LOOKING INTO THE UC BUDGET -- Report #2b (e-mail version) by Charles Schwartz, Department of Physics, University of California Berkeley, CA 94720. 510-642-4427 February 28, 1993 SUMMARY This is the second follow-up on Report #2, which looked at the growth history and present size of the University's administrative structure, concluding that there appears to be a great deal of bureaucratic overgrowth that can be trimmed. UC's Vice President for Budget has now produced a formal report, responding to my study; and in this paper I evaluate that response in detail. Several of Vice President Baker's criticisms appear valid and I take them into account in a revised quantitative assessment of the University's administration. After a careful analysis, trying to be generous to the University administration, I conclude that they are spending between $209 million and $320 million dollars per year in excess of what is necessary. While similar in magnitude to the estimate given in my earlier Report, this finding rests on a much firmer basis. Again, the urgent recommendation to the Board of Regents is that outside management experts should be brought in to locate the precise places where the administrative fat should be trimmed. ----------------------------------------------------------------------------- Report #1 in this series (December 10, 1992; 2 pages) 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. Report #2 (January 4, 1993; 8 pages) covered the entire upper-level administration of the University. Comparative growth in budgeted positions (FTE) was analyzed over the last 5, 10, 15, 20 and 25 years; and it was estimated that perhaps half of the present size of UC's administration is excess bureaucratic bloat that has grown unchallenged for decades and now wastes large amounts of scarce funding that is needed for the university's primary academic functions. The total expenditure for this administration in 1991-92 amounted to $523,508,000. The recommendation was that outside management experts be brought in to study and identify precisely where UC's administration should be trimmed. Report #2a (January 19, 1993; 6 pages) studied the University's first response to Report #2. It was shown that 94% of the money expended on administration in UC came from funds which are entirely under the control of the Regents and allocated at their discretion, thus demolishing the first excuse offered by President Peltason for not taking the conclusions and recommendation of the previous report seriously. Report #3 (February 7, 1993; 16 pages) extended the previous study of administrative bureaucracy (Report #2) by presenting individual data for each of the nine UC campuses, showing the historical inflation of administrative budgets and their current high levels of expenditure. For each of the campuses one can see evidence of substantial bloat; but there are large variations in the magnitude of this problem from one campus to another. Charles Schwartz, Professor Emeritus ------------------------------------------------------------------------------ I. RECAPITULATION In Report #2, I presented a novel study of the University's administration. The methodology I adopted proceeded through three steps: First, tabulate the growth in administration staff (FTE = full time equivalent employees) over the last 5, 10, 15, 20, and 25 years; second, compare that with other growth elements - such as Student enrollments, Instructional FTE, and Total Staff - and thus arrive at an estimate of how much is "excessive" growth in the administration; third, determine the total current expenditure on administration, in dollars, and combine this with the results of the previous step to get the potential waste/savings. The main resources I used, published annually by the Office of the President, are:"The University of California Campus Financial Schedules 1991-1992", from the Corporate Accounting office (which I shall refer to as CFS, or CFS92); and"1992-93 Departmental Allocations, University of California Budget for Current Operations", from the Budget office (which I shall refer to as DA, or DA93 for this latest edition, which gives final data for the fiscal year 1991-92.) For step#1, I collected FTE figures ("permanently budgeted" positions) from DA93, DA88, DA83, DA78, DA73, and DA68 for Total Staff and also for staff in the separate function categories: 40 = Instruction, 66 = General Administration, and 72 = Institutional Support; also data for Academic Staff was identified; and data on Student Enrollment (actual, year average, FTE) was gathered from another UC source. The resulting growth figures, over the full 25 year span, were: Students up 97% Academic Staff up 68% Instructional Staff up 61% Total Staff up 104% General Administration up 123% Institutional Support up 182% Step #2 involves more than just taking the difference between the Administrative increases (123% & 182%) and one of the other percent increase figures. The analysis of this important point will be repeated in Section V of this Report. My previous estimate was that perhaps one-half of the present administration represented excess. For step #3, I collected data on Current Funds Expenditures from CFS92, using the accounting category "Institutional Support", which combines both budgeting categories 66 and 72 described above. The figure was $394 million. To this I added $129 million in expenditure listed in CFS92 under the separate category of "Academic Support/ Academic Administration" (Deans' offices), which does not exist as a separate category in the budget documents (it is buried in the Instruction budget.) The Total Expenditure for Administration was thus $524 million; and one-half of this represented a potential $262 million of waste that could be saved. In Report #2a I showed, using data from CFS92, that 68% of this Total Expenditure for Administration came from State General Funds, and 94% came from all "unrestricted" funds, that is, entirely under the control of the Board of Regents. II. THE EMPIRE STRIKES BACK Report to the UC Board of Regents by William B. Baker, UC's Vice President for Budget and University Relations, at their meeting on February 18, 1993: [from the amended text provided by the Office of the President,2/22/93,pp.7-9] "With respect to administrative costs, we need to be clear, first of all, about what is defined as administration in the University. Administration includes not only the offices of the chancellors, vice chancellors, president, and vice presidents, but also all the people who work in personnel services, accounting, auditing, purchasing, police, planning and budget offices, mail distribution, community relations, legal counsel, and so forth. "The functions I named are necessary to any large organization that employs thousands of people. In our case, we have the added administrative complexities related to students, federal contracts and grants, hospitals, agricultural field stations, and oversight of the DOE laboratories-- to name a few. "Professor Schwartz and others have raised the question of growth in administration. We have reviewed the facts, and I can report to you that administrative expenditures, as a proportion of total expenditures, have remained relatively constant over 20 years, 1971-72 to 1991-92. If you look at General Fund expenditures, which is the part of our budget that supports core instructional programs but excludes federal research grants, hospitals, auxiliary enterprises, and private giving, administration has accounted for about 11 percent of the total over the years. If you look at expenditures from all fund sources, administration has actually gone down slightly, dropping from about 12 percent in the early years to about 11 percent in more recent times. "In brief: Administration has grown in proportion to growth in the University--and no faster. That is quite remarkable considering that we have had to deal with a growing array of federal and state legislation in areas such as environmental health and safety, collective bargaining, handicapped access, the California Environmental Quality Act (CEQA), and affirmative action. The fact that we live in an increasingly litigious society has not helped. Despite new and costly administrative requirements, we have received virtually no funding from the State to help us out. On the contrary: As a result of our recent budget cuts, campus and Office of the President budgets for administration were cut by 5 percent in 1990-91 and 5 percent again in 1991-92, for a total cut of $25 million; an additional 10 percent, or nearly $20 million, has been cut in the current year, and we will be cutting again next year. "As I have indicated, administrative costs are driven by factors other than growth in students and faculty. We have no choice about complying with governmental regulations that affect all large organizations, for example. Additionally, Professor Schwartz counted all people employed in administration, without recognizing that many of those people are recharged to self-supporting operations such as our teaching hospitals. We added three new hospitals over the period he examined, which required significant growth in administrative personnel--but these personnel were not charged to the state-funded budget that supports our instructional programs. Additionally, there are inherent difficulties in attempting to compare apples and apples across a time span of 25 years. We reorganize our accounts from time to time. For example, police services were moved from the maintenance category to administration some years ago. Obviously, this doesn't represent real growth in administration." [Baker then went on to discuss in detail the budget and operations of the Office of the President. Since most of the emphasis was on non-administrative issues, it appears this was a response to some critic other than myself - perhaps the Los Angeles Times, which, in an editorial on November 26, 1992, suggested eliminating the entire statewide administration.] III. SIFTING THROUGH BAKER'S REPORT My purpose here is to go through the specifics in Vice President Baker's report, identifying areas of agreement as well as issues of contention, and then make constructive use of the new information he provides. It is regrettable that his report is so sparse with precise details (compared to my own work), and he cites no references at all in support of the few numbers which he gives. Nevertheless, there is much to be learned here. A. Since Baker and his staff are the experts on the subject of the University's finances, while I am a newcomer to this study, it is important, first, to see where he confirms aspects of my work. 1. His first paragraph gives a definition of the activities covered by the term "administration" which is the same as the one I used in my previous study (Report #2 in this series.) 2. Baker's report contains no criticism of the data I presented - numbers, and the definitions and references cited in my Report; and this silence I take as significant confirmation that I have not erred in identifying and using the University's financial records. 3. Another significant silence concerns the concluding recommendation in my Report #2: that independent outside management experts should be brought in to examine UC's administration in detail and identify where excess fat could be trimmed. If such an expert survey had been done sometime in the not too distant past, then I would expect Baker to say so; and that might go far to vitiate my allegations of administrative bloat. Since, apparently, that has not been done, it gives more credence to the idea that it needs doing. (Baker's reassurance, "We have reviewed the facts, and I can report to you that ..." is no substitute for an independent outside review.) B. Baker makes a number of critical points, giving specific substance to some general questions I was aware of in my previous work but was unable to nail down. These are corrections which I shall accept and incorporate into a revised assessment of the problem. 1. The police services item in the current administrative budget was counted elsewhere in earlier years. I shall correct for this. 2. Environmental health and safety, collective bargaining, handicapped access, CEQA, and affirmative action are relatively new areas of administrative responsibility that the University has been required by law to undertake. I shall correct for this. 3. Baker says, "Professor Schwartz counted all people employed in administration, without recognizing that many of these people are recharged to ...." Actually, I did acknowledge the question of "recharges" ("transfers" as they are called in the accounting books) in my Report #2, but chose not to include those amounts in my calculation of total administrative expenditures. I shall make this correction. 4. Baker gives numerical data for the percentage of UC expenditures that goes to administration, saying that it is about 11%, for each of two ways of measuring it. I have checked his numbers against the official UC reference source ["UC Campus Financial Schedules 1991-1992" = CFS92] and here is what I found: Looking just at General Funds expenditures, using Schedule 11-D, one finds (in millions of dollars): Institutional Support = 251 and Total = 2,175; and the ratio is 11.5% in agreement with Baker. This confirms that the category "Institutional Support", which I used in my work, is the correct one. Looking at all fund sources, again using Schedule 11-D, one finds the two numbers 394 and 6,792, whose ratio is 5.8%. This does not agree with Baker's number. However, if I use Schedule 11-E, I can include the "Transfer" (recharge) amount with the Institutional Support expenditure and get the numbers 811 and 6,792; the ratio of these is 11.9% in agreement with Baker. This confirms the correction (stated in paragraph 3. above) that I should include the Transfer amounts in calculating the total current expenditures on administration. Qualitatively, these several corrections will decrease the growth rate for administration (in step #1) but will increase the total current expenditure (in step #3). Section IV of this Report will present the quantitative details and results of these corrections. C. Now I come to several of Baker's points with which I disagree, or find to be inconsequential. 1. Baker says that spending on administration has been relatively constant for 20 years, when measured as a proportion of total University expenditures. Here we encounter a major difference in the choice of research methodology for measuring growth over an extended period of time. I looked at the number of staff positions (FTE), Baker wants to use dollar expenditures instead. The great virtue of my approach is that it deals with a unit of measure which is reliably constant over many years: one person working full time. Baker's approach is subject to several complexities which can easily vary over the years and so obscure the reality of what is happening: the mix of spending between salary & wages, supplies, equipment, etc., can vary; the mix between the number of people getting very high salaries and those getting much lower pay can vary; the way in which administrative budgets grow with inflation compared to the way other University budget components grow with inflation - may also vary over the years. The contribution of recharges to administrative expenditure, introduced above, may also fluctuate significantly over the years. For all these reasons I assert that my method - counting administrative FTE over the years to measure administrative growth - is by far the more consistent way to proceed. 2. "Administration has grown in proportion to growth in the University--and no faster."I find fault with Baker's statement on two counts: his calculation of growth rates is seriously flawed, as discussed in the preceeding paragraph; and his criterion - that administration ought to grow as fast as the whole university - is also wrong, as I discussed in Report #2 and shall discuss again in Section V of this Report. 3. Baker says that administrative budgets have been substantially cut in recent years. This does not answer the question of whether much deeper cuts are called for. Actually, I am curious how much of the cuts cited by Baker are real reductions in administrative expenditures and how much are just shifting of administrative budgets from General Funds to other fund sources. 4. Baker says that the addition of new hospitals in recent years required much growth in administrative personnel. I have searched through CFS92 and found that 95% of all expenditures for hospital administration is accounted for in the "Teaching Hospitals" category rather than under "Institutional Support." Thus this matter has no effect upon my calculation of administrative growth. IV. CORRECTING MY NUMBERS For each of the particular budget items which I shall consider, following Vice President Baker's advice, we need data on budgeted FTE, from DA93, and data on expenditures, from CFS92 (Schedules B or C) including both the "Current Funds Total" and the "Transfers". To gather this data requires a detailed search through these source documents, campus by campus, and then combining the amounts identified for each individual item into a total University figure. The results are the following. TABLE 1. CORRECTIONS FOR 1991-92 DATA (Dollars in millions) FTE C.F. Total Transfers Police 546 $ 24.9 $ 8.7 Environmental Health &Safety 281 $ 18.1 $ 7.6 Collective Bargaining 79 $ 4.6 $ 1.3 Affirmative Action 71 $ 3.9 $ 0.3 I could find no entries for "handicapped access" or for "CEQA" under the Administration categories of the budget; they appear to be under Maintenance and Operation of Plant and Student Services, thus are irrelevant to this study. The staff and budget for Collective Bargaining /Labor Relations are listed separately for some campuses but submerged in some other item for other campuses; therefore, the entries on that line of the table above are estimates and not exact figures. Probably, some of the items in the table above did contribute in smaller amounts to the 25-year ago data, but I shall take these corrections at their maximum strength. Now we take the FTE data for the 25-year comparison from Report #2 (Table 1.) and subtract the FTE corrections given in Table 1. above. The first two items (Police and EH&S) belong to the "Institutional Support" budget category, and the other two are under General Administration. Table 2 , below, now gives the full set of corrected data for measuring growth in the several areas of interest. TABLE 2. CORRECTED DATA: FTE, AS BUDGETED OVER 25 YEARS 1966- 1991- Growth Percent 1967 1992 Factor Increase Students 79,293 156,371 1.97 97% Academics 9,908 16,629 1.68 68% Instructional Staff 13,301 21,375 1.61 61% Total Staff 33,305 68,024 2.04 104% General Administration 1,795 3,850 2.14 114% Institutional Support 1,642 3,802 2.32 132% The Growth Factor is just the ratio of the 1991-92 number to the number for 1966-67. In the calculations that follow we shall use this Growth Factor rather than the Percentage increase, for good mathematical reasons. The second set of data, for Administrative Expenditures in 1991-92, we take from Report #2 (Table 3. et seq.) and correct by subtracting the entries from Table 1. above. As presented in Table 3., below, I have separated the seven sub-categories of Administration into two groups, as follows: Group A = Executive Management + Fiscal Operations + Community Relations + Other Institutional Support + Academic Administration (Deans' Offices); Group B = General Administrative Services + Logistical Services. This division is close to, though not identical with, the previous separation into two budget categories, General Administration and Institutional Support. TABLE 3. CORRECTED DATA: EXPENDITURES FOR 1991-92 (Dollars in millions) Current Funds Transfers Distribution Group A $ 355 $ 48 $ 403 Group B $ 117 $ 363 $ 480 TOTAL EXPENDITURE FOR ADMINISTRATION = $ 883 The last column in Table 3., labeled "Distribution", is just the sum of the "Current Funds" expenditure and the "Transfers" (recharges). With this new data, fully corrected to accept Vice President Baker's criticisms, we are now ready to proceed to the analysis and final estimation of excess administrative growth and expenditure. V. ANALYSIS AND CONCLUSIONS We see that the administrative budgets (the last two lines in Table 2) have grown a lot, even more than the other constituents of the university. The corrections just incorporated have decreased this effect, but not eliminated it. How shall we estimate, from the data at hand, how much of this growth is excess ? Vice President Baker implies that administration ought to grow at least as fast as the university as a whole; but I strongly disagree. We must remember how the university is organized. Teaching faculty and research staff are organized in departments and other research units, each of which has its own administrative staff to handle matters such as personnel, purchasing, accounting, mail, recordkeeping, etc. All of this is budgeted, along with the staff for teaching support and research assistance, as part of the Instructional and Research budgets of the University. These staffs and budgets are expected to grow roughly in proportion to the number of academics. But the staffs of Administration which are examined in this study are entirely elsewhere - at the central campus offices, under the supervision of the Chancellors, and at the Office of the President. This is top management, along with some central services that the departments make use of and report to. Increase in the number of students calls for a proportional increase in many other staffs and budgets, aside from faculty, but these are again in separate budget categories: Student Support and Auxiliary Enterprises. Maintenance and Operation of Plant is yet another budget category that one would expected to grow roughly in proportion to the campus population. Thus, in Report #2, I posed the question, Why should this top administration grow at all ? Four considerations occur. 1. Over the years, some new missions may be given to the administration which require it to grow. Vice President Baker has listed these; and I have now removed these particular items entirely from the data being considered (perhaps leaning over backward in doing so.) 2. While the top layers of management should not grow in proportion to the growth of the whole university, perhaps some lesser rate of growth is plausible. 3. For those parts of the Administrative budget which perform services directly for the entire staff, a growth rate equal to the general growth rate may be reasonable. In particular, the concept of "recharges" suggests that these portions of the expenditure by the administration, the "Transfer" amounts in Table 3., might be allowed to grow at the general university growth rate. (I have some reservations about this, but am willing to be generous again.) 4. Finally, there is the phenomenon of office automation which ought, over these decades, to produce a shrinkage in the staffs of office services, which form a large part of the administrative budget. This consideration should lessen whatever growth we might allow from the previous points. That analysis having been given (and, I note, not disputed in Vice President Baker's report), I now must choose a method for estimating how much of the 25-year growth in the administration is reasonable and how much is excess. Again, I want to be conservative (i.e., generous to the University Establishment) in order to give my results more credibility. Here is what I shall do: For the Current Funds expenditures, I shall allow administrative growth at one-half the rate of growth of the rest of the University; and for the Transfer (recharge) expenditures I shall allow administrative growth at the full growth rate of the rest of the University. The final question to be resolved is, Which of the first four growth factors listed in Table 2 shall I take to represent the growth rate of "the rest of the University." I can see lots of arguments on this question; so I shall simply do the calculation twice, using the largest figure (Growth Factor = 2.04) and also the smallest one (1.61). This will serve to bracket the "right" answer. The rest is arithmetic, and the details are in the Appendix. Here is the final result: Of the Total Expenditure for Administration in 1991-92 ($883 million), something between $563 million and $674 million is generously allowed as reasonable. This leaves a large amount as excess: between $209 million and $320 million. Compared with the earlier result of Report #2, we have found a smaller growth in administration but a larger total expenditure; and the net amount identified as excess spending - wastage that can be cut - comes out in the same neighborhood as before. VI. APPENDIX - MATH DETAILS First, I'll do the Transfer portion for Group A. The Growth Factor is 2.14 (from Table 2.) and the amount (from Table 3.) is $48, so the "allowed" amount is between (1.61/2.14)x$48 = $36 and (2.04/2.14)x$48 = $46. Likewise, for the Transfer portion for Group B: the Growth Factor is 2.32 and the amount is $363, so the "allowed" amount is between (1.61/2.32)x$363 = $252 and (2.04/2.32)x$363 = $319. Now, for the "Current Funds" portion I want to allow only one-half of the growth rate for the rest of the University. This means that I use the square root of the other Growth Factors: SQRT(1.61) = 1.27 and SQRT(2.04) = 1.43. For this portion of Group A the amount is $355 and the "allowed" amount is between (1.27/2.14)x$355 = $211 and (1.43/2.14)x$355 = $237 For this portion of Group B the amount is $117 and the "allowed" amount is between (1.27/2.32)x$117 = $64 and (1.43/2.32)x$117 = $72 The Total "allowed" Expenditure is then the sum of each set of four amounts: it lies between $ 563 million and $ 674 million.