LOOKING INTO THE UC BUDGET  -- Report #9     (e-mail version)

by Charles Schwartz, Department of Physics, University of California
Berkeley, CA 94720.        510-642-4427         March 7, 1994


     LONG-TERM PLANNING is now the focus of UC's effort to deal with
its continuing economic difficulties.  After a year of study, trying
to get beyond the stop-gap budget measures, the President's Office 
has brought forward a number of reports and discussion papers for 
the Board of Regents and the rest of us to consider.  

     In this Report I offer a critique of those efforts, 
highlighting the necessity of an accurate way of viewing the 
University and thinking about its future financing.  A new paradigm 
has emerged, based upon distinguishing the three principal academic 
operations of the university - Undergraduate Education; Research and
Graduate Education; the "Privatized" Professional Schools (medicine,
law, business) - and identifying the distinct funding mechanisms 
that have been chosen for each of them.

     UC's present plans for increasing reliance on student fees 
leads to some major contradictions.  The future of research and 
graduate education seems to be most at risk.  Within this analysis I
provide some new numerical data on UC's present finances and I offer
some more radical suggestions for restructuring the university.

     An index of previous Reports in this series is appended.


     At their January 20, 1994, meeting the Board of Regents heard a
first discussion of long-term planning, stimulated by the 
university's continuing fiscal problems.

     William B.Baker, UC's Vice President - University and External 
Relations, presented a 10-page report titled, "Options for Financing
Higher Education."  After a year of extensive and intensive 
consultations across the state, he concluded that the outlook for
state funding will continue to be gloomy, if not worse; and he
recommended that the University must do all of the following: 
"manage creatively and responsibly in an era of scarcity", "keep 
issues visible", "improve public perceptions", and "remain alert to 
opportunities."  If that seems lacking in substance, here is the 
closing section of Baker's report in its entirety:

  "As a matter of personal observation it is my expectation that 
  ultimately we will have to find compromise and equilibrium.
  Compromise with all of the competing demands for resources within 
  the State of California.
  And equilibrium as we seek a balance among four variables.  
  The variables are:
     1. Efficiency of management and delivery of the educational 
     2. Level of state funding
     3. Level of student fees
     4. The number of eligible students to be accommodated.
  It is the compromise and finding of equilibrium that will lead to
  a long term solution."

     Walter E. Massey, UC's Provost and Senior Vice President - 
Academic Affairs came next, with a 16-page report.  He mentioned the
ongoing efforts on each campus to review academic programs with a 
view toward consolidation and elimination, citing a number of 
examples; but he gave no indication of how much saving this effort
has achieved or may anticipate.  He discussed some moves to expand 
cooperation with the CSU system; and he described a new Academic 
Planning Council, composed of select UC administrators and faculty, 
which he will chair.  The chief accomplishment Massey had to report 
was the following: 

  "[W]e held a retreat on long-term planning at the end of September.
  It included some 60 representatives of the leadership of the 
  University. ... The purpose of the retreat was to reach an 
  understanding of the fundamental principles and parameters that 
  should guide us in our long-range planning efforts. ... A number 
  of concrete suggestions about improving the efficiency of the 
  delivery of education came forward from the retreat."

Massey held a second planning retreat with the Chancellors on 
January 7-8, at which a list of 13 efficiencies, suggested at the 
first retreat, was reviewed and these three recommendations were 
given high priority:

  "--first, expand the use of Summer Session, University Extension, 
  and Community College courses as regular parts of the University's
  academic programs,
  --second, accelerate the development of systems that will enable 
  campuses to deliver courses cooperatively, and eliminate barriers 
  to intercampus enrollment procedures,
  --third, ask faculty to consider seriously returning the entire 
  University to the semester system."

     A 22-page document that presents "an organized summary of the 
main ideas and suggestions that emerged" from the September 29-30 
retreat on Long-Term Planning for the University has been 
distributed with a cover letter from Provost Massey inviting wide 
discussion and feedback.  I find this document difficult to 
summarize since it contains so much generalized philosophy and so 
little in the way of concrete analysis or substantial proposals.  
The central challenge which they identify as, "Forging a New Unity 
among Teaching, Research, and Service," appears to be mostly a 
public relations campaign. The report does acknowledge a few key 
issues of nationwide importance for universities: the decline of 
federal funding for research and graduate education after the end of
the Cold War; the persistent call, from voices outside the 
university, for faculty to spend more time teaching undergraduates 
and less on research; the great difficulty in bringing about any 
significant changes in the structures and habits of the university. 
However, the responses to these challenges, as seen in this report, 
appear more in the mode of denial or avoidance rather than 
constructive engagement.

     A 15-page "discussion document" from the Office of the 
President titled, "Long-Term Options for Access and Admissions," was
presented at the Regents February 17 meeting.  This laid out the 
prediction of strong growth in student population, contrasted with 
the expected failure of State funding for UC to meet that growth.  
Most options involved pushing undergraduate students away, using a 
variety of strategems; the possibilites of cutting back graduate 
education, for both professional and PhD programs, were also listed.


     The February Regents meeting had scheduled a morning-long 
discussion of long-range planning for the University, and I was 
allowed five minutes to address the Board:

     "I have read the documents that were presented from the 
President's Office both at the January meeting and at this meeting 
on the long-range planning question.  I found them to be somewhere 
between flabby and pathetic.  I found in them no new ideas, and 
nothing that challenges the faculty or the administration of this 
university.  I found nothing that was quantified.  There was no 
assessment as to which proposals might provide substantial savings 
in funds, which might be negligible and which might be irrelevant. 
My own very rough guess is that most of the proposals there are 
pretty much irrelevant to the serious financial problems which you 
     "I did ask President Peltason to include me in your scheduled 
program so that I could, in more detail, both critically and 
constructively, talk about what I found in these reports that I 
think are worth criticizing or [pulling] apart,  as well as 
presenting to you a different, an alternative constructive set of 
analyses and proposals.  I was told, No, I could just have these few
minutes here.
     "So I did prepare this one sheet, which I have passed out, 
which represents some of my present thinking, thinking that I hope 
to expand on before [long]; and it helps to understand why, why it 
looks so lousy.  Why the kinds of analyses and proposals coming from
the faculty and the administration are so poor.
     "I mean, one could say, and there may be some truth to it, that
this is the work of a set of people who are protecting what they are
used to doing.  The administration is not particularly interested in
seeing the administration torn down, torn apart, reduced, made 
smaller.  And faculty, one understands, are not particularly 
interested in restructuring the way they are used to working.  Now, 
everyone else in the world knows that faculty teaching load is an 
issue that must be addressed, here and nationwide, to meet the 
challenges that the chairman, Regent Williams, just spoke about.   
Everyone knows that, and yet in those reports those issues are
mentioned only in the context of - - This must not happen, is the 
     "Who is to lead the discussion [of] those changes is a central
question.  I think one of the greatest problems this university 
faces is a lack of decent leadership.  It is a leadership that is 
stuck in the past, that has very little respect, both throughout the
campuses and throughout the State.  Where is the leadership with 
both the ability and the credibility to raise the issues that need 
to be raised?
     "Well, what I have in this sheet of paper is an attempt to step
back a bit and give another explanation for why there is not much 
creativity being seen.  And this wonderful concept of an old and a 
new paradigm, I think, is what's going on. ..."    
[See the following.]

                   The University Depicted
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
*   _ _ _ _ _ _ _ _ _ _ _                                       *
*  |                     |        "PRIVATIZED" PROFESSIONAL     *
*  |     RESEARCH        |      SCHOOLS(medicine,law,business)  *
*  |                     |                                      *
*  |   (PhD programs)    |                                      *
*  |_ _ _ _ _ _ _ _ _ _ _|             PUBLIC SERVICE, etc.     *
*                                                               *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

The University conducts teaching, research and public service.  The
Regents present the State with a budget to pay for all of this as an
integrated whole, that is, to pay for faculty salaries and the
supporting infrastructure.

     THE NEW PARADIGM - shaped in response to a big decrease in
     State funding:
The picture above shows more accurately what the University does.

Undergraduate students (and their families) pay for an increasing
portion of the cost of their education.  Under current plans this
will reach 100% in 1-2 years!

Graduate students in the selected professional schools pay special
fees which will approach those in the leading private universities.
Also, the huge amount of income from medical practice (in the 
University's hospitals and clinics) defines a business enterprise
that is essentially private.

Who, then, will pay for the primary activity of the rest of the
University's faculty - research and graduate education - as State
funding continues to decline?

     Charles Schwartz, at the UC Regents meeting, February 17, 1994


     The canonical description of the University of California - 
having a 3-part mission of teaching, research and public service - 
conceals more than it explains.  The picture presented above gives a
more informed description, and this is essential to intelligent 
discussion about the real problems of long-term financing for UC.  
The main question we must get to is this: Who will pay the bills for
the University?

     In this picture, the "teaching" mission is broken down into 
three distinct segments: undergraduate education; graduate education
(mainly PhD programs); and professional training (graduate study in 
medicine, law, business, and some other health sciences.)  There is
nothing new or controversial about this depiction; faculty members 
know this arrangement in their bones.  For political reasons, 
however, the UC administration often prefers to obscure these basic 
facts by rolling all these components together. This breakdown is 
necessary for any realistic discussion of finances, all the more so
because UC has already decided that student fees are destined to be 
a major component of the University's revenue.  

     At their last meeting, the Regents decided to start charging 
extra high fees for students in the selected professional schools; 
thus these programs need to be separated out, as done in the picture.
Furthermore, as I outlined in my Report #8, one really ought to 
separate graduate (PhD) from undergraduate programs of instruction 
in order to be truthful about what takes place in a research 
university like UC.  Graduate Education is intimately bound up with
the Research operation within the University, and this fact is 
emphasized by the extra box I have drawn surrounding these two 
elements in the picture above.  I shall refer to this grouping as 
the Graduate-Research operation of the University

     Let me elaborate this Graduate-Research coupling, for the 
benefit of those readers who may not be familiar with it. Faculty 
members are hired and promoted primarily for their research 
accomplishments and promise.  Graduate students (in the PhD programs)
work as apprentices to the faculty in learning to become effective 
researchers themselves; and faculty often rely upon their graduate 
students to help carry out their (the faculty members') research 
projects.  Competition in the recruitment of the best graduate 
students (nationwide and worldwide) is heavily influenced by the 
reputation of the faculty, and vice-versa.  When research 
universities are ranked, field-by field or overall, it is their 
reputation in research and the attached graduate programs that the 
evaluators have in mind. Thus, you will understand that when the 
word "quality" is used - as in the frequent official pronouncement 
that maintaining "quality" is UC's top priority throughout this 
budget crisis  - this refers to the quality of the Graduate-Research 
operation.  And when university leaders speak, as they so often 
do, about the interconnection and the mutual reinforcement between 
teaching and research, you should understand that this really 
applies to the Graduate-Research enterprise;  for undergraduate 
education, the coupling with faculty research is really quite weak.

     With that understood, we now ask: What is the new paradigm?  It
says nothing new about this operational structure of the university;
but it is about how these distinct operations are to be financed. 
And this new paradigm is not something that I propose to advocate 
for or against; it is a description of the new funding arrangements 
as the UC administration and the Regents, responding to the State's
budget crisis,  have already started to remake them.  My purpose 
here is: first, to point out some major contradictions presented by 
this new paradigm; and second, to offer some suggestions on how to 
proceed more coherently. 


     First, in evaluating the lists of money-saving proposals in the
reports which the President's Office has presented to the Regents, 
one should ask not only, How much money will each one save?, but 
also the question, Whose money will that save?

     Making more efficient use of campus facilities - classes at 
night, on weekends, in summer - can save on funds for new classroom 
construction; but it saves nothing in pay for teachers and the 
supporting infrastructure.  

     Taking in fewer undergraduate students - by sending some to 
other colleges or otherwise restricting admissions - has a variety 
of financial implications.  It may save the State some money, but 
only if the State is paying for undergraduate education at UC.  It 
may save students some money, if they can get the (quality) 
education elsewhere at a lower cost.  Is it advantageous to UC?  If 
the University comes to rely on high undergraduate fees for a major 
portion of its operating budget (becoming like the elite private 
universities), then sending students away is economic suicide.

     There are two major contradictions which I see in this new 
paradigm.  The first concerns the Privatized Professional Schools, 
dominated by the medical schools and their hospitals and clinics.  
These are now set on the course of becoming in effect independent,
self-supporting private businesses.  Rapidly rising student fees, 
which they will keep for themselves, are only a part of the story. 
The main topic these days before the Regents Committee on Hospital 
Governance is how UC's five medical schools and hospitals are 
aggressively marketing themselves to compete successfully in 
California's health care marketplace.  But in fact they are not 
self-supporting at all: these professional schools receive a huge 
subsidy from the University's General Funds (see the numbers in the 
next section.)   Much of what is happening in the University these 
days fits the cliche, "the rich get richer and ..."

     The second major contradiction concerns undergraduate student 
fees.  I make the point of calling them "undergraduate" fees because,
in reality, most graduate students in the PhD programs do not pay 
fees (i.e., their fees are covered by various institutional means,
without which the graduate program as we know it could not exist.)  
In my Report #8 I calculated that within 2 years, as UC plans now 
stand, undergraduates will be charged for 100% of the actual cost of
their education.  What happens after that?  Will undergraduates be 
forced to subsidize the Graduate-Research operation of the
University?  Is that desireable? Is that feasible? Is that right?  
Who then will pay, not only for graduate study but also for that 
half of faculty members' salary that covers their research work, if 
State funding for the University continues to decline?  I can not 
think of any question that should be of greater concern to the 
faculty and administration leaders who took part in the long-term 
planning retreat described by the President's men; but their reports
do not discuss this issue.

                       SOME NEW NUMBERS

     The source of data I use is the UC accounting document, "Campus 
Financial Schedules 1992-93."  The objective is to group the actual
expenses for the last fiscal year according to the University's 
principal operations:  Undergraduate Education; Privatized 
Professional Schools; Research and (academic) Graduate Education; 
Public Service, etc.  I shall just indicate the method and then give
the results, leaving out the numerical details in between.

     First I sum the expenditures for five accounting categories 
which represent "direct costs" of operation - Instruction, Research, 
Public Service, Academic Support, and Teaching Hospitals - for 
Undergraduate Instruction (as I did in Report #8) and for the 
Privatized Professional Schools (Medicine, Dentistry, Veterinary 
Medicine, Law and Business/Management, adding in the Teaching 
Hospitals and Neuropsychiatric clinics.)  The remainder is then 
assigned to Research and Graduate Instruction and to Other Public 
Service.  Then, expenditures for Institutional Support and for 
Operation and Maintenance of Plant, the "indirect costs", are 
apportioned to each of these four operations. These results, along 
with the remaining accounting categories are grouped as shown in 
Table 1, with further discussion to follow.

Table 1.UC Current Funds Expenditures 1992-93:Breakdown by Operation

OPERATION                           $ MILLIONS
Undergraduate Instruction                368
Privatized Professional Schools        3,475
Research and Graduate Instruction      1,940
Other Public Service                     124
Various Other Services                 1,124
DOE Laboratories                       2,475

           Total                       9,506

     This Table gives us a view of the University of California as a
corporate conglomerate, showing the financial weight associated with
each of its distinctive operations.  Next, we shall look at further 
details, particularly the different sources of funds for each 

Undergraduate Instruction ($368 Million) used to be entirely paid for
by the State; but since 1990 an increasing burden of this cost has 
been passed to students in the form of increases in the Educational 
Fee.  Divided by the number of undergraduates, this expenditure 
comes to $3220 each.  Adding to this the cost of Student Services 
(taken as the student fee level in 1990-91) leads to a total cost of
undergraduate education of $5040 per-student per-year.  The Regents 
have approved a fee level of $4347 for 1994-95, which means that 
next year undergraduate students will be charged 86% of the total 
cost of their education.  The year after that, according to the UC 
administration's plans, undergraduate fees will reach 100% of this 
total cost.

Privatized Professional Schools ($3.475 Billion) got $737 Million of
this total in "General "Funds (mostly State appropriation to UC), 
$2,111 Million in "Designated" Funds (mostly revenues from patient 
care in the hospitals and clinical practice by the medical school 
faculty), and $627 Million in "Restricted" Funds (mostly Federal and
other outside research contracts and grants.)  The Regents' plan is 
to raise student fees in these schools at an accelerated pace so 
that they will soon reach the level of  the country's best private 
schools of medicine, law and business.  This additional revenue will
be kept within these professional schools, not shared with the rest 
of UC.

Research and Graduate Instruction ($1.940 Billion) is funded as 
follows: $1,045 Million in General Funds, $216 Million in Designated
Funds (some of this is student fee income, replacing former State 
funding), and $679 Million in Restricted Funds (mostly extramurally 
sponsored research.)

Other Public Service ($124 Million)  Cooperative Extension, serving 
California's agricultural industry, is the largest component of this

Various Other Services ($1.124 Billion) is mostly made up of 
activities paid for by the individual users: Summer Session and 
University Extension classes ($164 Million); Student Services ($225 
Million) for admission, enrollment, advising, placement, health care,
cultural activities, etc., formerly the exclusive purpose of student
fees; Auxiliary Enterprises ($412 Million) for housing, dining, 
parking, etc.  Also included here is  Student Financial Aid ($322 
Million), the disbursement of funds from Federal and State agencies 
and now increasingly from UC's own student fee revenue.

DOE Laboratories ($2.475 Billion) at Berkeley, Livermore and Los 
Alamos. This is all federal money restricted to use at the 


     To show that long-term planning could look different, I shall 
put forward a few ideas, some derived from my own research on UC's 
finances and some already well known but requiring a fresh approach.

#1. Eliminate the Executive Program and reconstruct administrative 
salary scales from the bottom up.  This will not save a huge amount 
of money (maybe $10 Million) but it will help restore academic 
values to policymaking and it will do much to rebuild morale and 
public confidence in UC.

#2. Cut the Administrative Bureaucracy.  In my earlier studies 
(Reports #2, 2a, 2b) I estimated that $200-300 Million per year is 
being wasted on an overgrown administrative bureaucracy throughout
UC.  The President's Office responded by claiming that large cuts in
administration had already been made, but those claims have been 
shown to be false (see my Reports #5a, 7, 7a.)

#3.  Recast the financial relations with UC's Professional Schools. 
The Regents have decided to privatize the lucrative professional 
schools of medicine, law, and business by charging their students 
special fees that are intended to reach the same level as those of 
the nation's elite private institutions.  I have previously proposed
that the medical schools and hospitals should share their enormous 
income with the rest of the university, but the President's Office 
has rejected that idea: "They earn the money and they keep it."  
Therefore, I propose that the rest of the University should stop 
subsidizing those private enterprises.  From the data given above,
we see that in the last fiscal year the University spent a total of 
$737 Million in General Funds for these schools. That is an awful 
lot of money, which could be redirected to support the rest of 
UC's educational program, making up for most of the loss in state 

#4. Sit down with all the faculty and discuss the question of the 
balance in their workload between undergraduate teaching and the 
Graduate-Research enterprise.  There are several dimensions to this 
key issue and there are many ways in which new arrangements may be 
fashioned.  This dialogue must not be limited to UC, but needs to 
involve the whole community of research universities.  This is 
really a question of basic national policy: How large should the 
nation's academic research and PhD producing enterprise be, and how 
will it be financed?

#5.  Consider some major restructuring of University governance.  
Some ideas: divest UC of the nuclear weapons laboratories so that 
administrators and Regents can focus more properly on academic 
issues; divest UC of the medical schools and hospitals as a separate
business enterprise, for similar reasons; open up to public view the
deliberations of the top administrative policy and planning bodies, 
such as the Council of Chancellors; and consider ways to make the 
Board of Regents representative of and accountable to the people of 

     The question of leadership is paramount in any long range 
planning.  Higher education throughout this country, especially the 
research university, is at a historical turning point; but there are
no leaders, no thinkers and no critics of stature. Apparatchiks rule.
At the University of California things are even worse, because an 
endless stream of scandalous behavior has made the top level of UC 
administration an object of disgust both on the campuses and across 
the state.  Something akin to a revolution is called for, but who 
might bring that about?  The Board of Regents has all the legal 
power but they are of the corporate mentality that has spawned the 
corruption we suffer under.  The leadership of the Academic Senate 
is largely coopted by the administration and is useless.  The 
faculty, as a mass, is very unhappy and has potentially great power,
but I see no evidence of coherent movement there.  Students, it 
appears, have been reduced to hapless consumers. 

     The list of suggestions given above is meant as a stimulus for 
much wider analysis and discussion than has been seen heretofore.  
It is important to realize the motivational interconnections among 
these several proposals: getting faculty to face the research/
teaching balance will require rebuilding their confidence in the 
leadership and in the public;  rebuilding public support will 
require greater honesty, openness and initiative from both 
administration and faculty; restoring some of the imbalance in 
funding between the medical schools and the rest of the campuses 
will help provide a sense of equity in the other rearrangements that
are called for.  

     This is not just a financial problem, it is a huge political 
challenge facing the university.  A new "social compact" is indeed 
called for.  What are the political tools and resources that a 
university has at its disposal?  Clear thinking, honest speaking, 
true listening and a dedication to the interest of others - in sum, 
the noble art of teaching. 


        Previous Issues of  "Looking Into the UC Budget"

A limited number of printed copies are available.  
Also available via e-mail; send request to:  

Report #1  (12/10/92, 2pp) Notes large growth in the office of UC 
           General Counsel.
Report #2  (1/4/93, 8pp) Studies growth in UC administration over 
           25 years, estimates bureaucratic excess.
Report #2a (1/19/93, 6pp) UC's first response to #2;further analysis.
Report #2b (2/28/93, 10pp) UC's 2nd response to #2;further analysis.
Report #3  (2/7/93, 16pp) Same as #2, detailed for each UC campus.
Report #4  (2/28/93, 6pp) Identifies several large financial 
           resources, falsely called "restricted" funds by the 
           administration, as possibilities for budget relief.
Report #5  (3/22/93, 13pp) Alternative budget proposal for 1993-94, 
           avoids the need for pay cut and fee increase proposed by 
           UC administration.
Report #5a (4/12/93, 10pp) UC's response to #5; further analysis.
Report #5b (6/1/93, 8pp) Financial data on medical schools, 
           previously hidden by UC.
Report #6  (10/1/93, 8pp) Alternative budget proposal for 1994-95.
Report #6a (11/5/93, 6pp) UC's response to #6; further analysis.
Report #7  (11/28/93, 6pp) Disproves UC claim of large cuts in 
Report #7a (1/26/94, 6pp) UC's response to #7; further analysis.
Report #8  (12/20/93, 8pp) Considers impacts of growing student fees:
           adequacy of financial aid questioned; cost of 
           undergraduate instruction calculated.
Report #8a (2/28/94, 4pp) UC's response to #8; further analysis.