What’s the point of UC anyway?
What is the University of California worth to the state of California?
This week’s Faculty Seminar approached that question from various angles, including the value of UC research, the impact of UC graduates on the state economy and the non-fiscal contributions of UC such as increasing the overall education level of the state.
Those who presented in seminar agreed that measuring the exact benefit of UC on the state is tricky, because many benefits are non-monetary and others are indirect. For example, if Stanford graduates started Google, does that mean Stanford gets credit for Google?
The first person to speak in seminar was Assistant Professor of Law at Boalt Hall School of Law Amy Kapczynski, who spoke about determining the fiscal impact of research at the University on the state. Read her materials for the presentation here and here.
Kapczynski said the current method of determining the value and fiscal impact of research at the university is based on the number of patents and amount of licensing revenue it generates. She said that method does not take into account the many avenues through research can contribute to the economy or its non-fiscal benefits.
One example Kapczynski gave of an aspect of the influence of research that is not taken into account by the current method of measurement is how research can create an entire new field of work. She said data from a few years ago suggests that 160 companies have been founded out of research at UC Berkeley, which is evidence of research leading to economic productivity.
In addition to unmeasured economic impact, research by members of the university leads to the training of new researchers and the creation of a network of individuals who can problem solve together.
Kapczynski suggested the following alternative methodologies to more accurately measure the economic as well as non-fiscal impacts of university research:
- Econometric studies that show the benefits of publicly funded research on economic growth.
- Survey literature, in which people such as business leaders would be asked if they have used a certain type of publicly funded research and how that research has been benefitial to their companies or their work.
- Case studies, which show the effects of particular projects on the state of California. This sort of measurement would work better for scientific projects than humanities project.
George Goldman, Professor Emeritus of Agricultural & Resource Economics, suggested that the worth of non-scientific projects that originated in UC, such as the no-fault divorce law, could be measured by surveys that ask people how much they would pay for the benefits of those creations; for example, how much someone would pay to go through a no-fault divorce procedure versus another divorce procedure.
Goldman was the next presenter. He spoke about the fiscal contributions of UC graduates on the state, whether through taxes or other means.
Goldman said that the impact on the state of cutting funds to UC is not immediate.
“Suppose the UC gets cut $2 billion. Will anyone notice in the state?”
The answer, he says, is no.
Goldman elaborated on the complication of quantitative measurement with the example of the economic impact of agriculture in the state, which is only around 9 percent GDP. He said that that measurement doesn’t take into account the economic impact of people who use agricultural resources.
Members of the seminar were surprised by the lack of numbers in Goldman’s presentation. Goldman responded that what sticks with people is not numbers but anecdotes.
He reflected upon his work with lobbyists, mentioning that a liberal lobbyist once told him that the most useful thing he ever told the lobbyist was that if you give rich people tax breaks, they spend the money they save out of state.
Goldman went on to talk about how uninfluential reporting an entity’s fiscal impact may be in protecting that entity. An example he gave was that people opposed to gay marriage aren’t going to change their minds if someone suggests to them that, if gay marriage is legalized in California, gay people will come from other parts of the country, spend money and stimulate the economy.
“People don’t change their minds based on economic impacts,” Goldman concluded.
Publicizing the fiscal impact of UC may also be futile.
“The good news is maybe we don’t need to know,” Goldman said. “Maybe we just need to say this is the state of California, this is the University of California, and the state needs this institution.”
Henry Brady, Dean of the Goldman School of Public Policy, spoke on the same topic as Goldman, relying more heavily on numbers. Brady did a cost benefit analysis of the state’s investment in UC and discussed alternatives to fully funding UC and their potential impact. See the materials for his presentation here.
One alternative is to abolish the UC system, which could lead to various behavioral responses by California citizens. Perhaps some go and get their education at non-UC institutions. The money that would have gone to UC could go toward Cal Grants in order to fund students’ education at non-UC institutions.
The state is currently funding a fixed-capacity model of the UC, meaning the state is not taking into account enrollment increases. Brady said the benefits for cutting money for education will occur now but the costs will occur later.
“Fixed capacity will loose the state money in the long run,” Brady explained. “Its penny wise, pound foolish.”
Brady said some non-fiscal benefits of education include increased tolerance political participation among people who are educated than those who don’t receive an education.
From an economic perspective, investing in education reduces incarceration rates and demand for social services, as well as increases earnings of potential graduates and the amount of time they spend in the labor force. These four factors lead to increased tax revenues for the state and increased lifetime earnings for Californians.
“Going to college makes the state money,” Brady said.
Associate Professor at Haas School of Business Christine Rosen spoke last. She said the act of trying to quantify UC’s value to the state goes hand in hand with privatization.
“UC is sort of buying into the wrong mindset.”
Rosen explained that the idealized image of markets as vehicles that they take self-interest and turn it into public interest is complicated by the fact that imperfections in people translate into imperfections in the market.
Rather than focus on the monetary benefits of UC for the state, Rosen suggests finding out how to tell the stories of students who have benefited from a UC education.
UC Berkeley School of Education Professor Alan Schoenfeld closed the seminar by remarking that the mantra, “We want a world that’s better for our kids than we had” no longer rings true among Californians and has been replaced by a “They can pay for my sins” mentality.
“I think that’s a big moral and social problem,” he said.
[Originally, Schoenfeld was going to present this paper by UCSF Professor of Medicine Stanton A. Glantz.]
Hell-raisers, Standpatters, Peacekeepers and the Meister Controversy
People involved the University of California budget crisis controversies fall into three categories: the Hell-raiser who disagrees with seemingly all of the university’s financial decisions, the standpatter who defends those decisions like they’re his lifeline, and the peacekeeper trying to reconcile apparent opposites, which usually results in even more Hell-raising and fervent standpatting than before.
Okay, that’s oversimplifying things a bit—there’s a lot more nuance to these people than I’m admitting here. People change roles. The standpatter archetype best fits the stereotypical reactionary administrator, but some administrators dip their toes into peacekeeper or even Hell-raiser territory when they point out areas of improvement for UC. Likewise, the Hell-raiser sometimes finds common ground with the standpatter and emerges as a peacekeeper.
Still, there’s a grain of truth in these archetypes and they loosely fit people debating the crisis. Let’s apply them to this week’s episode of the Faculty Seminar on UC’s Financial Future*: the Meister Controversy. But first, some background information:
What is the Meister Controversy?
In October, UC Santa Cruz Professor Bob Meister wrote an open letter to students titled, “They Pledged Your Tuition,”** which stated that student fee hikes increase the university’s capacity to sell bonds, drawing an association between the university’s debt capacity and the debt taken on by students and their families.
“UC recently sold more than $1.6B in highly rated bonds one month after declaring an ‘extreme financial emergency,’ ” Meister wrote, adding, “[Student] tuition is UC’s #1 source of revenue to pay back bonds, ahead of new earnings from bond-funded projects, which do not even come second … Because UC pledges 100 percent of tuition to maintain its bond rating, it has also implicitly assured bond financiers that it will raise your tuition so it can borrow more.”
Meister’s assertion that student fees are pledged as collateral for bonds inspired students, faculty and others to question whether the UC ever actually used student fees to service bond debt. UC Berkeley Professor Emeritus Charles Schwartz (physics) summarizes this response in the write-up that accompanied his presentation Tuesday:
Student Fee revenues are put at risk, through the General Revenue Bonds program, to support construction projects throughout the University of California (UC); and top UC officials appear stubbornly negligent regarding their oversight responsibilities. When we asked whether students’ Educational Fees have ever been spent to pay for campus construction projects the official answer came in two contradictory parts:
a) To the best of our knowledge, there has never been such an occasion.
b) The University does not record the data needed to answer that question.
An overview of the meeting
The seminar was moderated by UC Berkeley Associate Vice Chancellor for Budget Erin Gore and started off with tame (but informative) presentations by Schwartz and UC Berkeley professors Stanley Klein (optometry) and Bob Jacobsen (physics).
UC Chief Financial Officer Peter Taylor was the last scheduled speaker and focused on claims that the UC may use student fees to service bond debt, which he attributed to UCSC Professor of Political Science Bob Meister’s paper. After he spoke, Meister was given an opportunity to respond.
“The Meister Controversy is about a controversy I didn’t actually raise because there is no data,” Meister said, explaining that the focus of his paper was on the relationship between the debt capacity of the UC and debt expectations for students and families, not on whether student fees might be used to finance construction.
Yes, those last two portions of the meeting were just as intriguing they sound.
Here I will summarize each presentation separately, in the order it was given. I advise you to read the summaries of Taylor’s and Meister’s presentations together because those speakers responded to each other.
The Peacekeepers
UC Berkeley Professor Emeritus Charles Schwartz (physics)
Schwartz’s presentation focused on the Meister Controversy and served as an introduction for the presentations that followed. (See his write-up, which contains all the information he shared.) He and Klein presented proposals for how the university manages financing for construction projects. (Professor Alan Schoenfeld (education) co-authored the proposal. Klein wrote the amendment to proposal 2 at the bottom of the page.)
Read the proposals here:
Seeing Schwartz in the position of peacekeeper is surprising for anyone familiar with his reputation for (very loudly) blowing the whistle on non-transparent UC practices. Taylor, who said he agreed with parts of the professors’ proposal, observed this change of tone and remarked to Schwartz, “Either I’m getting old or you’re getting more mellow.” I doubt Schwartz is going be pigeonholed as a peacekeeper, though.
UC Berkeley Professor Stanley Klein (optometry)
Klein presented on the dilemma of trying to balance transparency with fungibility, or the ability to transfer funding between different expenses. (See his power point presentation here.)
Klein asserted that fungibility and transparency are not mutually exclusive. (This is completely the opposite of what Schwartz said during the Transparency 101 presentation in seminar a few weeks ago.)
According to Klein, fungibility can be a good thing because having fewer funds that apply to more purposes saves money by necessitating fewer administrators to oversee funding allocation than would be needed if university finances were split up into a greater number of funds.
He added, however, that fungibility can lead to confusion. For example, pledged external sources, or collateral for debt, are not the same as repayment sources for debt.
“When there’s confusion there are problems,” he said.
Klein presented the proposals he, Schwartz and Shoenfeld came up with as a way of finding equilibrium between transparency and fungibility and thus get faculty and administrators “on the same page.”
“There might be ways that we can have our cake and eat it too,” he said.
In addition to the two proposals, Klein suggested an amendment that included tapping into endowments to fund some construction projects and taxing high-salaried employees.
UC Berkeley Professor Bob Jacobsen (physics)
Jacobsen found information about the entire life cycles of nine construction projects at UC Berkeley. He presented on how renovations of Barrows and Stanley hall were funded and executed. (See his power point presentation here.)
In his presentation, Jacobsen emphasized the high degree of detail in the UC’s documents related to construction.
“They don’t stint on this stuff,” he said, explaining that whenever the regents use state money, they say exactly where it is coming from and who has pledged it.***
Jacobsen explained different types of funds that go toward construction (further explanation in his power point):
- University Opportunity Fund—an agreement with the state that dictates how federal reimbursement funds for construction must be allocated.
- Research Overhead—reimbursement money from the state for research conducted in a building and as a result of its construction can go toward funding that construction project
- Funds that function somewhat like endowments—i.e. they are invested the way endowments are but the principal part of the fund (the non-interest part) can be spent by the university.
The Standpatter and the Hell-raiser
UC Chief Financial Officer Peter Taylor
See Taylor’s power point presentation here for data about bonds and construction and other interesting points of information.
Taylor has been CFO of UC for about 11 months now. The UCLA alumnus said he spent 17 years as an investment banker before coming to UC.
Taylor complained about people taking “pot shots” at the UC without giving administrators a chance to respond, but added that Schwartz is diligent about trying to get the facts right.
Then he dug into Meister.
“Let me be crystal clear for probably the 800th time,” Taylor said. “We do not use student tuition to pay for construction debt service.”
Taylor said student fee hikes and increases in bond debt are not interdependent, later adding that Meister never used any evidence to prove student fees are used to pay for construction.
“Why is this paper posted on the web giving students and parents wrong information?” he asked.
Taylor explained that student payments go toward debt accrued by auxiliary enterprises such as housing and parking, but clarified that those payments are not student fees. I think he was referring to students paying to live in the dorms, etc.
The CFO went on to defend the university’s construction projects in response to claims that money spent on them could be allocated elsewhere. He said that if capital projects aren’t built, the university won’t gain revenue from them.
“It is inaccurate to say that 80 percent of those revenues [from building projects] are going to show up without building those projects,” he said.
I’ll have to ask for some clarification about the building revenue arguments. I think he was responding to claims that money spent on buildings could go elsewhere by explaining that the money that would, theoretically, go elsewhere is actually the revenue from the projects once they are fully built and in use.
Taylor ended his presentation by addressing transparency issues. He said Schwartz, Klein and Schoenfeld’s proposal for “regular, detailed reporting regarding debt service coverage” (quoted from the proposal) was satisfied by an item passed by the UC Regents about a year ago. According to Taylor, the item**** will be implemented by no later than the July UC Regents meeting.
“Going forward [the capital projects approval process] will be clearer and easier to understand,” he said. “Through additional transparency people will feel a little more comfortable and at ease.”
UCSC Professor Bob Meister
Meister’s main beef was that a controversy was being attributed to him that he claims he didn’t start.
“I never said that there was data showing how construction funds were actually serviced,” he said. “My interest is in the relationship between UC’s debt capacity, which is necessary in order to privatize the way it wants to, and individual student and family debt capacity in society.”
Meister called this relationship the “kernel of privatization”:
“UC’s financial plan for growth is a reflection … of what is wrong with that model of financing education.”
Meister spoke extensively about the Bond Indenture authorized by the UC Regents in July 2003 that went into effect in 2004. In his paper, he writes:
By pledging “General Revenues” as security for each UC revenue bond, the Regents are pledging everything that they can, including tution. This means that when any source of General Revenue goes up—including tuition and fees—UC’s ability to borrow on private capital markeys goes up, and its dependency on state capital funding goes down. After 2004, any revenues produced by a bond-funded contract would be added to General Revenue (unless this were limited by that contract); but any such projects could also be subsidized by each other, or by revenues from sources such as tuition, student activities, grant “overhead,” endowment, etc.
“Students get it. Students get that that was the point of my article and that’s what I would like the Meister Controversy to be about,” he said Tuesday.
Meister also addressed transparency issues.
“We don’t know how student fees are being used,” he said. “They are not tracked and we don’t know how debt service is being paid.”
Complicating UC’s assertions that it will not use student fees to service bond debt, he says, is a policy passed at last week’s regents’ meeting. The policy clarifies the student fee policy to say that the regents have total authority to set fees at any level and that student fee policies are not contracts with students.*****
Meister described the policy as part of a “complete circle”: the student fee policies were the reasons the regents weren’t doing things like spending student fees on construction and bond debt and “now that we’ve asked them to show they weren’t violating their own policy, they’ve changed their policy going forward.”
*Faculty Seminar on UC’s Financial Future, an open seminar organized by UC Berkeley Professors Stanley Klein (Optometry), Alan Schoenfeld (Education) and Charles Schwartz (Physics), devoted to research into topics such as construction finance and how the University of California contributes to the state’s economy. The seminar meets Tuesdays from 5-7 p.m. in 489 Minor Hall on theUC Berkeley campus.
**Other commentary and analysis addressing UC finances can be found on my “Commentary and Analysis” page. http://caledinsider.org/faculty/
***Meister said in an e-mail that the projects Jacobsen presented on were completed before 2004, thus exempting them from the Bond Indenture. See the portion of this blog post about Meister’s speech during the seminar.
****I will have to look up what the exact item was.
*****Taylor said this policy was in response to the UC losing a lawsuit by former students who claimed they had read on a UC Web page that fees at their professional schools would not increase while they were in school, but that they experienced fee hikes anyway.
Q & A with AVC Erin Gore delayed
Gore has informed me that the remainder of her responses will be delayed. I will post a complete list of her answers to my questions when they are available.
Stay tuned: More Q & A with AVC Erin Gore
In February, Graduate Student John Stehlin and I met with Associate Vice Chancellor for Budget Erin Gore to ask some questions and discuss the 2008-09 UC financial reports. (Read the post about that meeting here.) Gore wasn’t able to answer all of our questions in the hour-long meeting, but has responded to some of them by e-mail. I’ll post the Q & A after she clarifies parts of answers I didn’t understand. She said she would send an additional e-mail with more answers Monday.
Last day of March UC Regents meeting
The hot topic today is the UC’s involvement in California state prison healthcare and whether the university should take over prison healthcare for the state. (Read the L.A. Times article.)
I won’t be at the meeting today so I won’t be blogging about it but here’s the link to the UC Regents Live(blog).
Also, some articles about yesterday’s meeting:
Finally, the last session of Wednesday’s meeting: committee on investments
Did you know that spending per student actually has little to nothing to do with how much the university actually spends on each student, or that the UC’s investments function on a different plane than it’s funding of student services? These are things I learned during the committee on investments meeting, which was the very last open session of the Wednesday portion of the regents’ meeting, after waiting through hours of closed session Wednesday afternoon.
The meeting was particularly interesting in that it was so much more relaxed and intimate than other open sessions. The committee met in a small conference room as opposed to the large auditorium used for the better part of the day and those in attendance were relaxed enough to joke around and show their personalities. Magnifying the intimacy was the fact that I was also the only non-administrator or consultant there by the time the meeting ended at 7:30. With the exception of one photographer, all other journalists had left when the closed session portion of the day began.
Seeing regents and others so laid-back was a bit bizarre for me, since they were stone-faced during all the other meetings. Also, the regents in particular have a reputation for being inaccessible. As interesting as the session was from an anthropological perspective, I understood little of the content discussed by the committee. I don’t know a lot about finances or investments—yet. I’m learning. Fortunately, after the meeting I had an opportunity to speak with some UC administrators: UC Chief Investment Officer Marie N. Berggren, Managing Director of Investment Risk Management for UC Jesse Phillips and UC Chief Financial Officer Peter Taylor.
Question and Answer
Q: Berggren spoke about spending per student at one point during the session. How does spending per student factor into the UC’s investment performance?
A: “Spending per student” actually has little to nothing to do with how much the university spends on each student, Phillips said. Rather, the number is the quotient of endowment spending per year divided by the number of students in the UC system—it’s a ratio.
Q: How do UC’s investment strategies compare to those of other universities?
A: In the past, universities like Harvard and Yale far out-performed the UC in their investments because they engaged in high risk investing, which has the potential to yield higher returns. The UC keeps its liquid assets, or assets that can easily be converted into cash, separate from its investments.
Berggren illustrated this comparison by explaining that some universities took portions of their general operations funds—i.e. the money that’s spent to make a university run for a year—and put those portions in the endowment. When those universities’ endowments declined in 2008, they didn’t have enough money to cover their operating budgets.
Tayor described UC investment strategies as “very conservative” compared to other higher education institutions, mentioning that big, Ivy League-level universities were calling up his banker friends asking for $50 million loans to cover their payrolls when their endowments dipped.
Currently, Berggren says, there is a survey floating around asking universities what proportion of their operating budgets they invest in endowments. Responses range from none to 20 percent.
Q: If UC’s investments are doing so well, why is UC doing so poorly financially?
A: The answer to this question is not exactly intuitive to me. Phillips said investments and finances are not one and the same and the UC’s investments function somewhat separately from UC finances as a whole.
What the separateness of investments and overall finances means for the UC is that, when the investment market is doing well, UC investments do well, even if the economy is doing poorly. I think this is a bit too simple of an explanation, but it’s a start.
The administrators described the process of learning about UC’s financial model with a metaphor about blind men feeling an elephant: one feels the elephant’s tail and says the elephant is a rope, another feels the elephant’s leg and asserts that the elephant is in fact a tree. If you approach the UC from one angle, you’ll only get one part of the overall explanation of how the whole, big animal works. The challenge is approaching the UC from as many angles as possible and figuring out how the pieces fit together.
Some extra background and random tidbits:
- The UC will be investing in real assets such as timber in the future.
- The UC has three types of investment funds: pension fund, endowment fund, short-term investment pool (“cash”)
- Money in investment funds is legally bound for certain uses, at least most of the time. (I don’t know if there may be exceptions to this rule.) For example, endowment money is earmarked and legally bound for certain uses such as the funding of endowed chairs. The pension funding can’t be used for anything but pensions.
Some additional links related to the UC Regents meeting
A blog titled Student Activism has posted a link to a briefing on the meeting put together by UC Student Regent Designate Jesse Cheng. Cheng will be liveblogging the meeting all three days of it.
An SF Chronicle article about the possibility of the UC Regents changing a policy so they will have the ability to raise fees at professional schools more drastically. According to the Student Activism blog, Cheng has said that this proposal is not reflected in the meeting materials.
March 2011 UC Regents Meeting
The UC Regents will meet Tuesday, Wednesday and Thursday of this week at the Community Center, UC San Francisco Mission Bay. For directions to the meeting and a link to the meeting’s live Webcast of the meeting, go to the UC Regents Web site (or click here).
The meeting falls during the spring break of UC Berkeley, the UC campus closest to the location of the meeting other than UCSF itself. (Most other UC campuses are in session right now.) As a result, a large number of students and other members of the UC community who would otherwise attend the meeting will be out of the area. At the last meeting of the Faculty Seminar on UC’s Financial Future, Professor Emeritus Charles Schwartz questioned whether this week was the most ideal time to have a meeting. UC Student Association board member Ricardo Gomez raised the same concern in the March 18 Daily Californian article previewing the meeting.
The Daily Cal article states that the meeting will focus on promoting diversity in the UC system in light of recent controversial incidents at UC Davis and UC San Diego:
Last month, the UCSD administration faced backlash following an off-campus “Compton Cookout” party and the discovery of a noose in a campus library. At UC Davis, derogatory graffiti was sprayed on the campus Lesbian, Gay, Bisexual, Transgender Resource Center and cotton was placed in front of the campus’s Black Culture Center.
The meeting agenda also mentions an incident at UC Irvine, in which a speech by the Israeli ambassador to the U.S. was interrupted by students.
The Wednesday and Thursday portions of the UC Regents Meeting both start with a public comment period at 8:30 a.m. On Tuesday and Thursday, all committee meetings are open sessions, meaning the public may attend those sessions. On Wednesday, all the morning sessions are open, then about three hours worth of sessions are closed in the afternoon, and the last session of that day– a meeting of the Committee on Investments– will be open.
The topic of UC investments is very controversial, especially concerning UC pensions and the UC’s bond-selling practices. UC Santa Cruz Professor Bob Meister (political science) wrote a paper claiming that the UC uses student fees as collateral for bonds, meaning that fee increases, which are increases in collateral, improve the bond rating of the UC. The placement of the last open session on Wednesday raises similar concerns about scheduling as having the meetings during Berkeley’s spring break does. The fact that a single open session– especially one that may be very controversial– is placed after hours of closed and Regents-only sessions makes me wonder by what method each day of the UC Regents Meeting is planned. I would think that hours of closed session would cause a lot of people to leave UCSF, at least while the closed sessions are going on. Also, since a session can start as soon as the one before it ends, this last session could start at a wide range of times. I want to emphasize though that I really don’t know how UC Regents meetings are planned and the UC Regents may well have to discuss certain content before the Committee on Investments can meet Wednesday. Still, I think the question about method of scheduling is worth posing.
I plan to go to the Wednesday portion of the meetings and will try to blog live, provided I can get onto the internet. The agenda for the meeting can be found here. Click on each committee meeting to see its action items, which can each be clicked on as well to find out more about each one.
Transparency 101, part 2
Tuesday night (March 16) was the second part of UC Berkeley Professor Emeritus Charles Schwartz’s Transparency 101 presentation. The turnout was much lower than the first part of his presentation, probably due to factors such as midterms and the closeness of spring break. More detailed notes from both parts of the presentation will be up by early next week.
Topics discussed:
- There is a lack of information available about how student fees are spent.
- State funding is referred to as “state education funds” in documents, as opposed to “state education and research funds,” which would more accurately denote how state funding to the UC is spent.
- Administrative growth–Schwartz said middle and upper management positions have grown 200 percent while overall employment has grown by 44 percent.
- Cal Profiles, “an interactive database containing multiple years of institutional data for all UC Berkeley campus units.” (description from the Cal Profiles overview page.)
The seminar also had a heated discussion of a Daily Cal article published today, “Athletics Department May Be in Violation of State Policy,” which states that the athletics department at UC Berkeley may be violating a state policy. People at the seminar said the article is inaccurate. Professor Stanley Klein (optometry), who brought up the topic of the article, said he thinks the title is incorrect but did not specify exactly why. Klein is on a task force that researches UC Berkeley athletics funding.
What do you think?
- How would California citizens feel about their money going towards education vs. education and research?
- Is the Daily Cal article inaccurate?
- Why can only people with student or staff IDs get into Cal Profiles? Should California citizens who are not a part of the university be able to access this information?
Transparency 101
Context: The Transparency 101 presentation was hosted by the Faculty Seminar on UC’s Financial Future, an open seminar organized by UC Berkeley Professors Stanley Klein (Optometry), Alan Schoenfeld (Education) and Charles Schwartz (Physics), devoted to research into topics such as the construction finance and how the University of California contributes to the state’s economy. The seminar meets Tuesdays from 5-7 p.m. in 489 Minor Hall on the UC Berkeley campus.
Note: Additional specific questions asked during the Transparency 101 presentation and their answers, if available, will be available in a later post.
***
“Money not formally restricted to its use is fungible,” UC Berkeley Professor Emeritus Charles Schwartz (physics) said. “Fungibility is the antithesis to transparency.”
Schwartz was speaking at a presentation hosted by the Faculty Seminar on UC’s Financial Future Tuesday night (March 9th) called Transparency 101. The presentation consisted primarily of a lecture given by Schwartz about parts of the UC budget and UC financial documents that he considered unclear. His lecture was followed by a response period for UC Berkeley Associate Vice Chancellor (AVC) for budget Erin Gore and AVC for Finance and Controller John Ellis, as well as a question-and-comment period for the audience, which consisted of around 30 to 40 students, faculty and staff.
Disagreements shaped the presentation, but overall it was characterized by a shared interest in inquiry. Everyone seemed to agree that UC finances could be more transparent.
Berkeley Professor Stanley Klein (optometry) emphasized the nuances of views expressed in the seminar, explaining as an example that he disagrees with Schwartz on a number of topics.
“That’s what makes this seminar interesting– different points of view,” he said.
The presence of Ellis and Gore made the presentation particularly unique. UC administrators and non-administrative members of the UC tend to be seen as polarized and uncooperative, but here they were engaging in thoughtful dialogue.
However, there may be a limit to the impact this dialogue can have. While Gore and Ellis can share information about UC finances and may even be able to revise UC financial records to make them more understandable, they have specific responsibilities that are mostly restricted to the Berkeley campus. Their positions have little to no influence over the UC Regents.**
Schwartz, who was clear to direct his criticism of the UC to higher officers such as UC President Mark Yudof, explained that Gore’s responsibilities include Berkeley’s budget planning at the beginning of the fiscal year and Ellis’s include the accounting for the campus at the end.
***
Controversies that figured prominently in the presentation were accounting for unrestricted funding, the classification of funding that goes toward university hospitals and the effect of pay cuts on faculty.
Unrestricted funding
In the quote about fungibility and transparency, Schwartz was referring to the University of California’s unrestricted fund, which is comprised of money pooled together from various sources such as state aid and student fees. Because the funding sources that flow into the unrestricted fund are fungible or not bound to specific uses, no one can pull a dollar out of a student’s fees and say, “This dollar went toward this professor’s salary,” or “This dollar went toward construction.” The uses of unrestricted funds, therefore, are not transparent.
Gore disagreed with Schwartz that fungibility and transparency are irreconcilable, though she admitted that information about how the UC uses its fungible funds is currently not as clear as it could be.
“Just because money is fungible doesn’t mean you can’t see where it’s spent—not to say we’re there yet,” she said.
Classification of funding for hospitals
On the topic of funding for university hospitals, Schwartz said the category “Total Expenditure for Instruction” in UC financial schedules 1D (Berkeley) and 4D (UCLA) is deluding because it does not refer specifically to money spent on teaching activities but also includes money that goes toward things like the salaries of doctors at university hospitals.
A professor in the audience countered that UCLA doctors’ salaries can be considered instruction expenses because the doctors may be educating medical students who are watching their procedures.
Pay cuts
In relation to the controversy over pay cuts, a graduate student asked if UC Office of the President officials could quantify at what level of pay cut faculty would leave their jobs. He recited a “mantra” used by UCOP officials:
“If we don’t pay them enough, then they’ll walk,” he said, and asked at what point the faculty would walk–will a doctor or professor leave after receiving a one percent pay decrease?
A professor responded that Berkeley lost 48 retention cases last year.*
Gore suggested that it’s not just the money that keeps people at the UC and that that various factors create a delicate balance, including a desire to contribute to public education.
“It’s more art than science,” she said. “The fear is always that we don’t want to break Berkeley, we don’t want to break (the) UC.”
The next step
Many topics, such as where the overhead on grants goes, were only touched upon on Tuesday. In order to follow-up on topics that were not thoroughly explored, seminar facilitators and audience members decided to continue the discussion next week, at the March 16 session of the seminar.
“We knew this (presentation) would just be dipping our toes into the issues of fiscal complexity,” Schwartz said.
*I don’t know if “last year” means 2009 or the 2008-09 school year, but it is the phrase the professor used.
UCOP Report on Academic and Administrative Growth
The Institutional Research unit of the University of California Office of the President (UCOP) has released a report about the growth of the number of the UC’s administrative positions between the 1997-98 and 2008-09 fiscal years. Read the report here.
Summary of the Report
UCOP’s findings, quoted from the report: “While increases in student enrollment have played a significant role in employment growth across the University, increases in employee FTE have been driven primarily by expansion in Teaching Hospitals, Research and Auxiliary Enterprises.”
According to the report’s introduction, the proportion of the UC’s full time equivalent (FTE) employees who hold non-academic positions has been “stable” since 1997-98. Most FTE employees—about 75 percent—hold non-academic positions because, the report says, “UC does much more than just educate students.”
The introduction goes on to explain that non-academic positions are often supported by restricted or earmarked funds that go toward things like research and teaching hospitals and cannot be applied to other purposes.
The report also includes a background information section.
Controversy
UCOP’s claim that “the rate of growth has been slightly higher among non-academic personnel” is at odds UC Berkeley Professor Emeritus Charles Schwartz‘s assertion that the number of management positions in the UC has grown disproportionately more than the total number of positions.
An editorial from the Sacramento Bee dated February 28, 2010, summarizes the statistics underlying Schwartz’s allegations:
Systemwide over the past 10 years, student enrollment at the University of California has increased 40 percent. During the same period, total employment has increased 30 percent. That looks reasonable.
But two categories of UC employment stand out. As the accompanying chart shows, the number of full-time senior administrators has nearly doubled – from 4,299 to 8,470, a 97 percent increase. In contrast, the numbers of full-time tenure-track faculty have grown from 7,175 to 8,851, a 23 percent increase.
Pre-meeting with AVC Erin Gore
About two weeks ago, UC Berkeley graduate student John Stehlin and I had a “pre-meeting” with Associate Vice Chancellor Erin Gore, who is in charge of budget planning for the Berkeley campus. We spoke to Gore about how we would like to go about our research and asked her to recommend UC Office of the President employees to talk to about different topics related to UC finances, ranging from the meaning of the phrase “common good” as it is used in the 2008-09 financial reports to the role of bonds in the UC’s finances and in university finances in general. We also had an opportunity to ask Gore a few of the specific questions compiled by the Education Crisis Research Group*, of which John and I are both members. We e-mailed Gore the questions we didn’t get to or that she could not immediately answer during the meeting.
*The Education Crisis Research Group is referred to as the nameless research group in earlier posts on this blog.
What is the actual cost of instruction?
Erin Gore said this is something she and her colleagues are working on figuring out and that she will get back to us with what data is currently available. The graphs and other visuals from her February 2nd presentation have some relevant information. One needs to keep in mind whether the total or per-student cost of instruction would include both graduate and undergraduate students or just undergraduates, Gore cautioned, explaining that different types of funding and resources go to each type of student. As an example, funding for research can be said to partly go toward graduate students.
What exactly do student fees pay for?
Gore could not give us a break down of exactly how student fees are spent. She said student fees are combined with state aid and are just treated as one of the revenues that come in. The one definite number she could give is that a third of student fee revenue goes toward financial aid. She also said that student fees and state aid largely pay for faculty salaries, which are mainly paid out of the unrestricted fund. (Some faculty salaries are paid out of federal grants.) However, faculty salaries are not tagged or tracked when they are taken out of the unrestricted fund, so there’s no paper trail.
I am unclear about whether all student fees and state aid go into the unrestricted fund. I will have to ask Gore for clarification.
There are also smaller, more specific student fees, such as campus and registration fees, that have somewhat more specific purposes. Campus fees, for example, only go toward a student’s campus and not the UC system as a whole.
The allocation of funds, in general:
Gore recommended the site Cal Profiles to learn more about how funds are allocated. One of the site’s applications is “Allocated Student FTE by Term,” which shows the number of full time equivalent students taking classes in each department, which in turn determines the total amount of money paid out to faculty of each department. (Two part-time students make one full-time student, FYI.)
Questions we did not get to or that Gore could not answer that I e-mailed to her:
Many of the questions below pertain specifically to the 2008-09 financial statements.
From the 2008-09 financial reports: “FTE employees increased by approximately 3,300 in 2009 and nearly 50 percent were for academic and health sciences staff.” What qualifies as academic and health sciences staff, esp. health sciences? What was the number increase for each type? What should we make of lump sums? How do we disaggregate them? What does “supplies and materials” refer to?
What does it mean that the financial schedules feed into the financial report? What are the relationships between different financial documents? What does it mean when one feeds into the other? How might one map the documents and their connections?
Does the entire UC system budget for increased state funding every year? How does the budgeting process itself impact the actual finances of the UC?
Where can one find the specific revenues from medical centers, educational activities, student housing, food service operations, parking? How much do housing/food services cost school, compared to at other schools? (I realize the second part may be something I need to find out by talking to administrators at other schools.)
How does support from federal agencies work? Why does that money come in, how, and where does it go?
National laboratories operate on federally financed budgets. Does that mean they are completely financed by the federal gov.?
What do STIP, TRIP and GEP stand for?
What are ”acceptable levels of risk” (p. 9, 2008-09 financial reports)?
What does revenue from UC medical centers go toward?
March 4th in Berkeley, pre-march-to-Oakland/San Francisco
The March 4th Day of Action and Strike in Support of Public Education was quieter in Berkeley than I expected today, at least the portion of the events I witnessed. I left work around noon to see the protests and was surprised by the calmness of the campus; I might even say I was startled by how un-startling the scene was. Rounding the corner of California Hall, I anticipated cops, signs, slogans, yelling and hollering, but I saw and heard nothing until I’d made my way to the edge of Sproul Plaza, on the corner of Bancroft and Telegraph.
The crowd was much smaller than the 5000 who rallied on campus as part of the walkout on September 24, when students across UC campuses walked out of their classes to demonstrate dissidence with state funding cuts to education and the then proposed, now implemented student fee hikes. According to the Daily Californian’s live blog of today’s protests, the on-campus crowd peaked at 800 around 12:15 p.m. The crowd was also much tamer than the riots spurred by the Wheeler Hall occupation on November 20th.
So tame and quiet was the pre-march-to-Oakland portion of today’s events, many didn’t even notice when the crowd shoved off for Oakland City Hall. A friend of mine who was gathering signatures for the California Democracy Act, which would amend the state constitution so the state legislature can pass the budget with a simple majority vote as opposed to a two-thirds majority, said he’d wanted to go to Oakland with the protestors but they slipped away before he got a chance to join them.
I may have just missed some of the action on campus. The New York Times reported that this morning, about 100 students blocked Sather Gate, the main entrance to campus. However, it sounds like other campuses taking part in the state-wide protests (world-wide according to the March 4th blog) were a bit more rowdy than Berkeley. The Times reported that at UC Santa Cruz, someone’s windshield was bashed in and protests were disruptive enough this morning that police had to turn cars away from the school’s entrances. As quiet as the day’s protests began at Berkeley, though, the Daily Cal’s live blog indicates that energy has started to pick up as protestors—now about 1500 of them—move through Oakland and toward San Francisco. We’ll see how the day turns out.
Pre-March 4th Protest Thoughts
Today, I considered posting about a meeting some students and I recently held with Associate Vice Chancellor Erin Gore, but I realized that would be pretty dry and seem out of place considering the events that will commence at day break. While this site is anything but focused on protests or activism related to the University of California budget crisis, I’d feel like a sham if I didn’t at least acknowledge the March 4th Day of Action. This will probably be the biggest protest I have ever witnessed. I’ve been hearing buzz about the event since November 20th when students occupied buildings across the UC and California State University campuses, including Wheeler Hall at UC Berkeley.
The building occupations that took place in November showed me that students in California are not only critical of the current state of public education finances, but they’re passionate enough about their criticism to do something about it. I don’t agree with all their criticisms; I’ve found some of the stands taken by activists to be a bit radical. For example, I don’t see how the fee hikes could be repealed when this semester’s 15 percent fee hike has already been implemented and next semester’s additional 15 percent increase in fees has probably already be factored into the next budget. Still, witnessing the drama of Wheeler Hall inspired me to get serious about the UC budget crisis and approach the situation in my own way, which consists of simply trying to understand it.
I’m not an activist. I don’t walk in picket lines. I don’t wear clothes that indicate my political leanings. I’m hesitant to yell slogans with a crowd or raise my fist in solidarity, and I can’t imagine myself occupying a building. But I respect the people who engage in these activities and I’m glad they do. They provide a necessary reminder for the education community and the citizens of California to question the mechanisms behind the overall decrease in funding for education and the way educational institutions handle their current situations.
Audio recording of Gore’s presentation
Click here to listen to an audio recording of the presentation.
Please note, there is a period of silence at the beginning. A new audio recording without the awkward silence should be posted on the Academic Senate Web site soon.
Click here to download the materials from the presentation (tables, graphs, etc.)
Erin Gore’s Presentation
What the talk was about:
Associate Vice Chancellor Erin Gore gave a 30-minute power point presentation about UC Berkeley’s financial model, where the university gets its money and how it spends it. She spoke at length about how the financial situation of the university has changed since the 2001-02 fiscal year. Here is a Daily Cal article about the presentation.
According to the data Gore presented, UC Berkeley received $390 million from the state during the 2008-09 school year, compared to $497 million in 2001-02, the year UC Berkeley received the most it has ever received from the state. When you adjust for inflation, that amounts to about a $100 million decrease in state funding. While state funding for the university decreased, the student population increased by about 3,600 full time equivalent students. (Two part-time students count as one of the 3,600 full time equivalent students.)
Gore said the combination of decreased state funding and increased student population has led to students receiving 33% less resources per capita than they did in 2001-2, though students now pay 150% more in student fees than they did then.
Gore also explained the differences between certain types of funding, such as restricted and unrestricted, and she talked about the relationships between some UC financial documents, like how data from UC Berkeley’s financial schedule 1A feeds into its financial statements. I’m not completely clear on all the definitions of types of funding or relationships between documents; those are things I’ll need to ask someone from the Campus Budget Office about.
Who was at the presentation, what they said:
A question and comment period followed Gore’s presentation.
Stanley Klein, a UC Berkeley optometry professor, announced a faculty seminar in which members would outline what parts of the UC’s finances they don’t understand as well as they would like and work on fully understanding the UC financial records. (It’s sort of a similar idea to this site.)
Charles Schwartz, who writes University Probe and is a UC Berkeley professor emeritus, had a lot to say. During the presentation, he commented that people should always be asking what numbers mean, where they come from, and whether there is any controversy about them. He was responding to a line in the table, “Berkeley’s Current Funds Revenues, 2008-09.” I think it was the line titled, “Sales and Services of Educational Activities.” He said he didn’t know what the line specifically referred to.
Schwartz made the following claims during the question-and-answer period:
- UC President Mark Yudof lied about some data or made a false statement. (I didn’t catch what.) Either Yudof or someone from UCOP acknowledged that Yudof had lied, but the incorrect data or statement remains on the UCOP Web site.
- There is no way to find out how education fees are spent.
- The number of management positions in the UC has grown disproportionately more than the total number of positions.
Points of confusion:
I have some lingering questions about content from both the Budget Primer and the presentation. You may be wondering why I would list questions I have instead of just finding the answers and posting them when I get them. Well, (1) I think the process of finding out is a valuable thing to show and (2) I think questions can be informative themselves, in a way. One question might make someone think of another question or another type of information to look for.
First, I’ll list the questions I had after reading the Budget Primer:
- Why is UC Berkeley’s spending reported as static? “The University of California, Berkeley spends approximately $1.8 billion per year to fulfill its teaching, research, and public-service missions.”
- “Though unrestricted funds may be spent for any mission-related purpose, all funds, including unrestricted funds, must be spent in ways consistent with regular University accounting and purchasing policies.” (1) What funds are unrestricted? (2) Where can one find the accounting and purchasing policies?
- Does UC Berkeley always budget for an increase in funding? Why or why not?
- One of the “budget principles” is: “Ensure sufficient ongoing funding is available to support ‘common good’ priorities.” How is “common good” defined?
- Another budget principle is: “Increase financial flexibility that promotes fungibility [replaceability] of funding sources.” I’d be interested to see an example of that to illustrate exactly what it means.
- What sort of activities does “activity” refer to, as in activity-based budgeting? (Activity-based budgeting is mentioned on the Berkeley Campus Budget Office Web site.)
Questions I had after the presentation:
- Why is the Hepi Index controversial? What other indexes for calculating inflation are there?
- How can I find numbers related to bonds in financial records such as the UC’s financial statements?
- What is the definition of a financial statement and what part of the budget setting process does it represent? (See “Posted public records” for the financial statements.)
- What is the definition of a financial schedule? (See “Posted public records” for the financial schedules.)
- What are the differences between financial schedules, i.e. “Schedule A” vs. “Schedule B?”
- What are administrative units? How do they work?
- Why are there both general and designated unrestricted funds? Are all unrestricted funds designated in some sense, or only the “designated” ones?
In general, the financial organization of the UC reminds me of this really complicated tape dispenser I use at work: whoever came up with it must be really proud of himself for being an inventor, but everyone who tries to work with it is super peeved. Anyway, that was some food for thought.
Today: “Presentation and Discussion of Berkeley’s Finances” by AVC Erin Gore
At 3:30 p.m. Tuesday, February 2, UC Berkeley Associate Vice Chancellor for Budget & Resource Planning Erin Gore will talk about UC Berkeley’s financial model, the university’s sources of revenue and its expenses. The talk will take place in Sibley Auditorium (Bechtel building), by the Hearst Mining Building.
Read the Budget Primer to prepare for the presentation.
Visit Budget Central for more information from UCOP and the UC Berkeley administration about UC Berkeley financial issues.
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