Notes on State Audit of UC Finances July 2011
Jelger Kalmijn President UPTE-CWA
(The entire audit can be downloaded at: http://www.bsa.ca.gov/pdfs/reports/2010-105.pdf)
After nearly a year of in depth analysis, a team of 14 specialists from the state auditor’s office came to the conclusion that UC’s financial information lacks transparency. The audit, called for by UPTE, other UC unions and UC students and commissioned by Senator Leland Yee tasked the auditors to account for the public funds UC receives and how they were spent. With the accounting information provided by the Office of the President, the auditors were able to give a very general description of UC’s financial structure but had great difficulty in tracking particular expense categories.
The major points the auditors summarize are:
(1) UC requires greater financial and budget transparency starting with an up-to-date and publically available budget manual that describes how funds are allocated
(2) Students have been forced to make up for most of the loss in state funds, even while UC auxiliaries, research revenue and other sources all increased an average of 25% over the 5 years of the audit (income from investments went up by $446 million or 82% ).
(3) The amount UC spends on students varies widely depending on the campus, with the campuses that have the greatest ethnic diversity getting the least amount of money per student.
(4) UC Office of the President has a category of miscellaneous services which includes consultants that is more than $1 billion per year and has no more detailed information.
(5) Escalators for staff raises included in grants are received by UC, even when UC allows no raises.
(6) The negative balances in UC’s overall assets largely result from accounting changes requiring UC to post their retiree health benefits to their ledger and a reassessment of the pension liability.
UC Office of the President makes political choices about the University ‘s budget. They have chosen to dramatically increase student fees and dramatically cut their contributions for employee post-employment benefits to balance the budget. Other decisions could have been made. UC, while taking substantial cuts from the state, has such a broad financial portfolio that it had other options. UC could reinvest the profits from auxiliaries, investments and medical centers into the teaching mission of the University.
The auditors show that less than 40% of UC’s public income is restricted to specific expenses. The remaining more than 60% can be spent at UC’s discretion. Over the 5 years of the audit only one of the main 10 function categories had reduced expenses: academic support. Research, institutional support, and student aid are among the 9 function categories where expenses increased for an average of about 15%. Academic support includes the libraries and activities related to educational departments.
The money from most of UC revenue sources gets divided up based on unclear formulas and with very little accountability for either how it is spent or if the expenses actually achieve the stated goals. When UC was asked to explain why some campuses got more per student than others they could only response that it was a result of decades of separate decisions by the Regents and the Office of the President and they had no time to reconstruct this history. In essence UC could offer no justification other than to say that is just how it has been done.
The overhead money from research grants gets divided into general funds, University opportunity funds (for high priority research and instructional needs) and off-the-top funds to manage the contracts and grants administration. Most of this money is returned to the campuses and the Office of the President has little oversight on how it is allocated between department funds, administrative support, chancellor’s discretionary funds, and other funds. These funds add up to nearly $650 million annually.
While outside the scope of this audit, the University medical centers made more than $525 million in the first quarter of 2011, making them 4 times more profitable than last year. This profit was made even though UC saw almost exactly as many patients this year as last year for the same time period.
UC has chosen not to take money from the highly profitable portions of the University and re-allocate it to support UC’s key goals of educational accessibility and quality staff. As long as there enough parents who can afford to send their kids to UC, UC will keep increasing the fees, even if the mix of student no longer represents the citizens of California. As long as UC can fill empty positions in a depressed economy, keeping knowledge and quality staff has not been made a priority. UC has opted for the short-sighted strategy of reinvesting like a business trying to make more money rather a tax-payer supported academic institution with a public service mission.