Will UCOP's Latest Efficiency Tax Employees?

By Onuttom Narayan (UCSC)

Under the name of UCPath, the University of California will move to a single payroll and HR system for all campuses and medical centers “that meets the core needs of each location while capturing the efficiencies, improved data and cost-savings associated with unified systems.”
Unfortunately, one of the likely consequences of this will be a new “tax” on faculty research grants. This is because one aspect of the new system is the introduction of “Composite Benefit Rates” (CBR), where employees are divided into a small number of groups, and the benefits charged to the budget for each employee are based on the average cost for their group instead of the actual cost of their benefits. If all salaries were being paid from state funds, this would be a harmless accounting change. But this is not the case, and as the CBR Steering Committee's final recommendation admits, there will be winners and losers.

Most notably, for faculty members who are academic-year employees, funding sources (e.g. research grants) that pay their summer salary will be charged for benefits at the same rate as for academic year salary. At present, the summer benefit rate is much less (except at UC Davis which has already implemented CBR), because there are few additional benefits associated with summer salary: medical insurance coverage is already provided for the whole year for academic year employees and therefore there is no additional employer contribution for the summer; summer salary is not covered compensation for UCRP, so there is no employer contribution to UCRP for summer salary (there is a small contribution to a defined benefit plan that is included in current summer benefit rates). Because of these, for every dollar in faculty summer salary from a research grant, currently the University only charges the grant an extra 10-14 cents for benefits. Under the new model, the same grant will be charged the 30-35% academic year benefit rate, i.e. approximately 20 to 25 cents more without any increase in benefit expense to UC.  (1) With indirect costs (overhead) charged for the benefits, the new “tax” becomes 30 to 35 cents on the dollar. Summer salary from other sources, such as from summer teaching, will be affected in the same way: the funding source will have to allocate more money for benefits, but it is only for research grants that the faculty will have to figure out where to find the money.

The implementation of the system, which was originally scheduled for this year, will happen with very little warning. Faculty members with current research grants will face the choice of reducing their summer salary or reducing support for graduate students or post-docs.

The CBR Steering Committee euphemistically describes the inclusion of faculty summer salaries as “a topic of interest during this project by many constituents.” This is another way of saying that committees of the Academic Senate strongly resisted this plan, were initially told that this would not happen (and even, at some point, that no benefits would be charged for summer salaries) before discovering at the last minute that the Steering Committee's recommendation had changed. When this issue is raised by the Senate, senior management complains that UC receives far less indirect cost than do private universities—an issue that has nothing to do with benefit costs and is an indirect confession that the plan all along has been to squeeze extra funds from faculty grants.

The change is claimed to be driven by the Division of Consumer Affairs (DCA) of the federal government, with which universities negotiate the charges they levy on research grants. In December 2012, the University Committee on Planning and Budget (UCPB) of the Academic Senate was told that UC representatives – including the Chair of the Academic Senate – had met with DCA and found them receptive to separate benefit rates for summer salaries. In February 2012, UCPB was told that in subsequent meetings with UC representatives – this time without Senate members – DCA eventually decided that the University would have to charge either the same benefit rates for summer and academic-year faculty salaries, or charge no benefits for summer salaries. Nothing in between was permissible, including a rate that would approximate actual charges, and the University eventually decided that charging nothing for summer benefits was unaffordable. At present, the University calculates benefits individually for each employee, a process that the CBR Steering Committee describes as equivalent to “hundreds of thousands” of benefit rates. No explanation was given why federal agencies would, when presented with a proposal to reduce these to a handful of rates, insist on a further reduction that would eliminate a separate summer salary rate, a reduction which would cost federal agencies more than what UC proposed!

Apparently the UC Berkeley administration has gone to DCA to request that Berkeley be allowed to set a separate summer benefit rate. If this is successful, it is possible that other campuses will follow suit. Otherwise, the faculty at large will learn about the new system when a fresh bite is taken out of their research grants.