Tuesday, March 1, 2011

Understanding the UC Budget Part II

In a response to AFSCME’s suggestions of how to reduce the University of California’s spending, UCOP has written a detailed discussion of the way the UC budget really works. This explanation is instructive because it trots out the usual half-truths, but with many “facts” that are easy to refute.

The Office of the President's first major claim is that reducing funding for athletics or special retirement packages for senior managers will not help the budget situation because state funds do not support either of these expenses. The first part of this argument rests on the idea that self-sustaining units like collegiate sports pay for themselves. However, we know what several of the campuses regularly subsidize their athletic programs; in fact, the Berkeley faculty senate voted last year to stop the practice of shifting millions of dollars a year to the athletic department to cover the internal deficit. We also know that all self-sustaining units use UC buildings that have been built out of state funds and are financed through the shared UC bond rating. Once again, the problem is that the self-sustaining units want everyone else to pay for their losses, while they keep their profits.

In terms of special retirement deals for administrators, we learned from the state audit of UC executive pay that compensation for management comes from multiple sources, including state funds and student fees, and so it is hard to believe that state funds are not supporting special retirement perks. Actually, UCOP does affirm that “management positions are funded out of numerous sources and on average only 28 percent of the savings come from state General Funds.” In other words, close to a third of executive compensation is paid by state general funds.

As I have recently pointed out, all of these budget statistics are suspect because the UC pools its money in several areas. For instance, in a recent Regents investment meeting, we find the following discussion of how the UC invests its operating cash and grant funds on a regular basis: “Mr. Anderson noted that some of the funds would include federal grants and contracts; for example, if the National Science Foundation were to give $500,000 at the beginning of the year to be expended over the course of the year. He cautioned that, in his example, the National Science Foundation would not be pleased if three percent of their grant were lost. Mr. Anderson asked who would be responsible should investment losses occur. Mr. Taylor responded that the campuses would be responsible for any losses.” Here we not only learn that money from grants is regularly pooled with other funds in investment accounts, but more importantly, if losses occur, the campuses have to use their general funds to cover the grants. Moreover, what this discussion does not say is who gets to keep the profits from the investments.

It appears that the general philosophy of the campus is that the self-sustaining units retain their profits, but the general fund has to bail out anyone who loses money. This structure may help to explain Charles Schwartz’s recent investigation into how billions of dollars coming from the state and student tuition for instruction appear to be unaccounted for in UC’s own budget documents.

Like the rest of the country, the poor and the almost poor have to subsidize the wealthy when profits are privatized and risks are socialized. In the case of the UC, the rich medical centers and housing, parking, and dining services declare that because they are non-profit, any of their excess revenue goes back into their own enterprise, or as UCOP explains, there are no reserves because money has to be saved in case “cost estimates are not achieved.”

At the end of the letter, UCOP explains that no state funds go to support the supplemental retirement plans for senior managers, but then he adds that the cost of these programs are subsidized by an “assessment” to each campus. In other words, state funds go to the campuses, and then the campuses are taxed to pay for the special perks to the highest-paid employees, so while state funds are not supposed to pay for supplemental retirement, campuses use state funds to pay for their share of executive compensation.

The only solid rule of the UC budget is that there are no solid rules, and if the rich want to get richer, they will surely find a way.


  1. "Once again, the problem is that the self-sustaining units want everyone else to pay for their losses, while they keep their profits."

    This statement,offered here in the context of UC, looks like it would also apply, pretty much verbatim, to the private sector in general, most recently and most notably the financial sector. We'll keep all the profit, thanks, but you'll bail us out at the taxpayers expense if anything goes wrong.

  2. Is the written response you mention available for distribution?

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