LOOKING INTO THE UC BUDGET  -- Report #8      (e-mail version)

by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.        510-642-4427         December 20, 1993


The UC administration is preparing a new policy on STUDENT FEES 
(tuition) for approval by the Board of Regents next month.  The new 
plan, available now only in draft form,  will revolutionize the 
financial, political and social relationships of the University with 
the people of California.  The UC leaders speak of a new social 
compact between the University, the State, and students and their 
families.  However, it appears to this writer that many of the most 
important questions about this plan have not been answered, and for 
the University to proceed without first resolving these issues is to
invite a variety of disasters.

Part I of this report concerns the question of financial aid for 
needy students,  which is supposed to accompany any high-fee model 
of higher education.  Who will guarantee that adequate financial aid 
will be provided and what are the likely socio-political 
consequences?    Much of  this section is made up of quotations from 
members of the Board of Regents and their advisors during the past 
two months' open discussions of the student fee policy.

Part II concerns a question of accounting:  What is the present cost
per student of undergraduate instruction at UC?  Following the idea 
that UC must be fair in charging students and their families for no
more than what they get, I calculate a cost which is less than 
one-half of the amount cited by the UC administration.  This issue
has long term consequences which should also be of great concern to 
faculty and the research mission of the university.

While this study looks only at the University of California, the
issues raised are also relevant to other states where large public
universities have started down the path toward privatization.  I do
not know what steps, if any, those other universities have taken to
avoid the hazards identified here.  In any case, it would be unwise
for UC to proceed without first resolving these issues for itself.
In particular, the question of how to guarantee adequate financial
aid for all needy students is not one that can be answered by mere
statements of good intention;  some new structural mechanisms will
have to be designed and built into the plans at the outset.


     The chief reference is: "Preserving Affordable Quality and 
Access at the University of California -- a Discussion Document on 
Fees and Financial Aid," a draft document from the UC Office of the 
President (UCOP), dated October 12, 1993, and presented at the 
Regents meetings of October 12 and November 18. Key excerpts follow.

  The University's student fee and financial aid policy heretofore 
  has been guided by a commitment to ensure access for students to 
  the University under the Statewide Master Plan for Higher 
  Education.  Financial aid has been and must remain the cornerstone
  to affordability for low- and middle-income students.  Grants, 
  subsidized loans, and work help students pay the fees they are 
  charged as well as cover the costs of books, housing, food, 
  transportation, and other educational expenses. [page 1]
  The primary vehicle for achieving access has been to keep fees as
  low as possible by providing a substantial subsidy for all 
  California resident students.  For example, in 1991-92, the full 
  cost of educating a resident student was $12,168.  With the 
  Educational and Registration Fees paid by resident undergraduate
  students at $2,274, the average educational subsidy provided to 
  the University by the State for each student was $9,894. [page 1]
  Though annual budget increases of about 7 to 8 percent are needed 
  over the next few years to stabilize the University's budget 
  situation and not lose further ground, it is anticipated that the 
  state will be able to fund increases of only about 3-4 percent 
  annually, less than half the amount needed.  Although finding 
  funding for the other half is critical, the University has very 
  few options for filling the gap. ... For the near term, estimates
  indicate that fee increases roughly similar to fee increases in 
  the recent past, or about $600-$650 per year, would cover the gap.
  [page 2]
  The substantial educational subsidy provided to the University for
  students from high-income families may be a luxury of the past; ...
  The median income of the parents of University undergraduate 
  students was $55,000 in 1991-92 with a third of undergraduates 
  coming from families with parent incomes over $70,000. [pages 2-3]

  SUMMARY ... Underlying this debate are the goals of:
  1)   ensuring access to the quality educational program California
       residents have grown to admire and expect from the University
       of California;
  2)   regaining stability in funding for the University in meeting 
       its mission, at a time of uncertain funding from the State; 
  3)   if called upon, rewriting the social compact in which 
       students and their families,  the University, and the State 
       all share in the responsibility of keeping the University 
       affordable for all California residents.  [page 28]

     The draft document from UCOP presents several alternative 
policies for setting future student fees at UC; but all of them 
yield the same numbers, which are displayed in Table 1, below, along
with numbers from recent and earlier years.

Table 1.           History of Student Fees at UC - 
            average annual fees for resident undergraduates
            Each year's increase is shown in parentheses; 
            the policy of a 10% cap on increases was dropped.

Earlier Period          Recent Period           Planned Future

1984-85 $1324          1989-90  $1634 ( +80)   1994-95  $4411 (+684)
1985-86 $1326 (  +2)   1990-91  $1820 (+186)   1995-96  $5064 (+653)
1986-87 $1345 ( +19)   1991-92  $2486 (+666)   1996-97  $5727 (+663)
1987-88 $1492 (+147)   1992-93  $3044 (+558)   1997-98  $6393 (+666)
1988-89 $1554 ( +62)   1993-94  $3727 (+683)   1998-99  $7064 (+671)

     Historically, student fees at UC were meant to cover services 
for students beyond their basic education.  Given the State's budget
shortage in recent years, UC has raised fees dramatically - as a 
matter of necessity.  Now, in the new vision being presented, still 
higher fees are seen as a social virtue: the many high-income 
families sending their children to UC will no longer be subsidized
by the rest of the state's taxpayers.

     This new approach, abandoning the Master Plan commitment to 
zero tuition, has received major backing by the California 
Postsecondary Education Commission (CPEC).  At the Regents' October
12 meeting, CPEC Executive Director Warren Fox summarized their 
proposal as follows. [Quotations from individuals are taken from the
official tape recordings of the Regents meetings.]

"Here are the principles that our Commission adopted to do its work 
on looking at policies to set undergraduate student charges at 
California's public universities. ... [T]he first principle is an 
important one: that students and their families will contribute 
along with the State for financing college education. ... However, 
we feel that the State should always make the major investment 
and at no time should individuals or their families make the major 
investment in covering the cost of education. ... Undergraduate 
charges [at UC] could rise to no more than 40% of the average cost 
of instruction."

     One obvious problem with this formulation of the new "social 
compact" is this: How will that 40% limit be maintained?  Given the
continuing economic problems of California and given the political 
pressures in Sacramento, it seems inevitable that as the University 
comes to rely more and more on student fees (tuition), the Governor 
and the Legislature will be even more inclined to reduce their 
appropriation to UC.  Regent Ward Connerly expressed it this way:

"I think that we have to prepare for the day when the cost ... that 
we charge to the consumer for the product, may in fact have to be 
what it costs us.  That sounds heretical to some extent but I think
that we almost have to prepare for that.  And to argue the notion 
that the taxpayer should forever pay the majority of that cost seems
to me to be one of those Jurassic Park dinosaurs."

     The main concern, of course, is about need-based financial aid.
The University says that it is committed to preserving access for 
all academically qualified students, regardless of their economic 
circumstances; the word "affordability" is now  popular.  But many 
people are skeptical about whether UC will actually fulfill this 

     The UC President's Office provides statistics showing how it 
has increased student financial aid, returning a significant portion 
of new student fee revenue to assist needy students. They report 
that, "Despite rising fees, the percentage of UC freshman from low-
income families has increased over the last three years."  Student 
leaders, however, continue to present painful evidence of the damage
that higher fees are inflicting and they point out significant 
shortcomings in the existing financial aid policies and practices.
Several members of the Legislature have also expressing their 

  While fees were doubling from 1990 to 1993,  Californians'  
  personal  income was  declining.  As a result, educational 
  opportunity has become increasingly limited to the wealthy, and 
  the promise of the Master Plan for Higher Education has been 
  abrogated. ... We urge you to withdraw your fee proposals and 
  begin to work cooperatively with students and the Legislature to 
  develop comprehensive budget solutions which rely on reform, new 
  efficiencies and priorities, and reinvestment of public support 
  rather than closing the doors of opportunity. 
  [Letter to UC President J. W. Peltason from Assemblymembers  
  M. Archie-Hudson, R. J. Campbell, H. Solis and J. Bornstein,  
  dated October 12, 1993]

     The Regents' own public discussion about student financial aid 
has been remarkable:

Regent Meredith Khachigian:  "I see some really potential problems 
with this kind of a proposal; and I have to put it in there with 
social engineering.  And I worry about class warfare, all these 
kinds of things that I could see happening ... in the social fabric 
of our campuses. ... I am so appalled by some of the social 
consequences of some of these proposals."

Regent William Bagley:  "We [the Board of Regents] are in the 
progressive tax business, like it or not.  Some of my colleagues
here abhor progressive taxation.  ('Hear, hear.') ... [T]hose that 
have higher incomes are going to pay more, those students or 
parents, and we are going to give that higher income person's 
stipend back to those that don't have it.  That's progressive 

Student Regent Darby Morrisroe: "[A] 'high fee high aid' model will
not work because it overlays itself over a current financial aid
structure which is inadequate. ... In any of these models that are 
being proposed I don't see a fundamental look at how financial aid 
need is assessed, because that is essentially the problem with 
financial aid. ... [T]he federal government has had limited 
resources to allocate to financial aid. So...they changed the need 
assessment. They became more stringent with their criteria for 
financial aid allocation. So that even if the current financial aid
system was fully funded, it wouldn't meet the need of students. ...
And we tend to spend an exceptional amount of our time on student 
fee policy without ever significantly addressing financial aid - 
except to say, well, the increases we get from revenues will go back,
in a 'return to aid' model.  Well, that's good...but that isn't 
sufficient because it doesn't address how student need is assessed."

President Jack Peltason:  "There is ... strong commitment [to 
student aid].  There are all kinds of problems: How much money do we
have available for student aid?  and then, Which students do you 
distribute it to? ... If you give more to the middle-income, then 
you have less to give to the poorest.  There are debates about how 
to allocate it, ... how to assess need, which need has the highest 
priority. ... There are more needy students at the moment and the 
need is greater than the dollars.  So we are always having to make 
some tough decisions."

Provost Walter Massey:  "[I]t is often difficult to separate policy 
discussions from the implementation of policy... What kind of policy
should the University adopt and pursue?  Should we have one of 
'affordability' as a model, where we say: those parents and students
who can afford to pay more would pay more and [for] those who cannot
... we would make it affordable through other means?  Now, as a 
policy we might adopt that and we might find that we can't implement
it simply because the finances aren't there, the structure of the 
State wont allow us."

Regent Harold Williams:  [This was lost on the tape; so I have 
reconstructed it from my notes.]  The reality is that financial aid 
will not cover all of the needs from increased fees.  I think the 
result is that the middle class will get hit.

     I find it incredible that this body, the Regents of the 
University of California, composed of very rich and conservative 
people, would embark on a program of wealth redistribution that 
follows Karl Marx's utopian vision.  And even if they do start out
well in that direction, would the promise be sustainable?  Looking 
down the road, one can predict many grave troubles: an uproar from 
lower-income families as they find financial aid lagging and their 
children cut off from higher education; a political backlash from 
middle class families who find themselves being squeezed out as the 
rich and poor are accommodated; the philosophical (and legal) 
question whether the University has legitimate authority to levy 
taxes, especially such a class-discriminating tax; and  the 
intensified stress in the social fabric of our campuses, along class
and racial lines, identified by Regent Khachigian.

     The Regents meet at UCLA on January 20-21 to decide on this 
policy.  If they do not have satisfactory answers to these daunting 
questions, who then will be placed at risk?


     Putting aside all those questions of social equity, I now ask: 
What is a fair price to ask students (and their families) to pay for
their education at UC?  The UC President's Office cites the figure 
$12,168 as the full cost of instruction in 1991-92, with the 
following explanatory footnote found on page 12 of the draft 
document from UCOP.

  According to the methodology agreed upon with CPEC, cost of 
  education is based on instruction-related, per-student revenues 
  for UC's eight general campuses.  Those revenues consist of State
  general funds, University general funds, student fee revenues, and
  lottery funds.  Expenditures for health sciences, teaching 
  hospitals, organized research, and public services are not 
  included in the calculation. 

     I wish to dispute that methodology and that conclusion.  My 
analysis and computation, presented in detail in the Appendix of 
this report, lead to a figure of $5,040 for the annual cost per 
student of undergraduate instruction. This is less than half the 
amount claimed by UC and means that today's student fees already 
far exceed the 40% ceiling proposed by CPEC !  The principal
differences are that I work from actual expenditure data, not 
revenue data, and I make a separation between undergraduate 
instruction and graduate instruction.  This last point of 
distinction will be controversial; but I believe it is fundamental 
to a fair and honest analysis of the issue.  

     The University has a three-fold mission: teaching, research and
public service.  Everything at the University revolves around the 
work of the faculty members, who likewise have a three-fold job: 
teaching, research and service. (Service, for faculty, means not 
only public service, but also university service and professional 
activities.)  Faculty members receive a salary which covers all of 
these tasks together; and the payment of these salaries has, in the 
past, constituted the essential core of the State's support for the 
University.  While one could, and often did, hear arguments about 
the proper balance between teaching and research, the basic 
commitment of the State was to support all three missions as an 
integrated whole that benefits society at large.

     It is now proposed to shift the financial burden for education,
at least partly, onto the individual students who will receive an 
education at UC.  Thus,  that unitary package of financial support 
for the University must be taken apart - and this must be done 
fairly.  As CPEC's Warren Fox stated to the Regents in October:

"Students need to get return on their dollar and they should be able
to see their funds spent directly for instructional purposes; and it
should be called tuition." ...
"The cost of instruction [$12,168] is the actual cost of delivering 
the classroom instruction. It doesn't count research and public 
service or any of the other things the university does, just 
instruction, as opposed to the cost of education, which would 
include all of those.  We dealt with the percentage cost of 
instruction, which is the student paying a fair amount for those 
instructional activities directly related to the teaching and 
learning process."

     My approach follows that of UC and CPEC in separating off
research and public service, and also in separating off the expenses
of the hospitals and medical schools from the general campus 
activity.  However, they make no distinction between undergraduate 
instruction and graduate instruction;  and this, I believe, cannot
be sold as fair to those who understand what really goes on in a 
"research university" like UC.

     According to UC's own statistics, faculty members spend 50% of
their "instructional" time on graduate students and 50% on 
undergraduate students; yet graduate students account for only 19% 
of all students at UC's eight general campuses.  (This does not 
count faculty members' "research" time, which is overwhelmingly 
devoted to graduate students rather than undergraduates.)

     The financial arrangements that UC makes for its graduate 
students in PhD programs, preparing them for careers in research, 
college teaching, etc., are completely unlike those for the 
undergraduates. Teaching Assistantships, Research Assistantships, 
tuition waivers, fee remissions, and various fellowships are 
provided to recruit the best talent from across the nation and 
around the world and to provide, wherever possible, complete 
financial support for these budding scientists and scholars.  
(Graduate students in the humanities, where there is so little in 
the way of outside research money, get substantially less support.) 
Graduate students in the professional schools of Medicine, Law and 
Business are already targeted for "differential fees."

     I am aware that faculty and administrators will deplore my 
approach of separating undergraduate instruction from graduate 
instruction; and I am aware that many student leaders, who maintain
a commendable solidarity among all students, may also be upset by my
approach.  Nevertheless, I think it is essential - in order to be
honest and fair with those in the public who will be asked to pay 
the bills - that we calculate the actual cost of undergraduate 
instruction alone.

     Let me put it this way.  If the University should try to charge
undergraduates for more than what they are getting (twice as much, 
by my calculations), and perhaps even get away with it for a while -
imagine the consequences when somebody eventually goes to court and 
sues the University for fraudulent sales.

     The problem that I point out not only affects students and 
policymakers; it should concern faculty members as well.  Who will 
pay for graduate education?  is a question almost as dear to the 
research-oriented professor as, Who will pay for my research?  In 
the "good old days" the State paid for the whole package.  The new 
social compact that the University's leadership speaks about had 
better address these questions as well as the question of support 
for undergraduate education.

     There is a counter-argument to what I have said above: it
points to the elite private universities, where undergraduate 
students pay a very large amount of tuition, and this  does indeed 
subsidize the graduate/research activity of the institution.  If
Harvard and Stanford can do that, why not UC?  What students 
attending the elite private schools get, compared to the top quality
public ones, is largely in the label.  Some people will pay a 
premium for prestige; I would only question how big the market is 
for that inflated product.

     If one combines the question of financial aid , raised in 
Part I, with the question of the true cost of instruction, raised 
here, the potential for disaster in the UC administration's plan 
becomes greatly magnified. 

     There are alternative approaches - see, for example, my earlier
budget reports - but the University's leaders have not yet been 
willing to give them significant consideration.

    APPENDIX:  Calculating the Cost of Undergraduate Instruction

     Table 2 presents data on actual expenditures for the various 
functions of the university, taken from "The University of 
California Financial Report 1992-1993." The ten items are shown 
grouped according to the definitions in the Financial Report 
[page 3]:

  The primary programs are directly related to the three missions of
  the University - instruction, research, and public service.  
  Academic support, teaching hospitals, institutional support, and 
  operation and maintenance of plant are supporting programs. 
  Programs providing support for students are student services, 
  student financial aid, and auxiliary enterprises.

Table 2.  Current Funds Expenditures for the year ended June 30,1993
($ in Thousands)

GROUP 1:    Instruction (23.7%)           $1,668,175
primary     Research (18.9%)               1,328,030
programs    Public Service (2.2%)            153,677

GROUP 2:    Academic Support (9.2%)          645,784
supporting  Teaching Hospitals (23.1%)     1,627,666
programs    Institutional Support (5.5%)     384,722
            Oper.& Maint. of Plant (3.7%)    262,479
GROUP 3:    Student Services (3.2%)          225,306
support for Student Financial Aid (4.6%)     322,433
students    Auxiliary Enterprises (5.9%)     412,377

                    TOTAL                 $7,030,649

      Starting with the total Expenditure for Instruction ($1668.2
 Million), I subtract the following items: Summer Session = $21.0
 Million; University Extension = $142.6 Million;  Health Professions 
 = $598.4 Million; Law Schools = $23.1 Million; and this gives us 
 the figure for General Campus Expenditure for Instruction = $883.0 
[Further detailed data is gathered from, "UC Campus Financial 
Schedules 1992-93".]

    Now I ask, What fraction of their work time do UC faculty spend,
on the average, at undergraduate instruction?  Data to answer this 
question comes from the "University of California Faculty Time-Use 
Study 1983-84" and is shown in Table 3.

Table 3.   Results from survey of 100% I&R FTE faculty, 
           excluding health sciences and law

Principal Activity                              Hours/week

All UC-related Activities                       61.3

Instructional Activities                        26.0
Research/Creative Activities                    23.2
University Service                               6.6
Professional Activities/Public Service           5.5

Breakdown of Instructional hours/week:
                                 Lower Div.   Upper Div.   Graduate
Regularly Scheduled Courses        1.1          2.3          1.8
Supervising Indep./Special Study   0            0.5          2.1

     Combine these:   Undergraduate = 3.9         Graduate = 3.9

    A portion of faculty members' University Service is on 
committees dealing with instructional matters; I estimate this to be 
roughly 1/3 of the 6.6 hours/week reported above. Adding this to the 
26.0 hours/week reported for Instruction, gives a total of 28.2 
hours/week, which is  46% of the total reported work week of 61.3 
hours. Next, we see from Table 3 that one-half of faculty members' 
Instructional hours are spent for undergraduate instruction; thus, 
about 23% of the average faculty members' total work time is spent 
on undergraduate instruction.  Combining this 23% with the figure 
$883 Million leads to the annual expenditure: Direct Cost of
Undergraduate Instruction (DCUI) =  $203 Million.  To get the
Complete Cost we must add appropriate indirect costs contained in 
the expenditures under Group 2 (supporting programs) shown in 
Table 2.

     First, consider the administrative overhead.  The full amount
of Institutional Support covers administrative services for all
university activity, which comes to  $5.4 Billion if we exclude the
hospitals.  The DCUI (at $203 Million) amounts to only 3.8% of this 
total activity of the University and so I'll  charge only 3.8% of 
the expenditure for Institutional Support ($385 Million) as overhead
for undergraduate instruction: $15 Million.  

     Second, consider Operation & Maintenance of Plant.  Taking 3.8%
of this would not be fair, since undergraduate students are so 
numerous on campus, albeit packed into classrooms while faculty and
staff have their own offices and laboratories. Examining the several
components of this expenditure - building repair and cleaning, 
grounds upkeep, utilities, etc. - and estimating a fair portion of 
each to charge for undergraduates' usage, I arrive at an overhead 
cost of $55 Million.

     Finally, consider Academic Support.  General libraries 
constitute a major portion of this category, at $139 Million, with 
another $50 Million for other instructional facilities that 
undergraduates use.  I will charge 50% of this cost to undergraduate
instruction, based largely upon available data on library usage:
$95 Million.

     This gives us a total of $165 Million indirect cost to be added
to the $203 Million direct cost, for a Total Cost of Undergraduate 
Instruction = $368 Million.  The number of (full time equivalent) 
undergraduate students at UC is 114,386; and thus the current actual
cost of undergraduate instruction at UC = $3,220.  per student per 
year.  This would be the appropriate charge for full payment of 

     We need to consider, in addition to this tuition, fees charged 
for Student Services (in Group 3 of Table 2.)  Before the current 
budget crisis, UC charged students for the total cost of enrollment
services and for a variety of other services which are complementary
to, but not a part of, the instructional program. The average of 
those fees charged in 1990-91 was $1,820  and I take this as the 
current true cost of Student Services.

     Thus, I arrive at a fairly calculated total annual cost for 
undergraduate students at UC, tuition plus fees, equal to $5,040. 
This is less than half of the $12,168 figure given by UC and CPEC. 
Present fees (at $3727 for 1993-94) are already 74% of this total 
cost, far exceeding the 40% ceiling proposed by CPEC.  Furthermore, 
the plan laid out by the UC administration for future increases in 
student fees (see Table 1) shows them exceeding 100% of this total
cost by the year 1995 !