******************************* 61% Total Staff **************************************************** 104% Gen.Admin. ******************************:::************************ 123% Inst.Supp. ******************************:::************************ 182% First, let's consider the data displayed above for the university's staff devoted to General Administration. The increase in this category is seen to be about twice the increase in Instructional Staff or Academics, both over the full 25 years as well as in the most recent 5 years. This finding immediately attracts our concern. The proper question to ask about the size of the General Administration staff, however, is not, Why does it grow faster than the other categories?, but rather, Why does it grow at all ? As the number of students increases, the number of teachers and departmental support staff should increase in proportion; and there may be corresponding increases in the need for other staff that perform direct support functions for students and other employees. But this reasoning does not apply to the top management. The theory of large organizations relies on the concept of "economy of scale", meaning, among other things, that the size of the top management in a hierarchy is not supposed to depend on the size of the productive workforce it oversees. A familiar phenomenon, however, is the inclination of management in a large organization to take on bureaucratic characteristics and to develop its own internal growth dynamics apart from the needs of the rest of the organization; and it appears that our data makes a prima facie case for a large amount of this sort of bureaucratic bloat in UC's General Administration. Now turn to the other administrative category, Institutional Support. The growth here parallels that of General Administration over the past 20 years, then shows a big jump in the 25 year history. Many of the services provided by this category - such as personnel, accounting, duplicating, purchasing & materiel - duplicate, at the campus-wide level, services that are already provided within the individual academic departments. There is probably justification for these staff numbers to grow somewhat along with the general growth of the university, but the data above shows a considerable excess in the actual growth: 182% increase in Institutional Support over 25 years compared with 61% growth in Instructional Staff over that same period. It should also be remarked that the last couple of decades has seen a revolution in office work -the widespread use of computers - and the university has invested much in this new technology throughout its administrative offices. On this basis, one would expect to see a decrease over these years in the staff size for many of the services provided by the Institutional Support category. On the other hand, there have been certain new management tasks which the university has had to assume in recent decades, and these requirements will mitigate the severest conclusion one could draw from the above data and analysis concerning unwarranted growth in the university's administration. To conclude this discussion, I should attempt a rough estimate of the questionable portion of the university's administrative budget, combining the two categories of General Administration and Institutional Support. Looking at the 25 year history, I offer an estimate that 100% of growth in each of the two categories is suspect of being "fat" that should be trimmed. In other words, I estimate that perhaps one-half of the present total administrative budget of the University of California is unnecessary. Obviously, to obtain a complete and authoritative verdict on this charge and, more importantly, to pinpoint just where and how deeply the cuts in excess administration should be made, will require a detailed investigation by independent experts. This leads to the following. RECOMMENDATION. Outside management efficiency experts must be brought in to make a thorough assessment of the university's administration. The DOLLARS in QUESTION In order to get a full dollar amount for current administrative expenditures in the university, we need to look not at the budget document used above, but at the accounting document Financial Schedules. The accounting category Institutional Support combines both categories 66 (General Administration) and 72 (Institutional Support) used in the budget document Departmental Allocations. This larger accounting category, as defined in the Uniform Accounting Structure [Accounting Manual, Chapter U-751-17], is comprised of five main sub-categories, as follows: 72 INSTITUTIONAL SUPPORT 7201 Executive Management (Regents', President's and Chancellors' Offices, planning) 7203 Fiscal Operations (accounting, auditing, cashiers, contracts & grants admin., insurance) 7205 General Admin. Services (admin.computing, env. health & safety, info. sys., personnel) 7207 Logistical Services (business mgt.,duplicating, transp., mail, materiel, police, telecomm.) 7209 Community Relations (development, public information, publications) The separate categories 66 and 72 used previously do not translate neatly into these new sub-categories, and indeed there are even variations from one campus to another in how the detailed assignments are made. After considering various alternatives, in the light of the discussion in the previous section of this report, it seems best to simply take the entire new category 72. The tabulation of Current Funds Expenditures By Uniform Classification Category (Schedules 1-B to 10-B in Financial Schedules ) gives the following totals for these sub-categories, for the most recently completed fiscal year, 1991-92 Table 3. U. C. EXPENDITURES for INSTITUTIONAL SUPPORT 1991-92 Current Funds Distribution Executive Management $102,186,000 $106,365,000 Fiscal Operations $ 59,991,000 $ 74,402,000 Gen. Admin. Services $117,735,000 $231,938,000 Logistical Services $ 42,140,000 $307,031,000 Community Relations $ 61,267,000 $ 79,655,000 Other $ 1,026,000 $ 11,430,000 TOTAL $394,345,000 $810,821,000 Two sets of numbers are given. The second column ("Distribution") is the total of the actual expenditures listed for "Salaries and Wages" plus "Other Expenditures." The difference between "Distribution" and "Current Funds" is made up by "Transfers", also called Recharges, that is, funds expended by one unit but charged to the account of another unit. Which number should be used ? The correct answer lies somewhere between the two; but trying to figure out just where would require much more detailed data as well as a much more complex analysis. To simplify, and to be conservative, I shall simply take the lower number. There is one additional category of administrative expenditures that is tabulated in Financial Schedules : "Academic Administration" is a sub-category of "Academic Support", and it covers expenditures by Deans for their immediate offices. This level of administration stands between the individual academic departments and the Chancellor's office on each campus. For 1991-92 the total Current Funds Expenditure for Academic Administration was $129,163,000 and the total of the Distribution was $141,132,000. Thus, our final tally of UC's Expenditure for Administration for 1991-92, using Current Funds values, is the following. Institutional Support $394,345,000 Academic Administration $129,163,000 TOTAL $523,508,000.