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 SUMMARY 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 disputes. 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. INTRODUCTION 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. CONSTRUCTIVE ESSENCE OF THE DIALOGUE 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 down.) 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 desirable. 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. CLARIFYING SOME BUDGET NUMBERS 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. CONFLICTING PHILOSOPHIES AND PRIORITIES 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 university. 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 patents. Competitive salaries for UC executives and for medical school faculty 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 perks) #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 Plans)? Average (all faculty ranks) = $125,000. The top amount is unknown; however, I have identified a group at UCLA who average over $550,000. each. #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 faculty.