A $4 Billion Mystery is Solved!
by Charles Schwartz, UC Berkeley
This is Act III of the “$4 Billion Mystery at UCOP,” the earlier parts having been posted on February 10 and February 17 at http://UniversityProbe.org . A letter from Patrick Lenz, the University’s Vice-President for Budget and Capital Resources, received February 22, succeeds in solving the first Mystery of the missing money; and he has taught me something I didn’t know before about nomenclature in the UC budget and accounting systems. However, the second Mystery remains to be answered: Why is so much State money appropriated for the University’s Instructional program diverted to other uses, year after year? In addition, VP Lenz confirms essential parts of my earlier analysis that led to alternative budget proposals in this time of a State budget crisis.
The complete letter from VP Lenz is available here. In what follows I summarize and elucidate what he writes and offer further comments on several issues that have arisen.
I think of myself as an expert amateur on matters of university finance and I recognize VP Lenz as the professional. I can learn from him with modest effort; but I expect that most readers will have a difficult time interpreting his letter. So, I will lay out the problem and the solution in some detail. (I will include some typical numbers here, which Lenz did not do at all.)
First we look at the Budget (Governor’s budget or Regents’ budget) and see the following layout of data – here for the fiscal year 2005-06 (current year data)
General Fund $ 2,845 Million
Special Funds $ 60 Million
UC General Fund Income $ 554 Million
…. more things follow …
From this, I concluded that the total of General Funds in the Budget was $2,845 + $554 = $3,399 Million.
Now we turn to the accounting report, “UC Campus Financial Schedules” (CFS), which comes out after the end of the fiscal year and shows how various funds have actually been spent – here for the fiscal year 2005-06, Schedule 12-H
General Funds $3,081 Million
Tuition and Fees $1,786 Million – $416 Million “Scholarship Allowance”
Federal Government $6,428 Million
Special State Appropriations
and Contracts $ 397 Million
…more things follow…
From this, I concluded that the total of General Funds Expenditure was $3,081 Million. I understood, from previous inquiries, that “General Funds” in the CFS included both State General Funds and UC General Funds; and Lenz verifies that this is correct. So, there was my original view of a discrepancy in General Funds: $3,399 – $3,081 = $318 Million for this particular year.
The new thing that Lenz has now taught me is that one must combine “General Funds” and “Special State Appropriations and Contracts” to get the total of State funds in the CFS; and this is to be compared with “General Funds” plus “Special Funds” as found in the Budget documents. The numbers now work out very well: $3,081 + $397 = $3,478, compared to $3,399 + $60 = $3,459.
(The remaining discrepancy is $19 Million, which is really negligible compared to my original discrepancy.) Similar good numerical agreements are found for all the years covered.
My error was in thinking that Special State Appropriations and Contracts was a category of funds distinct from General Funds. Why did I think that? I thought that the words “General” and “Special” were intended to be mutually exclusive. Also, most significantly, in the Campus Financial Schedules one can find clear distinctions between “Unrestricted Funds” and “Restricted Funds”; that tells which funds the University has legal authority to re-allocate. All General Funds in the CFS are Unrestricted; all Special State Appropriations and Contracts in the CFS are Restricted. (See Schedules 1-D through 11-D.) That seemed to me a clear guideline. But I was wrong. Thank you, VP Lenz, for teaching me that lesson.
Transparency is not found by simply looking at documents on the University of California Office of the President (UCOP) web site; it comes through the good old fashioned student’s method of trial and error. It would be nice if there were some handbook, some guidebook, some available reference that anyone might use to become versed in the arcane ways of university finance. I have previously made such inquiries and requests to top people at UCOP – to no avail.
There is no Missing money, in terms of the whole aggregate of State funds going to UC over the past dozen years. We learn that the term “General Funds” means different things in different documents.
Other serious questions remain.
Diversion of State Funds for Instruction
In Act II we saw that the apparently missing money came very selectively from the Instructional Program. Now we need to correct that analysis based on the new understanding provided by VP Lenz.
The previous data in Table 1 showed how Budget and Spending of General Funds was distributed over several Programs, for the sample year 2005-06. Now we see Table 1b, below, which is corrected with the addition of expenditures of Special State Appropriations and Contracts. We now use the phrase “State Funds” to replace more correctly our previous concept of “General Funds”.
Table 1b. State Funds by Program; Fiscal Year 2005-06
|$ Millions||$ Millions||$ Millions||$ Millions|
|Public Service||84||87 +71||(74)||(3)|
|Academic Support||365||474 +17||(126)||(109)|
|Hospitals||51||44 + 0||7||7|
|Student Services||0||1 + 7||(8)||(1)|
|Inst. Support||321||362 + 8||(49)||(41)|
|Op/Maint of Plant||401||322 + 1||78||79|
|Student Fin. Aid||60||65 + 55||(60)||(5)|
|Prov. for Alloc.||27||27||27|
There is a total of $60 Million in State Special Funds that is now added to the Budgeted column; but I don’t know how to apportion it by Program. So, the total Difference comes out very small (20); but the individual Differences need to be increased, in an unknown distribution among Programs. In other words, the huge diversion seen for Instruction ($337 Million this year) may actually be somewhat larger.
Lenz tells us how the total discrepancy disappears. That solves Mystery #1. But we still have Mystery #2: Why has so much State funding that was intended for Instruction been diverted elsewhere? Let’s see this over the years. In Table 2b, below, I make this correction, which is shown following a + sign in the third column.
Table 2b. State Funds for Instruction: Budgeted and Spent
|Fiscal Year||Budgeted||Spent||Difference||Prev. Diff.|
|$ Millions||$ Millions||$ Millions||$ Millions|
|12 year Cumulative Difference||$3,753||$4,394|
This Cumulative Difference is now reduced a bit (from $4.4 Billion to $3.8 Billion); but it is still huge and troubling. VP Lenz, in his latest letter, says he will get to this issue sometime. We shall wait for his explanation of this continuing picture of funds diversion.
Student Fee Revenues & Current Budget Plans
Incidentally in this letter Lenz answers a separate inquiry I had submitted about how various components of Student Fee revenues were treated in the Campus Financial Schedules. What he says there confirms what I had thought to be correct; and I am happy to have that confirmation.
This whole brouhaha arose as a side issue following my January 26, 2011, paper, “Financing the University – Part 21,” where I looked into Alternatives in the Present Budget Crisis. I focused on the concept of “Core Funds”, which is a term introduced by UCOP that covers both State and UC General Funds as well as Student Tuition and Fees. I looked at data for the Core Funds in both the Budget documents and in the accounting documents (CFS). There seemed to be some discrepancy between those two sources of data and I mentioned that I was writing to UCOP for clarification. That has now been resolved.
The important part of that earlier paper was my search for alternative possibilities in moving around various groups of Unrestricted funds as reported in the CFS. That analysis remains unaffected by any of these developments about apparent discrepancies. I hope VP Lenz will study that paper and find that it offers alternatives in planning the next UC budget which, although unconventional, are viable and valuable in preserving the best of this great public research university.
There are a few minor points in Lenz’s letter that I wish to comment on.
He points to a certain footnote in the Campus Financial Schedules: “Excludes General funds Specific Funds”. But on other pages that same footnote reads a bit differently: “Excludes State Specific General Funds.” In either case it was certainly not clear what that meant – until we have the full explanation he has now provided.
He makes a point about the difference between “current year” and “prior year” data in the budget documents. I had already examined that issue and found that the differences were negligible in comparison to the main discrepancy I was dealing with. The particular budget wrenching of 2008-09 is something I was aware of and this did not affect my analysis.
He chides me for my “eagerness to leap to conclusions and publish them without sufficient budgetary facts.” There was a whole history (reported in the first part of this series) of my writing to him, asking when I might expect a response, getting his promise of a quick estimate on their timetable, followed by complete silence, followed by my asking again, “How much longer should I wait [in the face of silence] before making this information public?” I believe that if he had told me, as he said he would, that they were very busy and it would take some reasonable period of time to respond to my inquiry, I would have waited. So, Lenz’s criticism of me here is unwarranted.
On the other hand, I do accept his criticism of my using the word “incompetence” in my February 8 email to President Yudof.