LOOKING INTO THE UC BUDGET -- Report #2a (e-mail version) by Charles Schwartz, Department of Physics, University of California Berkeley, CA 94720. 510-642-4427 January 19, 1993 SUMMARY This paper concerns the first round of reactions to Report #2, which made the case that the University of California is burdened with an overgrown bureaucracy, wasting perhaps half of the $523,508,000 spent last year on central administration. Correspondence with UC President Jack Peltason is examined and leads to further insights. New data is presented which shows that by far most of these administrative expenditures come from "General Funds," appropriated by the state and allocated at the discretion of the Regents. In addition, a constructive confrontation with the UC Board of Regents over this issue is reported. While many detailed questions about UC's "bureaucratic bloat" need still to be examined, this first interchange appears to bolster the charge that something is seriously askew in the university's financial priorities. CORRESPONDENCE WITH THE UC PRESIDENT ---------------------------------------------------------------------------- January 3, 1993 Dear President Peltason; Enclosed is my newest work, "Looking into the UC Budget - Report #2," which questions the legitimacy of hundreds of millions of dollars in annual expenditures by the UC administration. I ask that you invite me to present this report to the Board of Regents for discussion at their January 14-15 meeting at UCLA. This subject matter is certainly germane to ongoing considerations of the University's finances; I will leave it to you to pick the appropriate point on the Regents' agenda for this discussion. It is unfortunate that you rejected my previous request to discuss related materials with the Board at their December meeting - my proposals for opening up the university's administrative decisionmaking process, and Report #1 in my ongoing series of budget critiques. Please be reminded that I prefer to work cooperatively within the University, but that requires your willingness to open up the now exclusive procedures of the administration. Of course, if you or your staff find any matters of fact or interpretation in my Report with which you disagree, I would be happy to sit down with you and consider your criticisms in detail. Sincerely yours, Charles Schwartz Professor Emeritus ----------------------------------------------------------------------------- 11 January 1993 Dear Professor Schwartz: I am writing on behalf of President J. W. Peltason to respond to your request to present your budget report at the January 14-15, 1993 meeting of the Board of Regents. The University's budget is developed through extensive consultation with the Chancellors, Vice Presidents, and the Academic Council. Your proposal does not treat the many complexities that are considered in the preparation of the University's budget (such as source of funds), and it is not feasible to assign staff the task of preparing a detailed critique of your document, particularly prior to the Regents' meeting. Consequently, we are unable to devote time to your topic at The Regents' Meeting. Thank you for your enquiry. Sincerely, Janet E. Young Special Assistant to the President ----------------------------------------------------------------------------- ANALYSIS OF THE PRESIDENT'S LETTER The most striking aspect of the foregoing letter is that the UC President does not dispute or question any specific fact, allegation or interpretation contained in my Report #2; nor does he deny or reject the conclusions contained in that study. The letter makes only two points regarding the Report, and I shall examine them. First is the mention of extensive consultation with the Chancellors and Vice Presidents through which the University's budget is developed. Logically, this information is irrelevant to the question of whether the administrative budget is a bloated one or not. However, it does point a finger to the responsible parties if indeed there is something wrong with that budget; and this assignment of responsibility serves to bolster the theory that the top administrators of the university - those very Chancellors and Vice Presidents - have used their influence in shaping the UC budget to feather their own bureaucratic nests. The second point in the letter from the president's office is the criticism that my work "does not treat the many complexities that are considered in the preparation of the University's budget"; and indeed this is true. But this is not a meaningful objection until some specific neglect on my part is pointed out: and this is done in the parenthetical phrase mentioning the "source of funds." Now we have something substantial to look into. The money that the University spends each year comes from a multiplicity of sources; and the accounting system keeps track of where each dollar comes from and where it goes. The annual UC document, "Campus Financial Schedules," gives a quite detailed summary of this information; and in the following section I present the relevant data, gathered for the last complete fiscal year 1991-92. SOURCES OF FUNDS FOR UC EXPENDITURES ON ADMINISTRATION TOTAL UC EXPENDITURES for ADMINISTRATION = $523,508,000 This is defined as the sum of spending in two accounting categories: "Institutional Support" and "Academic Administration" (a subcategory of "Academic Support") The SOURCES OF FUNDS for these expenditures are detailed as follows: General Funds.............. $354,477,000 68% Designated Funds........... $136,487,000 26% Sub-Total of Unrestricted Funds............ $490,964,000 94% Restricted Funds.............................. $ 32,544,000 6% TOTAL.................. $523,508,000 100% Definitions: "Unrestricted Funds" are those over which the Board of Regents has complete control as to how they are spent. There are two sub-classes of unrestricted funds: "General Funds," composed of the State's lump sum annual appropriation to UC, plus University contributions to the State's General Funds appropriation, according to prior agreements - mostly Nonresident Tuition and a portion of Contract and Grant Overhead; and "Designated Funds," all other income whose allocation is under the Regents' control - Student Fees, income from Teaching Hospitals and other Auxiliary Enterprises, etc. (For more details, see the Table "Income and Funds Available" at the back of the annual Regents' Budget.) "Restricted Funds" are those from an outside source, such as the Federal Government or private donors, where the purpose of the funding is specified by the donor. CONCLUSION: Ninety-four percent of UC's annual expenditures for administration comes from sources of funds which are completely controlled by and spent at the discretion of the UC Board of Regents. Thus, the one attempt made in the President's letter to deflect or blunt the thrust of the conclusions in Report #2 has led to an even stronger case against the University administration for the misuse of public money. This question of the sources of funds arises repeatedly when the University is challenged on its budget priorities. At the January 15 meeting of the Board of Regents there was discussion of various options to deal with next year's budget deficit. As reported in The Daily Californian (January 19, 1993, pages 1&5): Tobin Fried, a UC Santa Cruz senior and president of the University of California Student Association, addressed the regents Friday, offering suggestions on how to maintain student access to the university in light of the budget crunch. ..... "There is room for administrative reconfiguration which will cut costs without sacrificing the integrity of the University," Fried said. But Regent Designate Roy Shults said, "Money that is spent under administration goes for essential functions." Regent Roy Brophy said the debate over what should be cut is a result of a misunderstanding of UC's budget. "We have to explain where our money comes from and where it is spent. They don't understand the non-transferability of the money to different funds," he said. ..... The data presented above directly contradicts Regent Brophy's statement. As a matter of general interest I have appended to this report a table summarizing all the major categories of the university's Expenditures and all the major Sources of Funds. This data is taken from Schedule 11-D of "UC Campus Financial Schedules 1991-1992." SPEAKING WITH THE REGENTS ABOUT ALL THIS Although President Peltason turned down my request to speak to the Regents, I mailed each one of them a copy of Report #2 and then took myself down to the UCLA campus where they met on January 14. At the end of the Board's discussion of increasing Student Fees and inadequate Financial Aid, I attempted to present my Report #2 - acting as a dutiful "whistleblower" - but the regent in the chair (Brophy) turned off the microphone and called a five minute recess. When they reconvened, Regent Hallisey made a motion that I be allowed to present my report; but his effort died for lack of a second. Later that afternoon, at the end of the session of the Regents' Committee on Finance, Hallisey made the motion again, this time getting it seconded by Regent Campbell. Surprisingly, no other Regent objected and I was given five minutes. Thus, the Board of Regents has now been presented formally with the allegation that the University of California is wasting great amounts of money on a bloated bureaucracy that has gone unchecked for decades. This is money that is sorely needed right now to maintain the University's primary academic mission and to preserve students' access to an education at UC. I charged the members of the Board to recognize their responsibility and to undertake a serious and thorough investigation of this problem of administrative bloat. I also urged President Peltason to work with me on these issues, which are undoubtedly going to be of interest to the Legislature as the UC budget for next year comes up for hearings. Concluding my presentation to the Board, I asked if they had any questions. Regent Campbell had one question about some data shown on a graph I had handed out; but aside from that, there was utter silence. University of California Campus Financial Schedules 1991-1992 Schedule 11-D (condensed) Current Funds Expenditures by Uniform Classification Category by Fund Source (Dollars in Millions) SOURCES OF FUNDS --> Special EXPENDITURE General Tuition Federal State Local CATEGORY Total Funds & Fees Gov't Approp. Gov't Instruction $ 1,636 1,082 155 40 16 4 Research 1,263 169 -- 705 89 9 Public Service 148 46 4 22 19 8 Academic Support 642 296 76 9 9 39 Teaching Hospitals 1,539 57 -- 1 -- -- Student Services 229 28 150 4 2 1 Institutional Support 394 251 35 -- 1 -- Op. & Maint. of Plant 268 240 17 -- 1 -- Student Financial Aid 274 7 52 104 51 -- Auxiliary Enterprises 399 -- 3 -- -- -- Total $ 6,792 2,174 492 887 189 61 -continued- SOURCES OF FUNDS --> Private Endowm. Sales & EXPENDITURE Gifts & &Similar Services Other Re- CATEGORY Grants Funds of *** Sources serves Instruction $ 25 17 273 22 1 Research 207 38 35 10 -- Public Service 10 3 31 6 -- Academic Support 15 9 167 18 2 Teaching Hospitals 1 -- 1,479 -- -- Student Services 3 1 3 35 2 Institutional Support 18 13 1 65 10 Op. & Maint. of Plant -- 5 -- 4 1 Student Financial Aid 29 21 6 3 -- Auxiliary Enterprises 3 -- 389 2 -- Total $ 313 107 2,385 166 18 *** combines: Sales and Services of Educational Activities Sales and Services of Auxiliary Enterprises Sales and Services of Teaching Hospitals (Sums may not tally due to rounding.)