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.

10 February 2011

Charlie Schwartz and the Mystery of the Disappearing Billions

Prof. Charlie Schwartz, who should receive a medal for his tireless digging into UC's financial statements, has uncovered a discrepancy between the Regents' Budget (which includes general fund moneys etc.) and UC's actual expenditures. The discrepancies amount to several hundred million dollars a year, or 4-to-5 billions over the last decade.

Schwartz's repeated inquiries at UCOP (sent to Patrick Lenz, UC’s Vice President for Budget,  Peter Taylor, Executive Vice President for Finance ,as well as President Yudof) have so far gone unanswered.

While the discrepancy might well, in the end, be the result of mismatched accounting definitions, it's remarkable that UC finanaces are so byzantine that not even UCOP's top brass can make sense of them.

Unless, of course, something untoward is going on. Having been raised Catholic, the California Professor knows that to think ill of someone is a sin, but more likely than not to be right on the mark.

07 February 2011

UCB Dropping ballast

We have predicted since the very early days of this blog that the de-funding of UC by the state would bring to the surface tensions and potential conflicts among the ten campuses, potentially undermining the system as a whole. The two flagships, UCB and UCLA, and aspiring falgship UCSD would look to insulate themselves from the effects of the cuts by staking a claim to academic excellence in the system.

Sure enough, it looks like Berkeley is looking to drop ballast in the face of a proposed $80M budget cut. As reported by both the  California Watch  and the UCLA FA blog: in the words of UCB Provost Breslauer,
My greatest fear is that Berkeley will be driven into lesser and lesser stature and excellence to shore up the existence of other campuses [...] We are constantly fighting to make sure that redistribution (of funds generated by the campus) does not threaten our stature, the standard by which public higher education is judged in the world.
The $80M cut represents about 22.5% of UCB's $1.8 billion budget (UCB's share of state funds also declined from $500M in 2005 to a projected  $225M with the new cuts), and 16% of Jerry Brown's $500M cut to UC — but notice also that 16% of undergraduates in the system are at Berkeley (35,300 out of 218,000).

UCB's attitude is nothing new or unexpected. It is also nothing inherently reproachable: UCB has to do whatever they think it is necessary for self-preservation (and so do the other campuses). One just wishes they would go about it in a slightly more diplomatic manner, paying at least lip service to the idea of one university and the "power of ten" rhetoric. You know, just so that the other nine campuses do not feel like they are being dropped as so much ballast.