FINANCING the UNIVERSITY -- PART 4

by Charles Schwartz, Professor Emeritus, University of California, Berkeley
schwartz@physics.berkeley.edu      August 27, 2000

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

The Cost of Undergraduate Instruction


The University of California is a corporate conglomerate operating at the rate of ten billion dollars per year. How much of this money is spent on the primary mission of providing undergraduate instruction to the (mostly) young people who come out of high school seeking more knowledge, greater intellectual skills and the best preparation for a lifetime of rewarding work? You cannot find an answer to this question anywhere in the copious literature or the websites provided by UC to the public; and I doubt if there are (m)any members of the faculty - or of the Board of Regents - who know the answer.

If you search the documents that pass between UC's Office of the President (ucop) and the relevant State offices in Sacramento, you can find the following statement:  "For UC, the 2000-01 cost of education for a general campus student ... will be $18,025." [Source: the Governor's Budget Summary, 1/10/2000.] In this paper I calculate the true cost of undergraduate instruction at UC (for this same year) to be approximately $4,900 per student. The difference between those two numbers lies, as the alert reader will notice, in that one word "undergraduate" which qualifies my calculation; and the interesting thing to consider is why this makes such a large difference (and why UC officials would prefer that one not talk about this).
 


Analysis of UC's Annual Expenditures

The University has a well established accounting system which provides an annual report of "Current Funds Expenditures", i.e., operating costs, classified according to a set of ten categories, as shown in Table 1 for the fiscal year 1998-99.
 
 
Table 1. Consolidated Schedule of UC Expenditures of Current Funds, 1998-99
Category $Millions
Instruction 2,260
Research 1,865
Public Service    239
Academic Support 1,072
Medical Centers 1,858
Student Services    283
Institutional Support    536
Operation and Maintenance of Plant (OMP)    305
Student Financial Aid    467
Auxiliary Enterprises    496
     Total 9,382

Source: University of California, "Campus Financial Schedules 1998-99", Schedule 12-E
available on the Internet at   www.ucop.edu/ucophome/cao/reports/
This Table excludes funds for Department of Energy Laboratories ($2,997,073,000.)
 

The first three categories - Instruction, Research, Public Service - provide the University's three-part mission as a state institution. Here we identify the direct costs. Instruction covers the salaries and employee benefits of faculty, graduate student teaching assistants, departmental support staff (technical, supervisory and clerical) along with departmental supplies and equipment. Research covers the expenditures (beyond faculty salaries) for specific research projects supervised by faculty members and paid for by state funds, federal funds, and private sources (foundations, industry).  Public Service covers a number of activities, mostly specified and paid for by the state, of which agricultural and educational outreach programs are the largest.

The next three categories - Academic Support, Medical Centers, Student Services - provide specific support services (intermediate between direct costs and overhead) for the primary activities described above; I'll get into more details of these later. The next two categories - Institutional Support and OMP - provide (campus-wide and system-wide) the administrative and physical plant services that are the typical overhead expenses in any large organization. The final two categories - Student Financial Aid and Auxiliary Enterprises - do not concern us here.

The core of what we are interested in (the direct cost of undergraduate instruction) lies in the first category, Instruction, but we must first remove unrelated portions, then add in appropriate contributions (indirect costs) from other categories. I will go through the steps of this calculation below, leaving out some details. (The input data for this calculation come from the Campus Financial Schedules, previously cited.)

Step 1. Remove from the Instruction category the expenditures for Summer Session and University Extension ($226 million) and also all contributions from the Health Professions ($848 million), Law Schools ($31 million) and Business Schools ($78 million); this leaves us with an adjusted expenditure for Instruction of $1,077 million.

Step 2. What we have accounted for in Step 1 is: the salaries of the faculty and their supporting staff in all the academic departments (excluding the professional schools of health sciences, law and business) along with their necessary supplies and equipment. What we want to get hold of is undergraduate instruction,which is just one part of this package. Throughout the University, the primary activities of Instruction and Research (I&R) are initiated, conducted and supervised by the faculty; and so if we want to separate the above-determined cost ($1,077 million) into its component parts (undergraduate instruction, graduate instruction, research, public service), we need to see how the professors' work is apportioned among these activities.

The best available data has already been cited in Part 1 of this series of papers. According to a 1984 survey, UC's full time faculty (excluding health sciences) spend:
     26.0 hours/week on Instructional Activities;
     23.2 hours/week on Original Research/Creative Activities;
       6.6 hours/week on University Service;
       5.5 hours/week on Professional Activities/Public Service.
Adding a portion of University Service to Instructional Activities, we find that 46% of total faculty work time is devoted to Instruction (and not to research or public service). We have the further information that faculty divide their teaching equally, on the average, between undergraduate courses and graduate courses. So we will charge 23% of the cost of faculty (and faculty-support) to undergraduate instruction.

First, however, we must identify a portion of the $1,077 million instructional cost, derived in Step 1, which is paid to Lecturers and to Graduate Student Teaching Assistants; this is only a small fraction of the total dollar amount but it is (almost) all directed to undergraduate instruction. Using the best available data I have calculated this expenditure to be about $135 million; and I will charge 90% of this ($122 million) to undergraduate instruction. Then, I take 23% of the remainder ($1,077 - 135), which is $217 million. Adding these two numbers, we have the resulting Direct Cost of Undergraduate Instruction: $339 million.

Step 3. Now we turn to the Academic Support category in Table 1. Here we find expenditures in several major subcategories: Libraries ($190 million); Computer Support ($41 million); Ancillary Support ($550 million); Academic Administration ($247 million). I estimate that half of the Library and Computer Support expenditures may be charged to undergraduate instruction ($115 million) along with one-quarter of the Academic Administration expenditures ($35 million, after removing the contributions from the professional schools). The Ancillary Support is related to research activity or medical centers, which we do not want to include in our calculations; and several smaller sub-categories have been ignored. Adding these Academic Support expenditures to the result of Step 2 gives us the sum: $489 million for undergraduate instruction.

Step 4. Finally, we combine the overhead expenses of Institutional Support and OMP in Table 1, and distribute this uniformly to all the other categories listed there, excepting Medical Centers and Student Financial Aid. This gives us a uniform overhead cost rate of 14%. Applying this overhead rate to the result of Step 3, we get the Total Cost of Undergraduate Instruction for 1998-99 = $557 million. Dividing this total cost by the number of undergraduate students (122,789 FTE) we get the resulting unit cost of instruction = $4,540 per undergraduate student in 1998-99.

Step 5. I can estimate the value of this result for the current academic year (2000-01) by adding in the relevant budget increases for the past two years - a total of about 8% - to get our result: the unit cost of undergraduate instruction = $4,900 per student for the current year.

There is one more category of expenditure in Table 1 for us to consider: Student Services. These programs and activities, outside of the formal instructional process, include counseling and career guidance, tutoring, student health services, social and cultural activities, admission and registrar operations, financial aid and loan collection administration and services to students with disabilities. Using the numbers provided above I estimate this cost, for 2000-01, to be approximately $2,200 per student. If we add this to the unit cost of undergraduate instruction ($4,900) we get a result which is called the unit cost of undergraduate education = $7,100 per student.
 


Understanding These Results

We see the marked discrepancy between the above result and the per-student cost of $18,025, which is quoted in the Governor's budget summary for 2000-01. (This figure is called the "cost of education" and the "cost of instruction" in different documents I have found; and it is unclear to me whether this figure is supposed to include the Student Services component or not.)

The reason for the big difference between my calculation ($4,900 or $7,100) and that of UC and State officials ($18,025) is that I focus on what UC provides to undergraduate students alone while the larger number bundles together all the components of the University's academic mission - undergraduate teaching, graduate teaching, research and public service - and places this total cost upon the head of each student. One can roughly summarize what we have learned as follows: the cost of undergraduate instruction at UC is around one-third of the cost to UC of the aggregate academic mission (excluding the main professional schools). A more striking summary, answering the question posed in the second sentence of this paper, is the following: The cost of undergraduate instruction is only a very small fraction - 6 percent - of the total annual expenditures of the University of California.

I think it is widely understood that graduate schooling is more expensive (per student) than undergraduate schooling and that research activity is often a lot more expensive than teaching activity. The calculations given above provide a reliable quantitativemeasure of these distinctions, and, as such, should be of interest to public officials and taxpayers as well as to students and their families.

This is not the first time such a cost calculation - looking separately at undergraduate instruction - has been carried out. In 1993 I performed an analysis similar to the one detailed above; and this may be found in "Looking Into the UC Budget -- Report #8", which is posted on my web site. That paper elicited a detailed response from UC's top budget official; and that document may be seen in Report #8a.  What we learned there is that UC officials had no criticism of my methodology or of the details of my calculation; they just did not want to consider the cost of undergraduate instruction as an issue that can be separated from the total package of academic functions. I can guess that this is a strategic (political) decision that UC leaders make in order to maximize the annual appropriation of State funds to the University. Is that really the best policy?

This official stance can be quite misleading to uninformed observers. When UC says that the cost of instruction is $18,000 per year per student, many people will mistakenly interpret this to mean the cost of undergraduate instruction is that much, because undergraduate education is what most people think about when they think of the University. This misrepresentation comes up in discussion of student fees: the Governor's budget summary says, "students pay approximately 21 percent of this cost"; but if we ask specifically about undergraduate students, we now see that the fees they pay ($3,903 per year) actually amount to 55 percent of what it costs UC to provide their education. This error is even more egregious in the case of nonresident undergraduate students, who are charged out-of-state tuition plus fees amounting to $14,517 per year - which is twice the actual cost of their education at UC.

Looking ahead, there is another reason why UC may soon want to come clean about the true cost of undergraduate instruction. In Part 3 of this series I discussed the predicted challenges to public higher education coming from the development of high-tech distance learning and the rising tide of private sector competition. In that contest, the two dominant issues will be quality and cost; and if UC continues to grossly overstate its own cost (per undergraduate student), it may be committing economic suicide.