Rethinking the UC Future (2): the UCOF Report's View of Revenues

Whatever message the Regents wanted to send by passing the Commission on the Future recommendations, the cuts message is what came through. UC officials are promising less to future students - that's what the reporters picked up.

The sacrifice might go somewhere if it were done in an atmosphere of fairness, intelligence, and mutual attention and respect.  The UCOF process did not increase trust or communication -- the Regents, with the exception of the student Regent, did not appear at any of UCOF's listening meetings.  We'll talk about fairness in a later post on pension reforms. Then there's intelligence in planning: this would involve major educational goals for the University and a revenue plan to support it.  One may not expect major educational insight from the Regents, but revenues are their central responsibility.

The Recommendations I didn't get to in Part I take a shot at these. How do they do?
We'll start with Recommendation 14: "Expedite Implementation of UC’s Initiative on Systemwide Administrative Reforms, with the Goal of $500 Million in Annual Savings."  Yes it's true as the Report says that administrative costs are 25-30% of the core budget (perhaps much more) and need to come down. The overall figure is the same as last May's flotation of the unanchored number of $500 m, which had an obvious political purpose but no basis in disclosed calculations.   If UC had $500 million to spend on new IT and a complete overhaul of its procedures on everything from contracts to work-study payroll processing, It could maybe save $500 million.  Nothing like this is going to happen.  There is ample precedent for failure in the business world that many UC officials believe does everything better.  See James Kwak's tale of "Telcom Hell," in which he reminds us,

the business world runs on software, and most of it is bad software. The back end of just about any major company is a tangled mess of archaic, poorly coded, worse maintained, incompatible software programs written over the past forty years.

UC won't fix this any faster than Verizon has, with its vaster monopoly money.

Recommendation 15 is to "Accelerate Development of Self- Supporting Programs and Increase to $250 Million per Year in Five Years the Income Derived from these Programs."  I read the statement and I don't see how they can improve by a factor of 10 on the net proceeds of programs that make the most when tied to business-school executive training.  But say they did through a heroic effort net $250 million.  That's about 3-4% of UC's core campus budgets. These are worth pursuing, but it would take enormous effort to turn them into programs that could help support core education.

Recommendation 16:  Raise UC-Wide Ambitions for Private Fundraising.  This section says something important:

Only 2 percent of all gift support in recent years is unrestricted, even less for endowment. To put this in context, of the $1.3 billion in funds raised in FY 2008-09, just over $25 million could be characterized as unrestricted.

That's pretty much the level where self-supporting programs are right now. A billion of unrestricted money raised each year would add $50 million to UC's budget.  (The Futures Report calculated that to replace the $1.35 billion that had been at that time lost during the decade for the UC budget, the university would need to raise an unrestricted endowment of $30 billion (p. 23)). Even a billion in unrestricted would require a revolution in fundraising - no fame and glory for carefully targeted and leveraged marqué achievements means, right now, no money. UC fundraising has been running flat out for years -how many undone asks are still out there? Which reminds me: we also need figures for the net on fundraising - what it costs to get those revenues, and not just the revenues.

Finally, we get to some real money:

RECOMMENDATION 9: Redouble Efforts to Obtain Full Cost Recovery from All Sponsored Research, with a Goal of
$300 Million Annually."  This would be a very good idea.  The annual loss UC found was $720 million, and more than 50% of the shortfall should be pursued. The Academic Senate, however, did not endorse this goal, and its resistance signals the political quagmire that lies in wait.  Scientists with federal grants will fight this because they will assume that the higher ICR will come out of their direct costs, meaning that even more of their actual grant money will go directly into the accounts of administrators. Scientists with industry grants will fight this because they believe, often rightly, that industry sponsors university research so that it can pay much less than it would pay in-house; full indirect cost recovery would reduce those margins.  This one is worth fighting for, but it needs a set of officials ready to champion it in the teeth of major internal faculty opposition.

And that brings us to our foolish friend, non-resident tuition:

RECOMMENDATION 8: "Increase and Cap Nonresident Undergraduate Enrollment."  Nothing against out of state students. Some of my favorite students are out of state.  They just shouldn't be lined up and milked.  They don't have that much milk to give. And their milkstall does in fact take over the parking spot of some in-state student, without an expensive expansion of facilities.

On the quantity of milk,  the report reads:

Currently there are approximately 7,600 undergraduate students who pay nonresident tuition. During 2010-11, each nonresident undergraduate pays tuition and fees that are about $22,900 higher than the fees paid by California resident undergraduates. Also in 2010-11, the State is providing enrollment growth funding of about $10,000 for each California resident student to help cover instructional costs. Thus, each nonresident undergraduate contributes about $12,900 in resources above the level of funding generated through student fees and State support for California resident students. Each 1-percent increase in nonresident students would generate almost $1 million.

This means that $1 million in new revenues comes in units of 77 out-of-state students. So working from this UCOP table, we can calculate as follows for the best case example of the strategy, Berkeley:

            Out-of State and Internatoinal
2008              1957                               /77    = $25.4 million supplemental tutiion revenue
2009              1759                               /77    = $22.84
2010               3455                              /77     =$44.87
2011     not included in campus report

So out-of-state students have added about $20 million to UCB's campus revenues. This fits pretty well with last year's estimates done by me and by Andrew Dickson.  For an extra $20 million, Berkeley has raised the question of its loyalty the citizens of California, which in turn raises the question of why state taxpayers should vote more tax-based funding.  The additional $20 million adds about 3.5% to Berkeley's instructional budget of around $550 million, and is about 1% of the campus budget of going-on $2 billion.  Try the same thing at the other campuses and you have even less in percentage terms -- and with the opposite of goodwill from the public they are trying to court.

To make matters worse, "The Commission further requests that campuses establish targets for nonresident enrollments that do not displace funded California residents and that the President monitor enrollment to ensure that these students are fairly apportioned among the campuses."  If the nonresident students don't displace instate students, then they will need new facilities. And if they get new facilities, then every penny and more than they bring to the table will go into building their new nonresident lecture seats, lab benches, rowing machines, and so on.  The only way to make money on NRT is of course to use it instead of instate tuition, as profit rather than a source of investment, and in so using it to displace instate students.  The great out-of-state plan doesn't yet make arithmetic sense, and looks more like a hail mary pass.

I note a certain irritation in Bob Samuels's recent post on the meeting, The title gives it away: "Regents Rubber-Stamp Fake Future." He lays out a couple of examples and remarks on the Reports'  "failure to grasp basic math and accounting."  I feel his pain. How can we build the better university with imaginary money?    When I add all the numbers for the UCOF revenue reforms, I can't honesty get past $200 million a year, for the system as a whole, and even that is going to take some time.

We've had the same funding model for thirty years - extramural funding and philanthropy mixed with declining state funds only partly replaced by rising tuition, with varieties of the backroom leveraging of the public money proceeding much as before.  Perhaps disappointment with the UCOF Report can send people to the Delta Cost Project and other sources of better models.