This week's UC Regents meeting is the tenth anniversary of a Senate First and, so far, a Senate last--a direct presentation to the UC Regents of a faculty view of the budget. In May 2007, Senate chair John Oakley and UC Provost Rory Hume arranged for me as the chair of UCPB to present the budgetary conclusions of what came to be known as the Futures Report. It had, over a two year period, been researched and written by UCPB, approved by Academic Council, and submitted to President Bob Dynes for transmission to the board. John and I spent a fair amount of time with Rory boiling the report down to the simplest possible slide deck for our 15 minutes. We also picked the lowest-tech slide design we could find, to symbolize our humble professorial communion with the facts.

The whole project emerged from a period when it seemed that UC was capable of choosing its own path. It also seems that the faculty as a whole would play a meaningful part in that complex choice. I had hoped it would be the first of a series of regular faculty presentations to the regents, because I thought then and now that a real dialogue would ease the governance and budgetary problems that continue to haunt the University. Here's how it went.

I enthused at the start that there's a reason we want to see a steady upward trend of state funding: that trend had enacted the idea of 8 or 10 research universities linked together in an integrated system, which meant that top-quality education would not just go to the top .1% or 1% but to 10% and more. Strong public funding, I said, explained why UC wasn't SUNY or the UNC or Texas system with a couple of flagships and then a miscellany of varied campuses that conducted little or no research.

Since public funding built the thing, why had funding been cut in two multi-year rounds (1992-1995 and then again 2002-05--we hadn't yet experienced the recent cuts that began the year after the presentation). Did the cuts just reflect a business cycle?

This is a slide that UCOP had presented to regents at least once a year. It said yes, it's up and down with a trend of state investment that is always up. But the slide was misleading.

By erosion, we meant deterioration in core undergraduate instruction and services, deterioration in research climate and infrastructure, and, appealing to the board's perennial concern with status, loss of top applicants to graduate and undergraduate programs and of faculty. Grad program admissions had already become a prominent worry in the 2002-05 cut cycle.

Still working with UCOP materials, we pointed out a

But then we brought in our own research. It showed

This is a measure of the state's overall financial resources available to support higher education: it's what people actually earn, in part because of their access to education. Between 1990 and 2005, this had been cut 35% in real dollars. Sacramento had basically reduced UC's share of state income by half in the 20 years preceding the third round of cuts that would begin in 2009. This is common sense now, but a secular trend of disinvestment seemed to come as news to the regents and to most of UCOP ten years ago.

We had tried for a while to get detailed budgetary data from UCOP, without success. So UCPB had decided to go ahead and do our own research with whatever was publicly available, and then ask UCOP officials to confirm or deny.

 

"Core" budget was a kind of breakthrough, because it carved out massive UC revenues that don't much to do with campus education.

So it leaves out:

UCOP adopted this distinction in its budget for current operations during the Yudof period. "Carry offsetting expenses" was a muted way of saying that many of these activities run direct net losses for the university, even if they have indirect gains for the university later (and direct gains for outside sponsors and society as a whole). To keep things simple, we didn't want to open that can of worms. We gave up an important opportunity, but I'd thought my Senate successors wouldcome back to the regents with followup material later on.

Our report was called "The Futures Report" because we projected costs for several different budget pathways. 

These three scenarios, plus a fourth called The Michigan Model (more on that in a minute), were compared to a benchmark that tracked the growth of state personal income. The idea was that UC's benchmark would be "growing with the state," neither more nor less, meaning we wouldn't be playing the "make up for cuts" game as we are still doing now. The established pattern was Lost Decade-- which has happened again.

The Higher Education Compact with the Schwarzenegger administration was announced in May 2004. It accepted previous state funding cuts, promised state general fund increases of 3-4% per year, which it paired with tuition increases of 7-10% per year. It was a privatization prescription, because it shifted revenues from public to private sources.

But rather than critiquing the Compact as an undermining of the public good status of the university, we asked whether it would actually stabilize and sustain the university's finances. Here's what we found (validated by UCOP budget folks late in the drafting process):

The 3-4% annual increases, coming on the base of much larger previous cuts, would never restore the state share of core funds. This made the regents visibly unhappy.

And it got worse:

We were tragically right about this: any series of manageable tuition increases would not make up for state general fund cuts. I'll return to the point that this is still true, particularly now that no tuition increase is manageable for a large share of today's resident students:

The 2002-05 cuts increased the student share of core funds by 50 percent. (The post-2009 cuts doubled the student share on top of that.)

I dwelt on these next slides, which are the densest in the deck.

The failure of the vaunted Compact was a big deal.

Items 2 and 3 will make more sense with the following chart.

We decided this slide would be too complicated for the presentation so we left it out. The thin purple benchmark line represents UC "growing with the state" (UC's state funding rising at the same rate as state personal income). The black line represents a ramping up of state funding to rejoin the 2001 Pathway in the five years to follow the appearance of the report.

Number 3 (two slides back) refers to a restoration to 1990 levels of high state funding and low tuition (the green line in the preceding slide that ends up at over $6 billion per year in state funding). That is twice what UC gets today. But it is merely the same share that UC had in 1990. We thought it would be easier for the state to get its head around 2001 than around the full "master plan" funding model.

On to the next question: what is to be done?

"Research is costly" means research runs net losses, not profits. Private fundraising works on the margins for selected programs, but not to replace lost operating funds for public good activities like high quality instruction and its direct admin support that donors assume the state and students pay for.

The only great private revenue stream for operations is student tuition, at very high levels. This caused more unhappiness in the meeting.

The headline of the next slide makes me sad.

Ten years later we're at the same crossroads. 1990 is still completely out of reach. 2001 is more remote than ever. And starting in 2009, Sacramento dumped UC onto the red line in the chart above--a funding freeze, averaged over big cuts followed by partial annual recoveries. We called this the Michigan Model, in which the state disinvests and then the university hikes resident tuition and admits many more non-resident students (reducing racial diversity, class diversity and, in Michigan's case, national ranking). In nominal dollars (uncorrected for inflation), UC's general fund in 2017-18 will be the same as it was in 2007-08, somewhat above $3 billion.

The takeaways were obvious to us.

The Senate was at the time solidly in favor of rebuilding public funding rather than raising tuition or increasing non-resident student tuition revenues. We were of course deeply worried that the state had gotten used to giving UC and CSU less and would be happy to let us raise tuition instead (and then campaign against us for that). But it didn't stop us from stressing the logical budget necessity of public funding.

How did the regents respond in the 3 minutes allotted to discussion? They didn't disagree with this last slide, but expressed unhappiness with the the budget conclusions. Regent Marcus said, "we need solutions, not all this negativity." I replied, "we're offering analysis; policymaking is the regents' role." A couple of exchanges later and our time was up. The next topic was the national laboratories, students that were hunger-striking against nuclear weapons came in and chained themselves to tables, Regent Pattiz invited them to go have a nice lunch which further fanned the flames, the police arrived and hauled them out, and that was the end of the faculty view of the UC budget.

Fast forward to this week in May 2017. Many budgets have come and gone, and we've written dozens and dozens of budget posts, many comparing actual state funding to the personal income benchmark (with cheery titles like "Gov Gives UC Just About Nothing" and "The Old State Funding Model is Dead") and calling for faculty and UCOP to put out the strongest possible proposals to support full UC quality-- to budget the full costs of a Real UC and endlessly explain its educational necessity.

What we are living through now is basically one half of the Compact that Arnold abrogated in 2008-09: we got the famous third round of double digit state cuts, followed by the 3-4 percent annual increases that don't really keep up with higher ed cost inflation, but not the annual tuition increases. Like the Senate, we opposed the Compact for increasing tuition at twice the rate of state funding. This was, to repeat, the deliberate privatization of core revenue streams. And yet the size of the combined revenue streams was in the ballpark of UC need, while our current Half-Compact has produced permanent austerity and structural deficits.

Today, UC's combined tuition and state funding revenues are below their 2007-08 levels. Net tuition has in my calculations gone from about $1.57 billion to $3 billion (p 224) in ten years, for an increase in tuition income of $1.45 billion when adjusted for ten-year inflation (20 percent). Then there's state funding. When we adjust it for inflation and for new capital and bond servicing costs now deducted from the state funds) at around 13 percent of the total general fund allocation, we find that per student state funding wasn't even flat for ten years: it declined by one third, meaning that about $1 billion less in adjusted dollars was available for operations. If we correct for the decade's enrollment growth of nearly 20 percent, per student general funding is one fifth less than that minus 1/3rd, which effectively wipes out all of the net tuition gains. Tuition increases have not made up for any of the real dollar declines in state funding, even after six years of supposed recovery.

Remember too that this is before we throw in the pension wild card. At the current level of a 15 percent employer share of a payroll that is 47% of $31.5 billion in total UC expenditures (p 39), this is $2.2 billion annual cost for UC overall that it did not pay in 2007-08. Even if most of the employer cost of the pension is incurred and funded by non-state payroll (medical center and national laboratory staff, etc), and  the state share is one-third of the total, the campuses need to find over $700 million a year from core funds that are mostly state general fund and student tuition.  Having gone back and forth with one UC budget insider about the share of state funding that covers the annual UC employer contribution, I think it's reasonable to conclude that the General Fund allocation for this expense has gone from $0 in 2007-08 to $200-300 million in 2017-18.

In short, we've just lived through another Lost Decade of funding, and through a large net operating funding reduction.  UC is unfortunately a textbook case of the decline cycle I analyze in The Great Mistake, which is created by divergence from public-good funding philosophies. 

You might be interested in our new report, The $48 Fix, which shows that the 2001 Pathway is still in easy financial reach--but strictly on a public good basis.

The Governor's May budget revision is the first concrete sign of UC's weakened condition following the release of the Auditor's Report on the Office of the President.  Although there is relatively little change in the State's overall funding to UC, two things stand out.

First, the Governor has made it clear that his trust in the University administration has been further damaged. As part of the May revision he has sequestered $50 million until the University completes demonstrates both that it has begun to implement the Auditor's proposals and that it has made progress on pilot budget projects at Riverside, Davis, and Merced as well as admitting one transfer student for every two first year students. (3-4)  In linking these disparate initiatives together the Governor has simultaneously moved towards even more interventionist budgeting (he is sequestering general funds based on new benchmarks as opposed to offering targeted new funds for specific initiatives) and joined in the larger skepticism displayed in Sacramento about UC leadership.  Insofar as the Audit provides excuses for tightened budget interventions any formal preservation of UC autonomy will be hollowed out.

The governor's second, ongoing challenge to UC's leadership concerns the state's program of financial aid.  As you are aware, both UC and CSU have voted to increase tuition and fees for the upcoming academic year.  Some years ago, this governor started publicly and explicitly to count the state's contribution to the Cal Grant program as part of its contribution to the universities.  The budget revision notes that any increase in tuition forces an increase in the General Fund contribution to the universities as the Cal Grant programs costs rise to meet the new tuition levels. (4)  Although often left out of discussions of state support, nearly $900 million of Cal Grant funding will go to UC and nearly $700 million will go to CSU in the proposed budget. (4) In order to compensate for parts of the increased financial aid costs accompanying the tuition rise, the Governor is proposing to reduce both system's budgets by $4 million dollars this year.  He then redirects these funds towards financial aid for private college and university students that he had planned to reduce. (4)  He shows no indication that he plans to reverse his plans to eliminate the middle-class scholarship fund over time.  (8)

In addition, Governor Brown fires a shot across the bow on future tuition increases:

Rising Cal Grant costs from tuition hikes will also limit the state’s ability to increase General Fund support in the future. The state has increased General Fund spending by at least 4 percent annually since 2012—while tuition has been flat. Going forward, the universities should plan for 3‑percent growth annually beginning in 2018‑19. If the universities raise tuition in the future, additional downward adjustments to state support may be needed to cover the higher Cal Grant costs.

In other words, the financial benefits of a tuition increase will be reduced via a general fund reduction from 4 to 3 per cent per year.

This threat is, to be sure, directly at CSU as well as UC.  But CSU has also recently received an unfavorable audit.  In the case of CSU the auditor was critical of the expanded number of managerial positions (as with the Auditor's criticism of the growth of the size of UCOP over the past several years).  Each, in other words, are the effects of an expanding managerial culture at both systems.

Of course it is the universities as a whole that will pay for ongoing state discontent with both systems' management.

As expected, the State Auditor's report on UCOP has triggered a huge political uproar. The charges of secret reserves, out of control personnel policies, special benefits for executives, and UCOP interference into the audit process have been explosive to say the least.  There have been two legislative committee meetings that addressed it, numerous statements from politicians about its implications for UC, and editorials and op-eds expressing justifiable outrage about UCOP secrecy and management practices. Predictably enough, some legislators have called into question UC's constitutional autonomy.  Despite, or perhaps because of, efforts by UCOP and the Regents to explain away some of the problems, the damage to the University's reputation has been considerable.  This report is going to haunt the University for a good while.

Amidst all of the heated disagreement, however, there has been one fundamental, and fundamentally wrong, point at which all of the arguing parties appear to agree:  that the answer to the problems the audit revealed can and should be solved from the top down.  Wherever you turn in the discussion (whether in the auditor's suggestion that the legislature pass a separate budget for UCOP and establish an outside overseer, or President's Napolitano's assurance that she had established an internal UCOP working group to improve things, or Regent Lozano's insistence that the Regents were hard at work in ensuring their "governance" of the institution as well as hiring an outside consultant to help with UCOP reforms), the common element in all of the proposals is that the answer is to be found in a closed loop of decision makers shuttling between Oakland and Sacramento (with the occasional nod to the campus chancellors).

In fact, the most striking aspect of the auditor's report and UCOP's response was the almost total absence of any acknowledgement of faculty or staff knowledge or perspectives.  Where were the formal responses of Senate Committees in the report?  How exactly is the auditor to know if the programs that UCOP oversees are productive if they don't get unfiltered responses from the people who are providing the education and front-line services to students, are engaging in research, and are attempting to convey that research to the public?

Moving forward, the Regents have decided to hire an outside consultant to review UCOP's plans for reforms.  This suggests that the University has no business or public policy schools with faculty who are experts in these issues.  If only the Senate had a knowledgeable committee on Budget and Planning or perhaps one on Research that could provide meaningful and ongoing oversight of practices that are supposed to enable the university's core functions. But apparently not.  Instead we are to witness UCOP organize an internal reorganization with some review by a paid outside contractor answerable to the Regents who have never demanded from UCOP either the clarity of presentation or the documentation that everyone now seems to agree is essential going forward.

To be fair, this problem is not limited to either UCOP or the Regents.  Although arguably an effect of the Yudof administration and the wrong turn taken by the University Commission on the Future, the proliferation of task forces, the sidelining of formal Senate oversight, the general decay of shared governance, and the centralization of management and authority is deeply embedded on campuses as well.  Task forces not only serve to tilt authority in the direction of management but also eliminate the production of institutional memory and documentation that are, or at least should be, one offshoot of standing Senate committees.  Of course, that institutional faculty memory will only matter if faculty themselves are willing to take the time and effort to press for their viewpoints to be heard and to have influence.  As one Anonymous argued in a comment on Chris' last post, it is up to faculty to begin to take the time to work with staff to clarify and understand university budgeting from the departments on up.  This knowledge will not solve all of our problems.  But given what we know from the audit and its responses, reform cannot depend on top-down initiatives.

I recognize that all of these things may seem to be lost causes; too many of us have accepted the new rules of the game. While we complain, we do not see any possibility of change.  To make matters more difficult, secrecy tends to protect specific rather than general interests.  But more is at stake than simply a desire for faculty voice.  The contemporary managed university does not have the internal democracy nor the free flow of information and institutional knowledge it needs to meet its purposes.

In his comment on Chris' last post, Bob Samuels noted that some of the changes to the audit responses made the online education program look better.  But UC's online venture is a  classic example of managerially imposed and rushed changes made in the nature of a supposed market driven necessity.  I'm sure we have all heard managers complain about how faculty do not want to change fast enough; perhaps they might consider that a rush to bad judgment marginalizes the deeper thinking that makes failure less likely.  If the University really wants to think about how to educate and create knowledge more effectively for the twenty-first century,  they would do well to recognize that in universities knowledge flows upward.

The recent experience at UC Riverside is only one example of the crises that can result from a managerial failure to learn from faculty and front line staff.   There the administration sidelined faculty input in the early stages of its planned expansion, rushed to hire despite faculty concerns, didn't think about the necessary lab and classroom space its new hires needed and marginalized departments.  In the end, the Riverside Senate had to step in and salvage the situation.  If there had been genuine consultation the situation would have been avoided in the first place rather than being redone later.  This situation was not the result of evil or self-serving administrators but rather of the collapse of the practices of shared governance and the recognition that institutions require a structured way to absorb the multiple perspectives that exceed the managerial groups.  But that is not an idea one would find in the closed managerial circuit between the State Auditor, UCOP, the Regents, the California Legislature, or, most likely, local campus administrators.

Of course, these problems are not limited to UC.  As indicated by the ongoing revolt of the faculty (including a resolution of the university's faculty senate) over Purdue University's secretly negotiated agreement with Kaplan's online education business, the willingness of university administrators to seek deals without proper consultation and without due public debate is widespread.  Nor is this limited to public universities (indeed private universities are probably worse). Yale and Columbia (neither of which have robust traditions of faculty governance) have sought to mobilize a seemingly endless array of technicalities to keep their graduate student workers from collective bargaining. Vanderbilt University has recently sought to prevent the unionization of their NTT faculty by claiming that they are managerial (a position rejected by the NLRB) and suggesting that their unionization would break down traditions of shared governance (although few NTT are included in that).

These may at first glance appear to be distant from the controversies about UCOP.  But they all point to the same issue: the refusal of top managers to recognize that the cost of achieving their expanded flexibility is the increasing inability of universities to take advantage of the practical knowledge held by faculty and staff.  There is, of course, a perspective of system and of the whole that must be part of any decision-making process.  But it is only one such perspective.  And if that perspective is, as has happened, increasingly sundered from the perspectives of the faculty and staff, then we will see more and more examples of universities cut off from their purposes and surrendering to demands to serve other interests than their own.

The new UCOP scandal is the worst in a long-running series.  This one was prompted by a state audit of the Office of the President's budget, which found issues the auditor claimed cast doubt on UCOP's honesty and competence. State officials reacted angrily to the four biggest of a number of charges from State Auditor Elaine M. Howie (pictured): that UCOP spends a good chunk of money from an "undisclosed budget" that is separate from its public budget; that it affords this undisclosed spending with a tax on the campuses that yields more revenue than it needs; that it spends this excess money on systemwide programs that could go instead to students on campuses; and that it appears to have changed the results of the auditor's campus surveys to make itself look better.  The auditor also rekindled longstanding claims that UCOP hires too many administrators and then overpays them.  It even dragged pension underfunding into the mix.  

The interaction between the State Auditor and UCOP has turned a boring problem of inadequate budgetary records into another political firefight. Together the parties have produced a new round of heightened denunciations from state officials that include calls to rescind the 2.5% tuition increase and to increase direct legislative oversight of UC.  The report itself runs 169 pages and includes a 34 page, single-spaced UCOP response that rejects 72 separate passages in the audit.  This is in turn followed by the auditor's blanket rejection of UCOP's rejections.  The report also includes a 6 page letter from UC president Janet Napolitano that, in spite of the confrontation elsewhere, accepts nearly all of the auditor's technical recommendations for accounting improvements.  

The angry stand-off in the full document massively overshoots the stated policy differences, and the mutual hostility becomes a problem in itself.  Politicians and the press reacted as much to tone as content. Legislative hearings have been called for Tuesday. Long-time LA Times columnist George Skelton signaled renewed doubts about UC's ability to serve the state with a piece entitled, "Big Changes Needed at UC--Starting with the Kool-Aid-Drinking Board of Regents."  

This fight is actually unnecessary, and marks another setback for public understanding of the deeper issues raised by the report: research costs, research benefits to undergraduates, and public-good management standards. 

Raptor Budgeting?

First, on the budgetary issue, a bit of background. UCOP does two big things: performs central administrative services and manages systemwide programs. The budget statement that goes to the regents each year is split more or less 50:50 between these two categories.  UCOP used to publish budgets with more big categories (it had 4 in 2014-15, for example [page 144]).  Multiple administrative activities appear in these baskets, divided up by function (governance, budgeting and finance, etc.) along with systemwide initiatives that can be listed with expenditures for each.  

The problem seems to start with incomplete lists of programs, and continues with their being funded from two budgets, one of which the auditor calls "undisclosed." The auditor charges (summary here) that UCOP accumulated $175 million in surpluses that it did not disclose, and then spent them through a process that lacks adequate controls.  The issue is summarized in the report's Figure 6.  

Although UCOP spent some of these reserves, it spent less than it accrued in each year, so the reserve grew--and grew even in years when UCOP increased its tax to the campuses.  The auditor agrees that reserves are legitimate, but doesn't understand why UC has no written policy governing their size.  It repeatedly insists that UCOP could produce a simple unified budget of revenues and expenditures in which all outlays are visible and clearly tied to specific programs. It offers a one-page sample:

I'd add a couple of lines to this myself, but this is better than what the auditor seems to have gotten from UCOP, and UCOP agrees that it will consider adopting this kind of presentation. 

At the same time, UCOP resents the auditor using the term "undisclosed," argues that these are little more than unspent funds carried forward from one year to the next, that its "reserves" are $38 million not $175 million, that all the money was spent on programs that benefit the campuses, its students, and the state, and that administrative growth merely reflects UCOP's enormously complicated set of jobs that are not duplicated in other university systems.  

You'd think that this would be the end of it.  UCOP could say yes, we're moving budget presentations from Figure 6 to Figure 11, thank you for your help, and by the way we regret any confusion, which was entirely innocent, plus you don't understand our inner workings, which is fine because that's our job as a constitutionally independent entity.  

That isn't what happened.  The best of UCOP's response is Janet Napolitano's letter to Elaine Howie. The letter accepts most of the auditor's recommendations, deals with the charges of incompetence by saying UCOP constantly strives for improvement, lists some systemwide programs with budgetary amounts that it says are of value, and rejects the recommendation of tighter legislative control of UCOP.  The letter doesn't explain why these expenditures weren't present in the visible budget in the first place or why the initial list of programs wasn't complete.  

I completely understand the auditor's core beef.  Why can't UCOP automatically produce listings and expenditures for the systemwide programs? Why couldn't they have listed all those that are part of their response to the audit, organize them properly (for example, into the categories, "outside sponsors," "presidential initiatives," and "systemwide faculty research")?  

I'm doubly mystified because, over ten years ago, I was personally involved in a two-year Senate inquiry into UCOP's systemwide research programs, where our planning and budget committee (UCPB) made iterative requests for full expenditure data for all programs. It was pulling teeth with pliers, but we made progress over time. Phase 1, a full list of all programs with UCOP outlays, should have been in place a decade ago with regular updates as programs and funding changed, which they certainly did.  Phase 2, which apparently never happened, was to be tracking expenditures from UCOP to the campuses.  Is the geospatial systems funding--to make up an example-- going directly to fund direct and indirect research costs on several campuses, or have two of the four campuses moved the funding into administrative discretionary funds or, as in one actual case, has a campus converted research money into a pseudo-permanent set of FTE lines in a local department?  UCOP should have a handle both on how much is going out and how it is being spent.  Apparently they don't.  

In addition, why didn't UCOP have a unified budget both for the regents and the state?  I'm also bewildered by the dual budgets, which is to say that I agree with the auditor that in its multiple lengthy retorts UCOP never really explains the "undisclosed" budget.  Why do the books look like that? 169 pages later, I couldn't tell you. 

In any case, the numbers fly. UCOP generates the gratuitous mud wrestling of Attachment 2,  which apparently seeks victory through body count.  That attachment is a masterwork of bureaucratic defensiveness. Naturally, it doesn't work.  

The auditor's short final response begins,

The Office of the President’s 34-page Attachment 2 is demonstrative of the barriers we faced throughout the course of this audit.  Ultimately, Attachment 2 contained no additional information that would cause us to change the conclusions reached in our report. Rather, the Office of the President goes to great lengths to describe its dissatisfaction with the context we included surrounding the conclusions and the underlying philosophy related to transparency and accountability upon which we based those conclusions. As a result, we are choosing not to comment on each of the 72 points
that the Office of the President included in Attachment 2 because doing so would not ultimately change the overarching conclusion that we convey in this report: that the Office of the President needs to better serve its stakeholders by making decisions in a transparent and accountable manner. (165)

In the summary, the auditor writes,

the Office of the President missed an opportunity to receive feedback from its key stakeholders, and it demonstrated an unwillingness to receive constructive feedback. 

Thus an official state review finds UCOP's accounting substandard and also unlikely to improve.

Not Biting the Bullet on Research

The report concludes that 1 (an undisclosed budgetary surplus) + 2 (unjustified staff growth) = 3 ("significant change is necessary to ensure that the Office of the President's actions along with the mission of the University of California").   This is a brutal conclusion: the State Auditor is saying that UCOP isn't running UC for the public benefit.

The immediate rationale for this claim is continuous administrative growth coupled with "poor tracking and monitoring of its systemwide initiatives" that leads to misused funds.  The deeper rationale is what the funds are allegedly misused on--systemwide research.  The audit's own list of UCOP initiatives (Table 11, pp 71-72) shows spending in a number of categories, but research seems to be the big problem.   It concludes,

Although most of these initiatives provide academic or public benefits, we question the Office of the President's decision to prioritize them over other activities such as campus spending on students especially given it has not sufficiently evaluated these initiatives' purpose and intent. (69)

On its face, the statement is ridiculous: the auditor lacks the credentials to question UCOP's judgment about academic priorities, and research, the main component of most of the programs, is part of undergraduate education at a research university, not a subtraction from it.

The underlying problem is that UCOP has failed over many decades to explain the centrality of research expenditures to all levels of students.  Longtime VP for the budget Larry Hershman believed the legislature refused to grasp the research mission and always would, so the University had to act as though the state's whole allocation was going into student instruction and related services.  I don't doubt he had empirical reasons to think this, but most legislators also thought the internal combustion engine had made train travel obsolete. At some point you have to roll up your sleeves and do the tireless teaching that reframes the debate.

The tragedy of this particular audit is that UCOP is so busy saying it did nothing wrong that it can't tell the more important story, which is that research is a vital public function that costs enormous amounts of money.  UCOP has to subsidize a lot of it or it won't actually happen.  It has to use state money to do this, as it always has. We could argue about how much should be funded by UCOP vs the campuses, which is what we were getting set to do in 2006.  We could also argue about whether faculty have been pushed aside in too many of them, and whether the Senate has enough control.  But the real issue here is that the state has to pay for research as well as instruction through enrollment-based general funds.  UCOP's dual budgets may have been trying to downplay this, I don't know.  The strategy stopped working years ago, and now the battle for the state's role in research has to be fought, and not like this.

Public-Good Management

Then there's the other huge issue, which is the auditor's claim that UCOP doctored the auditor's survey results.  The auditor had sent two surveys directly to UC campus officials to find out whether there were redundant administrative services and how the campuses felt about what they were getting for their UCOP tax.  Here's the auditor's statement on the subject:

Contrary to the Office of the President’s assertion that we failed to send our survey to those knowledgeable about specific subject areas, we determined that the campus audit coordinator was best positioned to facilitate the response to one survey and the campus chief financial officer, or an equivalent position, was best suited to respond to the other survey. After we sent the survey, the Office of the President’s systemwide deputy audit officer contacted us and followed-up on some technical questions posed by multiple campuses. This level of coordination was appropriate and we took no issue with it. 

However, four days before the survey was due, the deputy chief of staff to the president organized a conference call with all of the campuses to discuss the survey. Subsequently, the emails he provided to us show campuses sent him completed surveys which he reviewed to determine, in part, whether the campus responses were within the scope of our audit. However, as we discuss on page 86, the surveys that campuses sent to the deputy chief of staff were much different than the final surveys submitted to us. As is clearly shown in Table 15 on page 87, significant changes and deletions were made to the original surveys sent to the deputy chief of staff for the Office of the President. (166)

As we know, universities, in exchange for academic freedom, agree to conduct impartial and independent research whose findings can't be skewed by politics or money.  And yet the audit claims that senior officials of a leading research university coached the subjects of a survey until they got the answers they wanted.   UCOP thus blunders right into a culture war stereotype: academics cheat, just like everybody else.  You can't trust them not to waste your tax money.   Fake news, fake science, fake climate change, #fakeuniversity.  

A depressing part of the coverage of this alleged survey tampering was the deference of the campus's top officials to Bernie Jones, Janet Napolitano's Deputy Chief of Staff, who was running the survey massage operation. For example:

Several changes were made to UC Santa Cruz’s initial survey. 

Jones told UC Santa Cruz to consider “reframing” or deleting a suggestion for greater systemwide coordination to recruit low-income students, asking administrators there to take into account the central office’s efforts in coordinating disbursement of state funds for underserved schools. 

“As you will see, I addressed 98% of your concerns and I made a number of additional changes as well (all in a direction you would not find problematic),” UC Santa Cruz Chancellor George Blumenthal wrote to Jones in a Nov. 23 email. Jones provided the email to The Times. 

UC Santa Cruz’s initial survey raised issues about the UCPath system, which is aimed at centralizing personnel, payroll and academic processes. 

“Some Office of the President initiatives, such as UCPath were at first very poorly and inefficiently run, but they seem to have figured it out and are on the way to bringing a huge and — often — failure prone project to a successful conclusion,” the initial response said. “The key issue is that the Office of the President provides the leadership, vision, and public relations acumen to keep the University on the best course.” 

That paragraph was removed and the final survey response instead read: “The services and leadership provided by the Office of the President are crucial for the success of the system. Especially for a smaller campus like ours, it would be both expensive and inefficient to provide those services ourselves. In addition, there is a true public policy benefit to the role that the Office of the President plays in providing uniform standards….”

UCSC's original statement was already more positive about UCPath than anything that I have heard--it was a very nice comment in fact.  UCOP apparently didn't stop with deleting the hint of UCSC criticism, but went on to exact veneration for its public service. Of course in a proper academic survey, if your subject doesn't spontaneously mention your centralized outreach program, that is the datum: it probably means they don't think this program makes much difference to them.  In the academic world, this alteration would be research fraud.  The auditor was right to toss out the results--except she also published many of them.

This part of the disaster seems to me to flow from UCOP's attempt to defend its executive sovereignty over the overall system.  UCSC's revised comment-- a smaller campus needs central services-- tries to nail shut the whole can of worms about campuses' frequent duplication of of UCOP expertise.  One example was the decentralizing of technology transfer, as over about 15 years one campus after another got their own office of technology licensing and industry alliances, even as UCOP's Office of Technology Transfer continued to preside. (Some of this decentralization is now being reversed.)   My simplified history is that UCOP used to curate, develop, and strategically guide campuses.  But in the twenty years, and especially in the last ten, perhaps from around the time that regent Richard Blum wrote a memo calling on UCOP to be "strategically dynamic," UCOP has become better known on the campuses for enforcing standardization and compliance.  Disconnected from everyday academic life, it offers the public a series of middlebrow tactics.  And as these tactics have failed to produce lasting solutions, it has also devoted itself to spin.

The budgeting and the survey meddling seem to me to have a common source, which is a closed managerial culture dedicated both to its image and its decision rights.   Much if not most of UC has become a culture of silence, of conformity, of handpicked task forces replacing senate committees, of a small list of insiders deciding everything, of non-consultation, of divisional senates that provide no information much less active discussion with their supposed constituents, of shunning or quiet retaliation in response to dissent.  Senior managers are not meaningfully accountable to their subordinates, including to the tenure-track faculty.  Some performance reviews are on a cycle and some are discretionary, but in either case comments are generally by invitation only, and results are never publicized.   If actions are ever taken, they are taken from above, and truthful explanations are not given.  UC's response to in this case is a good example of this closed culture at work: the chair of the Board of Regents posted a video pep talk that closes ranks with UCOP.   She didn't even mention the audit's criticisms, much less promise to deal with them.  It's hard to imagine any regent confronting the cognitive and ethical failures that closed cultures create.  

Like the proverbial frog that doesn't notice the water is getting hotter, we UC faculty don't seem to have noticed our gradually increasing cynicism about our university and state. Increasing cynicism has led to lower expectations.  In my email over the past few days, a number of faculty have said "well what do you expect," or "that's politics," or "that's UCOP," or "UCOP's bad, but not as bad as the legislature." Obviously I oppose legislative control, but we can't afford to wallow year after year in this choice between the legislature's intrusive austerity and UCOP's executive autocracy.   UC will go nowhere if it can't make a plausible case for its public good stature.  The prerequisite to both these things is an open culture.   Open administrative cultures depend on active governing involvement of students, faculty, and staff.