FINANCING the UNIVERSITY – Part 16

by  Charles Schwartz, Professor Emeritus, University of California, Berkeley
schwartz@physics.berkeley.edu                        November 4, 2008

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


THE NEW PUSH FOR TRANSPARENCY

     Mark Yudof entered into the position of President of the University of California with a proclamation that he would advance the cause of Transparency and Public Accountability at this institution. That is a very popular campaign promise nowadays:

“My administration will set a new standard for transparency and accountability.”
 -- Senator John McCain, in his speech accepting the Republican Party nomination to be President of the United States, September 4, 2008.

     At the July meeting of the UC Board of Regents, President Yudof outlined his plans and said that the first accountability report would be presented at the September meeting.   The draft report, issued September 21, 2008, is a very large document: 211 pages in a pdf file of 1.4 Megabytes; the Table of Contents shows it divided into 10 topical Sections, with a total of 102 “Indicators”, that is, graphical presentations of data. A link to that document is given at the end of this paper.

     Much of this is familiar to me; but I am a UC data junkie. Others may be simply overwhelmed by the vastness of the package. (I think it is a standard courtroom strategy of litigators: if the opposition wants “discovery”, drown them in paper.)  Without some effort to prioritize this can lead to pointless chaos: defenders can select data and trends that make them look good while critics can do the opposite.

     In his initial public statements about this initiative, President Yudof said:

“In the wake of the Enron scandal, the Sarbanes-Oxley Act and the subprime mortgage lending meltdown, Americans are demanding more accountability from their private as well as their public institutions.” [UC press release 7-29-08]

That points to the issues of clear and honest financial accounting; and that coincides with much of my own work.  I believe that no subject is more in need of transparency and accountability at UC than seeing where the money comes from and where it goes. As will be noted below, however, this draft report is poorest in that area.

     The central question is whether this enterprise is guided by the principles of truth and openness, which lie at the heart of the academic institution, or by a public relations program designed to serve some other objectives.  My comments on the current draft report are contained in several sections, labeled A-H, below.

A. Need for Responsible Oversight

     There are some pages of data in Yudof’s draft report involving money,  where it is said that the numbers are in dollars, when actually they are in thousands of dollars; and there is one where exactly the opposite error occurs. There is doubtless a staff of people who worked on assembling this report and there is always the possibility of simple errors; but there ought to be somebody in charge of the enterprise, someone with the background knowledge, talent and responsibility to proofread the final work and catch such embarrassing errors.

     Here is another example of gross mistakes at the top, told in an email I wrote on  August 24:  

Dear President Mark Yudof;

I write to alert you to a situation that sharply contradicts the University’s avowed commitment to “transparency and public accountability.”

The “Report on 2007 Employee Payroll”, released by your office last month, has a summary page that indicates that only a very small portion of the total systemwide compensation came from student fees.  That caught my attention and so I looked closer, at Table 2, Total Pay by Fund Groupings.  There was the detailed data claiming that only $101 Million of all UC compensation (1.1% of the total $8.9 Billion) came from the Educational Fees and Registration Fees paid by our students.

For further relevant data, I looked at the latest official UC budget and there learned that, for 2007-08, income from student fees are detailed at $1,270 Million from the Educational Fee and $167 Million from the Registration Fee.  That adds up to $1,437 Million, which is 14 times the $101 Million reported going to compensation.

There seems to be some kind of data mismanagement here; and that is certainly not good for UC’s credibility.  I expect you will want to look into this situation and take appropriate corrective action. Please keep me posted.

A few weeks later I received a reply from a member of Yudof’s staff, saying,

[We] are going to devise a methodology for future disclosures that more accurately reports the relationship between student fees and employee compensation.
Thank you for bringing this to our attention.

     I wonder if that mistake was due to simple carelessness or to some really bad accounting habits.


B. Constant Dollars

     Several of the Indicators show amounts of money as they have evolved over a number of years; and these are labeled as “constant dollars.”  Well, it might be reasonable to apply some adjustments for inflation in such studies; but which technique is being used?

     The CPI (Consumer Price Index) is the most commonly used deflator; and this would be relevant to the average citizens looking at the costs they face. But there is also something called HEPI (Higher Education Price Index), which is often used by universities and colleges when they talk about their finances over time.  What HEPI measures is the growth in cost/spending by the Higher Education industry; thus, to compare your statistics to that yardstick says nothing more than that you are keeping up with the average escalation in college prices.


C. Data on Students

     The majority of this draft report, six out of the ten sections, present various data related to students at UC. There are certainly areas here that need improvement but this is not something that I have personally studied much and so I leave that to other experts.  I would merely offer the personal opinion that, overall, it looks pretty good: UC is a great teaching institution. (Of course, it is also true that UC is a great research institution, as shown in Sections 7,8,9.)

     However, in the section titled “Undergraduate Student Success” I did notice Indicator 1.9, which gave data on Plans of Graduating Seniors: at Berkeley 40% were planning on graduate/professional school. Also, Indicator 1.8 gave Highest Degree Aspirations for Graduating Seniors: at Berkeley 27% aspired to a Doctorate.  There is some other official data for the Berkeley Campus that seems to contradict those numbers quite severely (http://career.berkeley.edu/CarDest/2007Grad.stm ): a survey of seniors some months after graduation found that only 18.9% were enrolled in a graduate/professional school and only 5.5% of them were enrolled in a PhD program. One can certainly expect that the two surveys should differ somewhat; but such a large discrepancy calls somebody’s methodology into question. I would suggest that these items should be removed from Yudof’s report or, alternatively, the two sets of conflicting data should both be presented


D. The Need to Disaggregate

     Sometimes data is bundled into large categories that hide or even misrepresent important details.  Here are three examples where we can call for specific disaggregation.

     The sections of Yudof’s report concerning students and faculty have data on diversity, ethnic and gender distributions for the whole university or for individual campuses. This bundling obscures the fact that there are strong variations in these measures among different academic disciplines; and a bit of that detail is noted for faculty following Indicator 7.5 in the draft report. For more specific information, there is a chart at http://www.ucop.edu/acadadv/datamgmt/welcome.html  that details Ladder Rank Faculty at UC by Field and Sex for October 2006: overall, women were 27.8% of the faculty but counting only the fields of Physical Sciences, Mathematics and Engineering, women were only 13.1% of the faculty. Somewhere, there should be analogous data for students at each degree level, but I could not find it.

     The Student-Faculty Ratio is presented in Indicator 7.6, for all UC and for each campus over several recent years. There is some discussion about how those numbers are calculated but it is unclear. I have written about this topic in the past and noted that it is nonsensical to combine undergraduate and graduate students in the count for this calculation. For students in PhD programs, the majority of UC’s graduate students, it can be shown that the better ranked  programs will show higher Student-Faculty Ratios. This is just the opposite of what one usually thinks the S/F ratio is supposed to mean.  So I recommend that this data be disaggregated as to student level. I would also suggest that one distinguish between Professors and Lecturers in the Faculty counts appropriate to each group of students: this is because those two faculty groups carry very different teaching loads.

     Indicator 10.3 is titled, “Per-Student Average Expenditures For Education” over several years. For the most recent year, 2007-08, the total figure shown is $17,070 and it also notes that Student Fees amount to 29% of this total per-student expenditure for education.  I have written extensively about the grossly misleading character of this data, as it has been regularly presented in the UC Budget. What they call “Expenditure For Education” is really a big bundle that covers all of undergraduate education plus graduate education plus faculty research throughout the academic year. One must disaggregate the expenditure for undergraduate education from that whole bundle in order to obtain a truthful measure; and in my several papers I have shown how to do this in a rational and objective manner, using a variety of official data from the University. My result is that undergraduate student fees at UC are now at a full 100% of what this university spends, averaged per student, for undergraduate education. That contradicts the 29% quoted in Yudof’s report.  For more details, see http://socrates.berkeley.edu/~schwrtz/Approp.pdf 
  

E. What’s Missing  - Data on the UC Bureaucracy

     The graph that appears below shows data taken from an official posting of employment statistics for all of UC.  (Tables of Academic and Staff FTE, which may be found at  http://www.ucop.edu/ucophome/uwnews/stat/ )
Over the period from 1993 to 2007 the total employment rose by 41%, from 93,458 to 131,567 FTE; and the class of employees described as Management (SMG & MSP) rose by 179%, from 2,804 to 7,825 FTE.

graph
 

     I have written about this apparent bureaucratic bloat before (“Financing the University,” Parts 13, 14) and have asked responsible UC administrators if there was any justification for that outsized growth in management staffing.  My estimate is that this is wastage costing the university about $600 million per year.

     In another recent document from UCOP (Higher Education Compact Performance Measures 2006-07) I find the contradictory claim (on page 21):
“Between 1986-87 and 2006-07, systemwide administrative expenditures have
declined from 11.8% to 7.6% of total University expenditures.”  
I have heard such claims in the past but have never seen an explanation of how those numbers are arrived at. I am skeptical of their reliability.

     Yudof’s Accountability Framework should not ignore this subject.

F. What’s Missing – Disclosures re the Pension Fund

     The University’s Pension Fund (UCRP), which is under the direct supervision of The Regents, has recently been a topic of keen interest to many employees; and it has also been a major area for my own investigations and writings. Here is a list of informational items which I have asked to be routinely published.
• Quarterly performance reports for each external investment manager engaged by UC;
• Quarterly reports that compare UCRP investment performance to that of relevant peer groups.
• Annual reports detailing expenses/fees paid out to external investment managers and consultants; also any internal expenses/fees paid out of the Fund.
• Annual report detailing commissions paid on securities transactions.

     All of these data are routinely published by the state’s largest public pension funds, CalPERS and CalSTRS.  In the spirit of Transparency, UC should do so too.

G. What’s Missing  - Data on Discretionary Funds

     As I regularly browse through the University’s accounting reports (“Campus Financial Schedules” is my favorite UC publication) my eye is caught by a category of funds described as coming from “Other Sources.” On Schedule 12-D for the fiscal year 2006-07, the total expenditure of Current Funds from “Other Sources” amounted to $581,445,000. I wonder what that is all about.

     Another category of money I have heard about is called “Discretionary Funds.”  One source of this is gifts and endowments to the University where the donor has not specified the purpose; that is left to the discretion of the Chancellors or some other top administrators. I believe that a substantial portion of the Indirect Cost Recovery (from Federal research contracts and grants) also gets passed around among administrators as discretionary funding.

     Maybe these two opaque classifications of money are related.  I am not suggesting that there is improper use of such funds: I merely ask that they be put on the table for the new Transparency project that President Yudof has undertaken.

H. Other

     Some additional topics that may be of interest: mix of professors and lecturers over the years; fraction of undergraduate classes taught by each category of faculty; data on the  distribution of undergraduate class sizes.

     Finally: Indicators 10.11/12 show “Endowment per Student”; that’s an oxymoron.
 
    President Yudof has invited everyone to look over his draft report and offer comments and suggestions for improvements. The link is  http://www.universityofcalifornia.edu/accountability/     The Academic Senate will be conducting its own review of the report and so faculty members may wish to send their comments by that route.