LOOKING INTO THE UC BUDGET -- Report #4 (e-mail version)
by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720. 510-642-4427 February 28, 1993
INTRODUCTION & SUMMARY
The UC President and his staff have repeatedly said, "Everything is on
the table," in figuring out how to cope with the University's continuing
financial crisis.
The UC President and his staff have also said that there are only
three options available to meet the current $243 million budget deficit:
* further staff layoffs and cutbacks in programs,
* further freeze, and even cuts, in faculty and staff salaries,
* further increases in student fees;
and the present debate focuses only on how to combine these three
actions and apportion the pain among faculty, staff, and students.
The study presented here challenges that whole picture by showing
that significant financial alternatives do exist within the University.
The UC Regents have at their disposal substantial "hidden" resources
that can be used to save the University's primary academic mission
from further harmful effects of the State's budget shortage.
Specifically, this Report identifies $2.3 billion in annual
income from UC's peripheral enterprises; and a 10%
surcharge to outside customers could cover the University's
entire budget deficit.
This Report concerns an entirely new subject, separate from my earlier Reports
(#1-3) that focused on the resources wasted by UC's overgrown administration.
The UC Fact Sheet, copied below, was handed out at the Board of Regents
meeting on February 18, 1993, as William B. Baker, UC's Vice President for
Budget and University Relations, made his presentation to the Regents on the
University's 1993-94 budget. (I have omitted only the pie chart in compacting
it.)
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FACT SHEET University of California -- Revenue
Where UC gets its funding
The percentage of UC's operating budget derived from the state is
declining, but state funding still provides the core support for academic
programs and is the key to attracting other revenue. Almost all other UC
revenue is restricted to specific uses and cannot replace the shortfall in
state funds.
Building programs are funded separately by bonds approved by voters and
the state Legislature. Revenue from these bonds cannot be used for any other
purpose.
$7.4 billion 1991-92 operating funds excluding Department of Energy laboratories
How UC's funds are restricted*
State of California and general fund $2.2 billion
Funds earmarked for the general support of UC including teaching, research and
public service programs and activities mandated by the state Legislature.
Teaching hospitals $1.6 billion
Fees for patient services at UC's five teaching hospitals, which must support
the continuing operation of those facilities.
Federal government $1.1 billion
Funds from federal agencies, which are restricted to support specific research
projects and teaching programs.
Student fees & tuition $638 million
Fees support student activities, financial aid, health centers and libraries.
Tuition includes fees charged by self-supporting programs such as UC Extension
and summer session.
Educational activities $546 million
Funds generated by activities such as educational workshops, and the treatment
of patients at medical clinics. Generally, the revenue is returned to the
department or unit to help defray their cost of operations.
Auxiliary enterprises $486 million
Money collected from operations such as parking lots, student housing and
dining facilities. These funds must be used to support their continued
operations.
Private gifts, grants & contracts $360 million
Funds from private foundations, groups and individuals, generally earmarked
for specific purposes.
Endowments $79 million
Income earned on funds donated UC and then invested. In most cases, donors
specify how the income is to be used.
Local governments $61 million
Funds received through contracts and grants to perform specific services for
local governments. For example, UC San Francisco receives revenue from the
city of San Francisco to manage San Francisco General Hospital.
Other sources $253 million
Funds from sources such as publication sales, or fees charged for the use of
facilities and services. Generally, the revenue is returned to the department
or unit that generated the funds to help defray their cost of operations.
*Source: Corporate accounting, 1991-92 figures
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The key point of this Fact Sheet is its second sentence: "Almost all other
UC revenue is restricted to specific uses and cannot replace the shortfall in
state funds." This statement is FALSE. Yet it has been said many times, by
various UC officials, in a variety of ways. This error seriously misleads all
who are not experts in the university's finances but are concerned about the
UC budget - that includes faculty, students, staff, regents, legislators and
many other citizens.
The Table that follows presents the full and authoritative picture. This
covers the same data as the Fact Sheet, Sources of UC Revenue for the fiscal
year 1991-92, with the same categories and the same total figures; but this
Table shows in detail the true breakdown between the "Unrestricted" and
"Restricted" portion of each of these funds.
TABLE 1. U C CURRENT FUNDS RECEIPTS 1991-92
(Dollars in millions; numbers are rounded)
Source of Revenue Total Unrestricted = Restricted
General + Designated
1. State of CA & general fund $ 2,231 1,993 = 1,987 + 5 239
2. Teaching hospitals 1,634 1,634 = 0 + 1,634 0
3. Federal government 1,107 224 = 0 + 224 882
4. Student fees & tuition 638 638 = 103 + 535 0
5. Educational activities 546 546 = 0 + 546 0
6. Auxiliary enterprises 486 486 = 0 + 486 0
7. Private gifts/grants/contracts 359 27 = 0 + 27 333
8. Endowments 79 22 = 0 + 22 57
9. Local governments 61 1 = 0 + 1 60
10. Other sources 252 228 = 14 + 213 24
TOTALS $ 7,393 5,799 = 2,104 + 3,693 1,595
[Source: "University of California Campus Financial Schedules 1991-1992." I
have combined the detailed data for each campus, from Tables 1-A through 10-A,
to get figures for the whole University. Table 11-A in that publication
contains only the totals, without this breakdown.]
The University has a complicated but well defined accounting system, with
many different fund sources and many different functional uses of its money.
The basic nomenclature and definitions we need are the following.
"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.
"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.
[Source: Office of Corporate Accounting, in UC's Office of the President; and
the annual publication from that office, "Campus Financial Schedules"]
Now, it is most unfortunate that the budget office, in the UC Office of
the President, uses the label "Restricted Funds" in a different and
contradictory manner. In the publication "Budget for Current Operations"
(often referred to as the Regents' budget), issued each year by the UC Office
of the President, I find that: Funds which in reality are classified as
Unrestricted/Designated are called "Restricted"; and what is properly
classified as Restricted Funds are not mentioned at all (they are probably
contained under the heading "Externally Funded Operations" in the table on page
3 of the 1993-94 budget.) The best excuse I can imagine for this doubletalk is
that the "Budget for Current Operations" is aimed at the State government,
where the primary distinction in funds is between those moneys allocated by the
State's General Fund and those provided by the Regents from their other
resources.
This error in terminology, propagated by the UC budget office, is more
than a confusing nuisance, however; it has very serious consequences. It has
led to the false but widely accepted notion that money from these other sources
could not be used to substitute for the shortfall in State general funding. We
need to get this error straightened out.
Looking at Table 1., we now see that for only four of the funding sources
listed (those on lines 3, 7, 8 and 9) is it true, as claimed in the UC Fact
Sheet, that most of the funds are restricted and cannot be used for other
purposes. Four of the funds (showing 0 in the last column) are entirely
unrestricted; and the two remaining ones (those on lines 1 and 10) are about
90% unrestricted.
Of the total $7.4 billion in UC operating funds for 1991-92, only $1.6
billion represents restricted funding. The total amount of unrestricted
funds - which is available for allocation under the full control of the UC
Regents - is $5.8 billion, of which $2.1 billion is classified as General funds
and the other $3.7 billion is classified as Designated funds.
This $3.7 billion in Designated Funds is what interests us here. This is
money that has previously been excluded from the public discussion of UC's
budget problem. The purpose of this Report is to bring this "secret" resource
out into the open and invite public scrutiny.
This $3.7 billion is a lot of money: less than 7% of this amount,
speaking just hypothetically, would cover the entire $243 of the University's
budget deficit for next year. Let's try to get beyond the hypothetical by
first looking at the individual sources of this unrestricted/designated money.
The Student fees and tuition (Line 4 of Table 1) contains several
components. The Educational Fees and Registration Fees are already being
used to replace the loss of State General funds, so we are not interested in
those. However, the income from University Extension ($131 million) and from
Summer Session ($24 million) is also included here, and this is worth placing
"on the table."
The Educational activities, with $546 million, is also worth serious
consideration. So is the $1.6 billion from the Teaching hospitals.
However, the Auxiliary enterprises, at $486 million, is one which I would
not want to consider here since we are trying to protect UC's students, faculty
and staff from additional financial burdens. Most of this item is income from
university residences and food services, with smaller contributions from
bookstores, parking and intercollegiate athletics.
The $49 million in designated funds from Private gifts and from Endowments
are likely to be funds that are already being put to use as Student Financial
Aid, etc., and so I shall leave them out of the present considerations.
As for the $224 million in unrestricted designated funds from Federal
sources and the $213 million from Other sources, I shall defer consideration of
these items to a later time.
In sum, then, we have brought "to the table" a previously hidden
pot containing $2.3 billion in annual income which the University
collects from a variety of external customers. This is Unrestricted
money, completely under the control of the UC Board of Regents.
The new possibility for consideration is that a 10% surcharge on
this set of UC's enterprises could cover the budget deficit without
requiring any increase in student fees, or any layoffs or salary cuts
for the faculty and staff.
Is this really feasible? The University has long had a policy that these
peripheral enterprises - University Extension, teaching hospitals, and a
variety of other auxiliary businesses - should be self-supporting. That means
that the money they collect pays for their own operation. That policy was
wise, in the sense that one would not want to allow funds to be bled off from
the University's primary academic functions - teaching and research - in order
to support these secondary enterprises. In the present budget crisis, however,
there is good reason to reconsider that policy - i.e., to turn these
enterprises into useful assets for the University - and the Regents have all
the power they need to make this choice.
In fact, it is not a new idea that funds which were formerly designated
for certain specific purposes can be redirected, by regental action, to support
the University's central academic operations. In response to the continuing
cutback in State appropriations for UC, the Regents have increased
Undergraduate Resident Student Fees from $1,634 in 1989-90 to $3,649 in 1993-94
(and additional increases are being proposed for 1993-94.) Most of this
increase is in the Educational Fee, a special fund established by the Regents
in 1970 and designated for specific uses: originally it was designated for
capital outlay projects; then, in 1976, redesignated for student financial
aid; then, in 1981, redesignated to include various student social and cultural
activities, counselling and career guidance, tutoring, and overhead (recharges
to plant maintenance and administration.) In the last two years, the
Educational Fee fund has been redirected again: it now provides 94% of all
funding for the University's libraries, replacing $150 million in State General
funds previously provided for that purpose.
Another significant precedent for this idea of charging external clients
more and then transferring the proceeds to General Funds is the "overhead"
which the University collects on Federal research contracts and grants. A
significant portion of that money ends up, under the Regents' control, in
support of many academic programs.
I expect that the UC administration will provide some arguments opposing
this idea of raising the prices of UC's peripheral enterprises in order to meet
the present budget deficit. I look forward to hearing from them; and I hope
they will also provide a lot more details about what these enterprises consist
of. Let the debate begin.
In that debate it will be important to remember that the University's
primary and overriding mission is the academic one, teaching and research.
This means that concern and support for faculty and students is the first
priority; and second priority goes to those campus staff who work directly in
support of faculty and students. Everything else that the University does is
of still lower priority.
Whatever the habits and practices of the University may have been in past
decades, this protracted budget crisis forces us to examine all questions in a
full and open manner.