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


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 
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 

$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 

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

    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. 


(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 

     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.