LOOKING INTO THE UC BUDGET  --  Report #6a     (email version)

by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.       510-642-4427	          November 5, 1993


This is a report on my recent meeting with the two top budget 
officials in the UC administration, which was arranged to discuss 
their 1994-95 budget plan, presented to the regents last month, and 
the alternative one I presented in my Report #6.  While there was 
little achieved in this meeting by way of changing minds, I found 
the exchange constructive in clarifying the areas of disagreement 
between us. 

The discussion established that the fundamental disagreements are 
not about numbers or facts but about "philosophy";  the conflict 
between their budget plan and mine "is a matter of balancing 
priorities" within the University.  

This Report conveys specific criticisms and questions raised at this 
recent meeting, and presents some analysis - along with a surprising 
bit of new information - to help illuminate the philosophical 

It is now clear that my Report #6 provides alternative budget 
proposals that are indeed feasible;  it is just that the UC 
administration views them as not desirable. This constructively sets 
the stage for a full debate on these alternatives at the regents' 
November meeting.


     At the October 12 regents meeting President Peltason and his 
staff gave an extensive presentation of their "1994-95 Budget for 
Current Operations," a 121 page book built around a plan to 
stabilize the UC budgetary situation over ther next several years. 
Looking at the "Near-Term" future (1994-95 through 1997-98), they 
see the necessity for annual budget increases of about 7 to 8%, 
while expecting that the State will be able to provide only about 3 
to 4% each year.  They plan to fill this gap in funding by 
continuing to raise student fees, by additional amounts of $600 - 
650 more each year for the next several years.

     The administration's detailed plan for 1994-95 requests a total 
budget increase of $141.9 million, which is 7.9% of this year's 
General Funds appropriation; and just over half of this total 
increase is to provide a 5% raise in salary for UC faculty and 
staff.  Approximately this same increase is planned for each of the 
succeeding years.  The 1994-95 plan also calls for a $53 million 
cut in campus and systemwide budgets in order to provide funds to
restore the 3.5% pay cut they imposed for this current year; and 
the third VERIP (voluntary early retirement incentive program) is 
intended to accommodate this $53 million cut.

     At that same regents meeting the administration also began a 
discussion about restructuring the university's student fee policy.
This will be a major continuing debate, which I shall not dwell on 
here except to note that all of the "Alternatives" outlined in the 
administration's draft paper showed student fees increasing by 
over $600 each year for the next five years.

     Although the alternative budget plan contained in my Report #6 
was acknowledged, I was not allowed to speak about it to the Board 
at that meeting.  Fortunately, however, I found one top executive 
who was responsive to the old fashioned idea that a university is 
a place where people practice rational discourse.  Walter E. Massey 
is UC's new Provost and Senior Vice President for Academic Affairs 
and he chairs the Executive Budget Committee in the UC Office of 
the President (UCOP.)  I spoke with him during the October 12 
regents meeting and then followed up with a letter that began:

"Dear Provost Massey;
     Thank you for agreeing to meet with me so we can discuss in 
detail a number of questions I have about the "1994-95 Budget for 
Current Operations" prepared by the UC Office of the President, as 
well as any questions and criticisms you may have concerning my 
alternative budget plan - presented in my Report #6 which was sent 
to all Regents on October 1.  It will be most constructive if we 
can at least clarify areas of agreement and disagreement in advance
of the Regents' meeting on November 18, when a budget is due to be 
adopted by the Board.  I have already called your office, as you 
suggested, to set up this meeting. "

     The meeting took place on November 2, involving Associate Vice
President Lawrence C. Hershman, who is Director of the Budget in
UCOP, as well as Massey (who arrived about half-way through the
hour) and myself.  I do not think any minds were changed but I did 
find the discussion very useful in clarifying our differences.

     The purpose of this Report #6a is to present what I learned 
from this interaction and to try to carry the budget debate forward
for the benefit of interested readers. 


     When I asked Hershman for his criticism of the alternative 
budget plan given in my Report #6, his first response was, "We 
don't agree."  Then he went through each of my recommendations and 
stated his reasons for disagreeing. (What follows is not verbatim 
quotation but rather the paraphrase of his remarks as I jotted them 

   First, on my recommendations for alternative resources within UC:

Cut excess bureaucracy in the UC administration.
        ($80 million or more)
H: We have already cut administration significantly.

Cut executive salaries.($10 million)
H: We are already way behind salaries at comparison institutions.

Take some of the excess income of the UC hospitals.($75 million)
H:  We already took a bunch of actions.  The hospitals will be in 
deep trouble with the coming national health plan: SB855 funds will
be eliminated.

Take some of the business income of the UC medical schools.
       ($100 million)
H: The Practice Plan income is needed to maintain competitive 
salaries for the faculty at the medical schools and to maintain 
the quality of their research program.  They earn the money and 
they keep it.  Also, the national health plan will impact them.

Put a surcharge on some UC enterprises serving outside customers.
        ($20 million)
H:  There is not much income to be generated there.

Reallocate some of the discretionary funds put into construction 
        projects.($100 million)
H:  Most of this is at the hospitals; and medical practice fees 
that are used for alterations (capital improvements); and the 
normal program to fix up laboratories for recruiting faculty.

     Next, on my proposals for key elements of the alternative 
budget plan:
Cancel the third VERIP for faculty.
H:  Can't do this.  VERIP 3 is the primary way to get the $53 
million needed in the 1994-95 budget to restore the faculty and 
staff paycut imposed this year.

Give all faculty a 10% pay raise, in addition to the general pay 
       raises planned for 1994-95.
H: We would love to do this, but we don't have the money.

Reduce student fees by $1,000 and promise no more fee increases 
      for the next two years.
H: We have to increase them.

     Obviously, Hershman was rejecting these last three proposals 
in the context of his budget plan, not  mine.  Concluding this
portion of our discussion - about the difference between his budget
plan and mine - Hershman said, "It is a matter of balancing 
priorities," and I agreed that we indeed had different priorities.

     When I asked Massey for his questions and criticisms 
concerning my alternative budget plan, he replied that this was 
not really a budget matter, but rather a question of policy. 
His main point was: "People disagree with your philosophy."

     I conclude from all this that my alternative budget plan is 
feasible, but the UC administration finds their own plan more 

     Before I turn to a discussion of these competing philosophies
and priorities, there are a couple of technical matters that were 
discussed and should be noted here.


     I asked explicitly whether Massey or Hershman had found any 
numerical or factual errors in my Report #6; and Hershman pointed 
to one.  In estimating the cost of a 10% pay raise for faculty, 
I used the number $550 million as the total annual amount of 
General Funds used to pay UC faculty salaries.  Hershman said the 
number should be much larger; and we were able to identify the 
figure for all academic salaries as $900 million.  The personnel
classification of academic salaries includes a lot more than just 
faculty; however, accepting this correction means that my estimate
of the cost of this pay raise has to be increased from $55 million 
to $90 million.  The difference is a not insignificant amount of 
money but it is well within the amounts provided for in my overall 
budget plan.

     I asked Hershman how much of their $53 million cut in campus 
and UCOP budgets would be applied to administration.  He replied 
that he didn't know, that decision would be up to the campuses.  
He said that they have already taken disproportionate cuts in 
administration, an average of about 20 to 25% cut to administration 
overall.  I asked Hershman if he could provide me with 
documentation detailing these administrative cuts, because my own 
study of UC financial documents did not support this claim.  I had
written to President Peltason some weeks earlier asking for just 
such data but had not gotten a reply.  Hershman was familiar with 
my letter and said he would provide me with that data.


     Perhaps, to seasoned administrators, saying that I had a 
different "philosophy" or a different way of "balancing priorities"
is just a technique for disposing of alternative proposals without
having to debate them openly and defend their own.  Still, one can
ask: What are these different philosophies and these different 
sets of priorities?

     I should make it clear that I do not wish to turn this into a 
contest between my personal philosophies and those of UC's
established leaders.  Rather, my purpose here is to identify the 
effective priorities that are seen in the administration's budget 
plans and in their critique of my alternative proposals and to 
note where they conflict with principles that are widely espoused
and practiced throughout the University.

Quality and Access
     These two words are used as philosophical and priority-setting
keynotes by the UC administration; and they are also so used in my 
alternative budget analysis.  So one must go deeper to see why we 
differ so sharply.

Effective Priorities
     The administration's budget plans for the next several years 
are a continuation of its recent ones: encourage faculty to retire,
cut faculty and staff salaries (last year) and now seek salary 
increases, cut programs at the discretion of the president and 
chancellors, and continue to raise student fees.  VERIP 3 and 
increases in student fees directly threaten both Quality and Access;
and that is why my alternative proposal seeks to turn both of these 
policies around.

     In Hershman's critique of my alternative proposals we also see
the expression of further administration priorities: protect 
administrative budgets from additional cuts, protect executive 
salaries from further cuts, protect the large surpluses at the UC 
hospitals and the large medical business income of the medical 
schools for the exclusive benefit of those rich sectors of the 

They earn the money and they keep it
     Let me expand upon this question of the medical schools' 
clinical practice income and Hershman's reason for not wanting to 
consider this money as something to share in UC's overall budget
planning.  As previously established, this is all unrestricted UC 
income which the regents can allocate as they see fit. Furthermore,
we have some well-known examples of outside revenue being "earned"
by select faculty and a significant portion of it being shared with
the rest of the University:  the large amount of overhead on 
research contracts and grants, and the fees from licensing of 

Competitive salaries for UC executives and for medical school 
     Despite the UC leadership's strong desire to have last year's
scandals over executive compensation put behind them and forgotten,
there remain unresolved conflicts over basic philosophy.  The 
administration continues use market comparisons, looking at
executive salaries at other top universities; but many see this as
a self-inflated scheme.  A. Alan Post, in his 1992 report to the 
Regents, recommended supplanting that scheme with an internal one 
that is logically consistent, having a base point set at the salary
of a full professor.  The faculty at UC Berkeley has formally
endorsed the specific proposal that, "It should be the policy at
any institution of higher learning that the total compensation paid
to any executive officer should not exceed twice the average amount
paid to its Full Professors." [Special meeting of the Berkeley 
Division of the Academic Senate, May 6, 1992.]

     On the question of compensation paid to faculty at the medical 
schools there is a similar conflict of philosophies.  The 
administration justifies their extra large pay by citing the need 
to stay competitive; yet, and I think I can say this without 
having to prove it, most people believe that doctors, while 
deserving a generous income, are frequently much overpaid.

     I think some numbers will be helpful in sharpening this 
philosophical debate.

#1. How much does UC pay the members of its Executive Program?  
Average annual salary = $118,158.  Top = $243,500. (not counting 

#2.  How much is the Governor of California paid?    $120,000.

#3.  How much does UC pay its Full Professors?  
This pay scale (Fiscal Year basis) ranges from $59,600 to $106,000.

#4.  How much does UC pay its medical school faculty (combining 
base pay plus additional income through the Clinical Compensation 
Average (all faculty ranks) = $125,000.   The top amount is unknown; 
however, I have identified a group at UCLA who average over $550,000.

#5.  How much does UC pay its academic super stars?
I do not have comprehensive data on "above scale" salaries paid to 
outstanding faculty.  However, I have found salary data on our most
acclaimed scholars: Nobel Prize winners (8 of them at UC Berkeley) 
have an average annual pay rate (Fiscal Year basis) of approximately 
$123,000.  and the top one is at $140,000.

[UC salary information is available in public records: one asks for
the PAFs, Personnel Action Forms.]

     This last bit of information was an astonishment to me. I know
that Nobel Prize winners do not expect to be treated like movie 
stars or sports heros; but to find their salaries so modestly above
the rest of us good professors was truly surprising.  

     This comparison, I think, tells us something very important 
about the real values of a great university.  It pretty much
destroys the moral basis (and perhaps the practical basis as well) 
for the competitive salary arguments used to justify the high pay of
those other elites, the university's executives and medical school