20 February 2011

The New Budgeting Model

A specter is haunting UC campuses – the specter of a New Budgeting Model. References to this new budgeting model, aka the "Funding Streams" proposal are being repeatedly heard in administrative office. The new budgeting model is inspired by the single principle:
Revenue stays with the units that generate it.
This applies primarily at the campus level. The idea is that campus are going to retain the revenue they generate, and UCOP is going to assess a "tax" using the same rate across the board, to pay for centralized operations as well as for programs such as EAP, UCDC, etc. There would be only few exception to this rule – the most notable of which is financial aid. The campuses would be directed to allocate a certain amount of tuition to students' financial aid. Now, for historical reasons, some campuses get more than their fair share of this money (especially tuition), and other less. When these inequalities are addressed, there will be some winners and some losers. It will be interesting to see who is who.

Is the principle to be implemented "all the way down"? What if the internal allocation of resources on each campus were also based on a "pay-as-you-go" principle?

Revenue includes student tuition. This means that the high-enrollment classes taught by humanities and social sciences department would finally be recognized as a source of revenue, and those departments would get their fair share (and the accompanying recognition). It's been variously argued that high-enrollment classes subsidize other parts of the university offsetting losses incurred elsewhere – through the ridiculously low indirect cost rates, for instance. This kind of cross-subsidy would now come to an end, or at least come to be closely monitored.

Revenue includes profits from the medical enterprises. Nothing new here. The MCs have long held on to the million in profits they generate. While everybody recognizes that the MCs provide a crucial service to the people of California, it's not clear what the University as a whole gets from them. Berkeley seems to be doing just fine without one. The MCs are quick to call on the central campuses, e.g.,  to help them build a new hospital (UCIMC comes to mind), but not as quick in sharing resources in time of need. The new budgeting model would just formalize the status quo ante.

Revenue includes contracts and grants. This is a crucial aspect of the proposed model. It seems the University has finally come to recognize that it actually loses money on most grants, as the negotiated IC rates fail to cover the cost of administering those grants (President Yudof's recent statement to the Legislature said as much). This is has of course long been a bone of contention. PIs resent these indirect costs tout-court, in that they detract from the funds they have available for their research. At the same time, indirect costs cover such things as administration, building use, maintenance, etc. This at least in theory, for a in shell game a big chunk of these costs are skimmed off by UCOP and central campus administration (to be used God knows how), in return for general infrastructural support for sponsored research. The new budgeting model would seem to short-circuit the shell game. The units that generate revenue from sponsored research would  keep the overhead and use it to cover indirect costs. Supposedly this would include paying "rent" to the central campus for building use etc.  The big question is whether they would come up short.  I don't think anybody knows. Grants lose money for the university right now. But it is possible that if all infrastructural support is done "in house" these costs might be lower. (Of course, the University also needs to negotiate higher rates with the funding agencies – but that is a long story.) In any case, it would seem that the potential losers, if there are any, in the new budgeting model might be the hard sciences, who live on high-overhead grants.

It is of course painfully clear that an implicit premise of the model is that the University needs to improve its accounting to the point where internal cash flows become apparent and can be adequately tracked. This kind of transparency is long overdue, and occasionally resisted higher up the administrative ladder (I am sure UCOP likes to have enough play money from indirect cost recovery to pay those stellar administrative salaries). This is a tall order, and the University has not been traditionally good at it. So we'll see.

Another foreseeable consequence of the model is that departments in the humanities and the social sciences will go after higher enrollments, and possibly higher enrollments of out-of-state students (with what success, it remains to be seen). New programs will be proposed, in response to real or perceived demand – new majors, minors, concentrations, MA programs (whether "fully employed" or otherwise). It's going to be a race, let's just hope it's not going to be a race to the bottom.

Finally, there is some question as to how fine-grained the individuation of "units" is going to be. This is going to be crucial, of course, if the "units" are those that keep the money. Is the allocation going to be at the level of divisions, schools, departments, research groups – or perhaps individual faculty members?

If anything like this comes to pass, it will change the way the University works. Whether in a good or a bad way, it remains to be seen.


  1. Probably worth going back and rereading those Regents items that came out of the CoF. The "new UC budgeting model" addresses how revenues are distributed among campuses, not within campuses, and includes a model for how to fund the shared costs of the central UCOP administration through an assessment on campus expenditures.

    Also you probably don't want to start internally charging units for use of space. A self-consistent model wouldn't only charge biology departments for the labs the faculty use, but it would charge arts departments for their studio space, etc. Recovered federal indirects may not cover the full cost of supporting research in the sciences, but to suggest that somehow the "hard sciences" should be faulted for not paying 100% of their costs with indirects when whole buildings filled with faculty from other parts of the institution recover essentially 0% of their costs is bizarre. Pushing for an every-tub-on-its-own-bottom model and barring cross-subsidies or state subsidies for the part of our core mission titled "research" might force drastic downsizing in the sciences, but it would leave much of the rest of the faculty quite literally out in the street.

    Better to just recognize that neither instruction nor research "pays its own way," at UC or indeed at any institution with state or endowment support. We have the ability and responsibility to decide how to spend our resources on our core mission. All the CoF did was recommend that the appropriate level for decisionmaking was the campus, arguing that UCOP should not be in a position of taking student fee money (for example) from campus X and giving it to campus Y. If campuses choose to further decentralize resources and decisionmaking, that will be up to them. Not a very scary spectre.

  2. Thanks for this comment. I did not mean to imply that the spectre was scary, just spectral.

    You are right that the main thrust of the proposal is at the campus. Post is being revised to reflect that.