Persistent Dishonesty from UCOP

Persistent Dishonesty from the UC Office of the President

by Charles Schwartz, UC Berkeley

In this time of financial difficulties for the University of California, one would like to believe that the top officials of UC, whose job is specifically to know about budget details and budget choices and to make recommendations to the governing body – The Regents –  are trustworthy.  This particular account points to the opposite opinion.


• In November 2008, UCOP (University of California Office of the President) made its formal presentation for The Regents’ Budget for the fiscal year 2009-10.  It was clear that a difficult time was ahead in terms of the state’s ability to provide funding that the University felt it needed. The Executive Summary of the Budget, as presented, spoke of the University’s “core funds” coming from State money and Student Fees; and then it mentioned “Other sources of funds”, coming from federal research contracts, private gifts, medical and other enterprises run by the University. It then said, “Use of these [Other] funds is restricted.”

In a paper written and distributed widely on December 15, 2008,  I said that the UCOP  statement about restricted funds was incorrect; and I presented data, from the University’s official financial reports, which showed that the total of UC’s Unrestricted funds (aside from those “core funds”) was twice as large as the Restricted funds. [See “Financing the University – Part 17” posted at http://UniversityProbe.org ] In that paper I also outlined several budget alternatives that were feasible under a correct understanding about what funds are restricted and what are unrestricted.

•• In April 2009, UCOP sent out a glossy document entitled “The UC Budget: Myths & Facts”, which, among other things, said:

“Fact: UC’s budget is made up of many different fund sources, but most of them are restricted to specific uses and cannot be used for other purposes.

That prompted me to write a letter directly to UC’s President Mark Yudof, referring to that document and asking, “Are you the person responsible for that load of lies and half-truths?” [See the full letter, dated April 11,  at  http://UniversityProbe.org ]

I received a response, dated May 12, from Patrick J. Lenz, UC’s Vice President for Budget, who said that he was responding, on behalf of President Yudof,  to my April 11 letter. He acknowledged that I was correct in my criticism, since those other funds “may not be restricted in the legal sense.” [See the full letter from Lenz and my discussion of it at http://socrates.berkeley.edu/~schwrtz “Financing the University – Part 18”.]  Thus it appeared that we had finally cleaned up that old lie; but I was mistaken.

••• In the July 14 issue of the San Francisco Chronicle there was an op-ed piece by Russell Gould, Chair of the Board of Regents, and President Mark Yudof : “UC budget cuts attempt to share the pain fairly.”  In that we read,

“[W]e’ve heard a lot of reminders lately that the $3 billion or so in state funding represents only a fraction of the university’s overall budget of $19 billion. That’s true, but it ignores the reality that most of those noncore assets are restricted for specific uses and cannot be diverted elsewhere.

The lie that won’t die.

•••• Now we skip to Yudof’s remarks at the September 16 meeting of the Regents. These are available on Youtube and there is also a transcript available.  Here is a slice.

It would be easy, though imprudent and sometimes illegal, to take the coffers of the medical centers, the so-called operating reserves, the two months of operating expenses and to move around federal research dollars. Who cares? You get money for nanotechnology? The anthropology department looks good. Let’s just do it.

It would [be] easy to look at our physician practice plan and sweep their reserves and not worry about endangering the health and the safety net for Californians. It just isn’t so. I wish it were so. It just isn’t so.

Here he avoids the word “restricted” but he is playing the same old game of misrepresenting the options available to UC.  If you look at my December 2008 paper, I proposed taking a modest portion of the excess revenues that the medical centers enjoy (about $400 million for the last fiscal year) and applying that unrestricted money to the immediate financial crisis on the campuses. I also suggested taking a modest portion of the physician practice income, which is paid out to Medical School faculty on top of their academic salaries, and doing the same. (I estimated that a 15% cut of that bonus pay would yield $100 million.) My suggestions were simply ignored; and instead Yudof and his team concoct extreme fantasies which they can knock down.

But it is actually worse than that. When Yudof brought his final paycut/furlough plan to the Regents in July, there was special beneficence to those most highly paid Medical School people. While Yudof bragged about the fairness of his plan – everybody sharing the pain – he chose not to mention that all the bonus income from the physician practice enterprise would be exempt from the paycuts. (To
know that little detail you had to find one sentence on page 20 of the 28-page item J2, which the regents were given to approve at that July meeting.)

••••• At the September 16 meeting of The Regents, Vice President Lenz made a detailed presentation of the budget situation for this year and for the next year. [This may be seen at http://budget.ucop.edu/pres.html ]  Here we find a change of tactic: they now use the word “committed” instead of the word “restricted.” Here it is from VP Lenz’s Display 21:

“Unrestricted” Net Assets

• UC does not have billions of dollars in uncommitted funds that it can use to make up for massive reductions in state support.

• UC’s June 2008 financial statements reference $5.3 billion in “unrestricted net assets” — terminology required to be used under GASB requirements.

• The definition of “unrestricted” must be used for any funds that are not subject to externally imposed restrictions. “Unrestricted assets” does not mean uncommitted assets.

That is the same old lie presented with a new twist. The truth is that UC does have billions of dollars in unrestricted funds – that means funds over which the UC Regents and their administrators have full legal authority to allocate –  and they could, if they wished, use some of those funds to make up for reductions in  state support. What does the word “committed” mean? It means only that under normal budgetary circumstances various pots of money would be used for previously assumed purposes. But these are not normal budgetary circumstances: President Yudof has asked for, and The Regents have approved, a Declaration of Financial Emergency.  Money that was previously “committed” to one purpose can be re-assigned to another purpose.

It is all about priorities; and all those options ought to be placed “on the table” rather than hidden behind the dishonest game being played.

In his Display 23, VP Lenz gives a tantalizing table of “Unrestricted Net Assets” . estimated for the end of the last fiscal year, as follows.

• Capital Projects                        $ 946 M
• Medical Centers                       $ 512 M
• Endowment Income/FFEs       $1,199 M
• Debt Service Funds                    $ 35 M
• Misc. Student Fee & Auxiliary Payments    $ 699 M

It may be that Capital Projects have to be left alone; but some of that extra money at the Medical Centers should be on the table. And, most of all, I am curious to know what is contained in that biggest item of unrestricted Endowment Income (FFEs stands for Funds Functioning as Endowments.)

I have a hunch that we can do a better job of budget management than just ramping up the student fees. What we need is a full and honest look at all available funds.

I’ll send a personal note to Mark Yudof inviting his response to all this.


13 Comments

  1. Eugene N. Anderson said,

    September 19, 2009 @ 5:07 pm

    Right. Our chancellors at UCR (where I am Emeritus) never had the slightest problem transferring funds from one pot to another, by fiat, in spite of “commitments.” This lie absolutely must be exposed and people must see that all funds are on the table.

  2. Henry Helson said,

    September 19, 2009 @ 5:11 pm

    Charlie,
    It weakens your presentation to call Yudov or others
    liars. Your argument is strong enough, gross incivility
    (and this is) weakens it.
    – henry

  3. Charlie Schwartz said,

    September 19, 2009 @ 5:47 pm

    My dear old friend Henry,

    I did not call anyone a liar. Of course I did identify several formal statements by UC officials as lies. That is part of my (and your) ongoing obligation as a university professor: to seek truth and to identify untruths.

    I don’t think that it is uncivil to fulfill that obligation openly (although I grant that some may see it as impolite.).

    Best regards,

    Charlie

  4. Warren Gold said,

    September 19, 2009 @ 6:45 pm

    Charlie
    I hope you can unravel the details of the “committed” funds, especially the FFEs.
    You will remember that the UCSF Faculty Association proposed a 15% cut in executive salary for those making over $200,000 coupled with a cut in physician bonus payment to make up the needed $200 million. Not even mentioned by Yudoff or the then-chair of academic senate, Mary Croughan for that matter.
    The current estimate is that a large % of medical school faculty will be exempt from the pay cut/furloughs.
    UCPB is still trying to get the data on increase in administrative FTE to corroborate your earlier study.
    Keep up the good work.
    Warren

  5. UC Students Walkout « UC Undergraduate Coalition said,

    September 20, 2009 @ 5:02 pm

    […] 1. Read these articles: Execs Still Get Raises as UC Cuts Staffing, Pay (August 2009) Follow the Student Fee Money (September 2009) Persistent Dishonesty from the UC Office of the President (September 2009) […]

  6. Michael Demetriou said,

    September 20, 2009 @ 9:07 pm

    Your analysis is flawed. UCI Medical Center (for which I have knowledge of) does indeed on paper have an annual profit that appears as un-restricted funds on a spreadsheet. However, these so-called “profits” are made on the backs of the rank and file clinical faculty (there are some salaries in the SOM that are way out of line but these do not represent the vast majority of clinical faculty). UCI SOM faculty routinely take care of patients for free (patients without insurance), while the hospital is paid for taking care of these patients by the federal government (so called disproportionate share funds). This results in a chronic multi-million dollar deficit in the UCI SOM, where the faculty salaries are paid. To cover this imaginary ‘deficit’, the Medical Center transfers “profit” to the SOM to correct the deficit. Thus, for UCI, these funds are indeed “committed” and cannot be raided to support undergraduate education. I suspect that this is also true at the other schools. As you can see, the issue is far more complex than it appears on a spreadsheet.

    Michael Demetriou MD PhD FRCP(C)
    Associate Professor
    Departments of Neurology, Microbiology and Molecular Genetics
    Institute for Immunology
    University of California, Irvine

  7. Aldo Antonelli said,

    September 21, 2009 @ 11:06 am

    Of course, the fact that UC MC’s profits contribute to a worthy cause (pay clinical faculty for their care of indigent patients) does NOT imply that *some* of those profits could not be diverted to the main campus. After all, undergraduate education is just as worthy an endeavor.

  8. Derrick said,

    September 21, 2009 @ 4:23 pm

    Michael–

    Agreed it’s not an uncomplicated issue. However, I’d add that state capital appropriations more than make up for MC transfers to the SOM. Take UCI for example, which netted $47.1 MM in excess income, then transferred $35.3 MM of that to the SOM in 2008. It would seem this leaves the medical center with significantly less net income to use for the usual purposes… like capital development. Except, unlike your average California hospital, UCI received over $77 MM in state appropriations for capital dev’t.

    Moving money around is a shell game which UC administration, for all its shortcomings, happens to great at. If only they moved it around to fairly compensate all of the individuals that build the University.

  9. Anon1 said,

    September 21, 2009 @ 8:53 pm

    One key point that I think this discussion illustrates is that the budget details ought to have been discussed, presented and debated (by UCOP, the Regents, the Academic Senate, and others) more openly, clearly and thoroughly than they were.

    I’m also concerned by Taylor’s (‘myth&facts’) assertion that hospitals’ holdings should be guided by Moody’s to $3bn. I’d like to know whether this is an appropriate guide or not (and why), and what the implications of dipping below $400mn would be. Taylor leaves such questions unaddressed, and I think that sort of ambiguity illustrates some of the defensiveness and reluctance of UCOP to clearly and fully explain/justify their approach.

    I find Warren Gold’s point above regarding UCSF recommendations very important because it contradicts the assertion made by some that cutting top salaries & bonuses further would jeopardize top faculty who bring in significant grants and students. If the faculty are suggesting their salaries be cut, one has less of a basis to argue that cutting the salaries would cause them to leave! (though presumably there may have been dissenters to the Faculty Association proposal who would be inclined to leave were salaries reduced). However, there is again more ambiguity on UCOP’s part since there is not hard, systematic evidence any debilitating faculty exodus would occur, particularly since other major competing universities have experienced financial drops also.

  10. Anon1 said,

    September 21, 2009 @ 8:57 pm

    Also, regarding the UC endowment, to Taylor’s credit, he does note that “At the President’s request, staff is looking into whether there is flexibility to change or reallocate these monies into programs that reflect the changing priorities of the university.”

    Such a reexamination is necessary and welcome, but is also rather late in the game. This should have been done earlier, but regardless now it should still be done and done in an open and fully explained and justified manner in consultation with the public.

  11. looking post » Blog Archive » Life is hard when you make $828,000 a year said,

    September 23, 2009 @ 10:46 am

    […] Charles Schwartz comes along and claims that the previously released Myths & Facts document is misleading– and brings Yudof’s credibility into serious question. People who were already mad get […]

  12. John said,

    September 24, 2009 @ 2:18 am

    Aldo Antonelli,

    Is undergraduate education just as worthy an endeavor as paying clinical faculty for their care of indigent patients or just as worthy as the care of indigent patients? As a UC undergraduate, I would not want the care of indigent patients to be reduced in order to avoid an increase in student fees. I also would not want workers not being paid in order to avoid an increase in fees. Granted, after the clinical faculty are paid for their work, any excess can be siphoned off to other purposes. However, I suspect that it wouldn’t amount to much.

    That being said, UCOP’s lack of transparency is terribly frustrating. On the Berkeley campus it’s breeding wholesale confusion and quite a bit of (justified) fear among undergraduates and grad students alike.

  13. Pentagron said,

    October 1, 2009 @ 8:35 pm

    I am the chair of a clinical department at one of the UC medical schools. The marketplace for physicians is competitive. We already pay our physicians substantially less than competitor institutions including health plans like Kaiser Permanente, group practices, and local hospitals. It is very difficult for us to recruit physicians — our residents almost never want to stay on our faculty because they can immediately command salaries that are 40% higher working in the private sector. I assume that the faculty physicians who choose to continue to work for us do so because they enjoy the stimulation of being with bright colleagues and the rewards of training the next generation of physicians. However, they can easily pick up and go tomorrow. If I cut the salaries of my faculty to pay for the salaries of faculty members in the anthropology department, they will do just that. President Yudof is correct. It is not possible to loot the medical centers to pay the university shortfall. We already work on razor thin margins because we operate inefficiently (there are costs to training medical students and residents), we take care of terribly sick patients, and we provide a disproportionate amount of charity care. Attempting to solve the budget shortfall by taxing the medical centers would most certainly kill the golden goose.

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