Financing the University

FINANCING the UNIVERSITY -- PART 18

by Charles Schwartz, Professor Emeritus, University of California, Berkeley
schwartz@physics.berkeley.edu May 21, 2009

>>This series is available on the internet at http://ocf.berkeley.edu/~schwrtz

BUDGET LIES: Act II

A formal response from the Office of the President of the University of California confirms the inability of those responsible for the University’s budget to speak honestly.

A Challenge

On April 11, I wrote a letter to UC President Mark Yudof, complaining about a document put out by his office, titled, “The UC Budget: Myths & Facts”, which I described as a “load of lies and half-truths.” My letter can be seen in its entirety at http://UniversityProbe.org , where it has been viewed by over 1000 visitors. The UC document has been actively distributed to all campuses, news organizations, etc.

Now I have a letter from Patrick J. Lenz, UC’s Vice President for Budget, which says at the outset:

President Yudof shared your April 11 letter with me and asked me to respond on his behalf. I regret that you found “The UC Budget: Myths & Facts” misleading, and I am pleased to have the opportunity to address your concerns. I will venture to respond to each of the points you made, …

His full letter may be seen at http://ocf.berkeley.edu/~schwrtz/LenzLetter.html

In this paper I intend to critique each of his responses; but first there is an overall observation about our contrasting styles. My letter was precise, quantitative, and contained references to where more detailed facts and figures could be found. Lenz’s letter contains no numbers (aside from two numbers quoted from my work) and no references. It is entirely rhetorical. Let us examine each of the points.

Point #1: Restricted Funds

In my letter I quoted UCOP’s “Myths & Facts” as saying, “Fact: UC’s Budget is made up of many different fund sources, but most of them are restricted to specific uses and cannot be used for other purposes.” I then gave official data from UC accounting documents that showed expenditures for 2007-08 made up of $13.7 Billion in Unrestricted funds and $4.2 Billion in Restricted funds. That led me to conclude: “So your claim about ‘restricted’ funds is a lie.”

In Lenz’s letter he says

With respect to funds generated from sales and services, these activities may not be restricted in the legal sense, but they are of limited use in a budgetary sense.

So he acknowledges that I was correct in calling their lie!

Point #2: Money at the Medical Schools

Following up on that issue, my earlier letter to President Yudof said,

You say “A payment for a surgery in a UC hospital can’t be redirected to fund graduate students.” That is a half-truth. In fact there is a surplus income from the UC medical enterprises, amounting to around $1 billion a year, which is distributed to faculty in the Medical Schools as “bonus pay”, on top of their regular academic salaries. A portion of that money could be redirected to other pressing academic needs in these times of budget stringency: that would be called shared sacrifice. You and The Regents have authority to implement such a strategy.

Vice President Lenz offers no objection to my calling their earlier claim “a half-truth”; and he confirms my assertions about the large amounts of money paid to Medical School faculty on top of their academic salaries. He acknowledges it and he then seeks to justify it:

This supplemental income is necessary to retain them as our faculty. Without an ability to pay competitive salaries, we believe we would lose faculty to our competitors.

     So it is not about “restricted” money; it is about priorities. No matter how bad the current budget crisis is for the University of California, that set of people who always rank highest on the compensation ladder will not be asked to sacrifice at all. Only students and lower paid staffers will have to bear the financial pain.

     What this tells us is that, when the president says “everything is on the table” for budget considerations, he is not being truthful. Certain subjects are definitely off the table; and here we see one of them.

     It is also worth noting that this budget crunch is not just a local phenomenon; it is being felt by universities all over the country. So that argument about losing high paid faculty to competitors is a lot weaker than it used to be.

Point #3: Excess Management

The “Myths & Facts” brochure said,

Myth: The real problem is the salaries being given to UC senior managers.
Fact: Senior management salaries represent less than 1 percent of the total payroll at UC. …

And in my letter to Yudof I replied as follows.

In previous papers, “Financing the University – Parts 12-14”, I have demonstrated that there is a much larger constellation of management bureaucracy throughout UC, which has grown enormously over the past decade and is now estimated to waste some $600 million per year. The Senior Management Group, which you talk about here, is just the tip of that iceberg.

From Mr. Lenz’ letter it is clear that he has looked at my papers, referred to above. The first data I presented there shows that over the decade 1996-2006 total student enrollment at UC increased by 33%, total employment (FTE) increased by 31%, and management (FTE) increased by 118%. Mr. Lenz starts out as follows:

Regarding the growth in management and senior professional employment, the University is an increasingly complex and growing organization which necessitates an increase in staffing levels to provide management/administrative infrastructure and professional analytical support. Some of the forces driving these changes include student enrollment growth, … , and a very significant increase in the number of contracts and grants awarded.

     Teaching and research are the primary functions of the University; and the faculty who oversee those activities have no inclination to build bureaucratic empires. Somebody else must be doing that. The growth of student enrollment and research activity may well lead to some necessary growth in academic staff, support staff, and even some additional management to oversee that. What my analysis focuses on is the excess growth in management: 118% - 31%. Mr. Lenz has thus far merely reinforced the logic of my analysis.

     Then he goes on to talk about the rapid growth in the use of “information systems and technology” and “the internet and computer technology” throughout the University; and he notes that this “has also created new needs for professional analysts to meet the needs of a modern organization.” I agree entirely with this observation; and that is why in my papers, I specifically removed the job sub-categories “Computer Operations” and “Computer Programming & Analysis” from the list showing apparent excess in management positions.

     In sum, then, Lenz has found no shortcoming in my study of apparent excessive management; he can offer no justification for this bloat; and he has no quibble with my estimate that this is a wastage of $600 million per year. That is progress.

Point #4: The Cost of Education

     This is an issue we have been arguing over for some time. It is the habit of UC, along with other research universities, to calculate something which they call the per-student Cost of Education by including the entire cost of faculty research effort throughout the academic year, along with the cost of the actual instructional program plus student services and overhead. This I claim is dishonest; “a piece of accounting fraud” is what I called it in my April 11 letter to Yudof. Vice President Lenz spends three paragraphs of his letter defending that practice. He is eloquent; but it is entirely a recitation of ideology, not supported by any objective data. My analysis disaggregates the cost of undergraduate education from that large bundle, using standard principles of cost accounting and a variety of relevant data published by the University itself.

     Nobody wins this argument today.

     In fact, everybody looses, since the official UC claim – that student fees now cover 30% of the Cost of Education – is a standing invitation for state lawmakers to pass on further budget cuts, knowing that The Regents will just get the money by further increasing undergraduate student fees.

Conclusions

     On three out of four points, Vice President Lenz confirms my complaints about the dishonesty in “Myths & Facts”. On the fourth point, we continue to disagree; but that issue needs to be resolved in some intelligent way, since it provides a critical marker on the road from public university to private university.

     My April 11 letter was addressed to President Yudof and it started by asking him, “Are you the person responsible for that load of lies and half-truths?” Well, who is responsible for that awful behavior? Lenz’s letter offers some clues at the bottom line, where he cc’d three people: President Yudof; Executive Vice President Lapp, who occupies the seat between Yudof and Lenz; and Senior Vice President Dooley, who is in charge of External Relations for the University: that covers PR – Public Relations, institutional propaganda.

     I find it hard to regard that whole production – the “Myths & Facts” brochure - as anything other than a slick (sick?) PR campaign. Is that the right way to lead the University of California? Mark Yudof, it is up to you, as president of UC, to respond.

      I recommend that you publicly apologize for that awful “Myths & Facts” piece of work, then take steps to assure that there will be no repeats of such bad behavior. That might let you regain a bit of public confidence that you will need as you face the growing budget mess.

     “Honesty first, students first” – that should be UC’s motto.