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[The letter that follows was inspired by the work of Bob Meister, posted at
http://www.cucfa.org/news/2009_oct11.php ]

Department of Physics
University of California, Berkeley
Berkeley, CA 94720
October 15, 2009

Regent Fred Ruiz, Chair, Committee on Compliance and Audit
Regent Monica Lozano, Chair, Committee on Finance

Dear Regents Ruiz and Lozano;

I write to convey a concern, which is shared by a number of my faculty colleagues, regarding a lack of information about the relationship between student fee revenues and the University’s debt service activities. It is unclear, at this point, whether this situation might be a lapse in the exercise of fiduciary oversight by The Regents or merely a failure to provide the Accountability and Transparency that has been promised by the President.

In 2003 The Regents adopted a new arrangement for increasing its overall debt capacity. A General Revenue pool was established for financing most of the campus-based capital projects and a separate Medical Centers pool was established for that set of enterprises. A particularly novel feature was that student fee revenue was to be included in the General Revenue pool – in fact it is the largest component therein.

As I understand the University’s policy, each campus-based capital project that requires external borrowing, via loans or bonds, must plan on providing the necessary debt service through the specific revenue stream that the individual project is intended to provide. The bulk of the General Revenue pool is “pledged” as a backup source of debt service, for use only in case of default by that primary cashflow. [See, for reference, the “Annual Debt Capital Report to The Regents”, Fiscal Year 2007-08, at the bottom of page 7.]

The question that has arisen is whether student fee money is being used or may be used as a primary source of debt payment on some construction projects (other than certain capital projects that are explicitly to be funded by the student Registration Fees.)  The immediately troubling situation is that I have been unable to find an answer to that question for campus-based projects.

By contrast, I have looked at the last annual Financial Reports of the University’s five Medical Centers; and there I find, for each entity, a table of annual values for their “Debt Service Coverage Ratio.” This is a most instructive datum: the net operating revenues divided by the scheduled payments of interest and principal on outstanding long-term debt. The numbers published for FY 2008 are, 2.5, 6.3, 2.2, 7.8, and 4.2  – showing a very healthy financial condition with each medical center easily handling its own debt service obligations without having to be bailed out by the other members of that pool.

Is there any such data to be found for the campus-based capital projects?  I have looked at several published reports and made specific inquiry to a knowledgeable person at UCOP; and the answer appears to be, No.

I find this shocking; and I therefore write to you for resolution of this problem.

Sincerely yours,

Charles Schwartz
Professor Emeritus
schwartz@physics.berkeley.edu

CC:
Regent Russell Gould, Chair of the Board
Student Regent Jesse Bernal
President Mark Yudof
Senior Vice President Sheryl Vacca