Notice, October 1996

Budget Initiative Ushers in
New Era In Campus Funding

The fiscal year that began for the University of California on July 1 brought with it a change that was as quiet as it was important: money that campuses got for such purposes as merit increases and instructional equipment came in "block grants," rather than in discrete "pots" intended to be kept forever separate from one another. The real import of this was that there were no impediments as to how much of these unitary allocations chancellors had to use for, say, instructional equipment as opposed to library acquisitions.

This action is one part of a major change in University budgeting known as "The University of California Budget Initiative." First proposed by President Atkinson last year, the initiative will, at a minimum, radically change the way campuses get money and account for it. More significantly, according to its proponents, the initiative stands to free campuses from bureaucratic impediments that have stifled creativity in campus planning. If the measure has this effect, UC's campuses would, in the future, differ from each other more than they do now.

Along with the block grants, the initiative brought another change on July 1, though for the present it is more important in theory than in practice. It is that, for each new student a campus adds, it will get $6,800 in funding from the State of California, with this figure intended to cover the state's entire cost of educating this student - from faculty salaries to library operations to student services.

This may sound innocuous enough, but contained within this provision is a world of change for the University. In the past, the state funded the University in discrete categories related to enrollment increases and the Office of the President passed on this funding to the campuses in an even more structured fashion. From the state, there was so much for library acquisitions, so much for instructional equipment and so much for hiring new faculty, for example. Then, with many of these types of funds, the Office of the President allocated money on the basis of weighted student averages. Campuses got one faculty position for every 28 students, for example, but a lower-division undergraduate counted as one additional student in this formula, while a Ph.D. candidate counted as 3.5 students.

All this has now been swept away. The university now gets $6,800 (adjusted for inflation) for any type of new student. The Office of the President then passes on these funds to the campuses with the expectation that the money will cover expenses in all the old categories - but with no knowledge or direct control over how a campus may allocate funds among these categories.

A New Meaning for FTE

Consider just one of the changes that follows from this. In the past, the Office of the President allocated faculty positions (the so-called FTE) on the basis of enrollment increases, after which a campus' faculty FTE was a fixed entity something like a farmer's crop allotment. Now campuses no longer get FTE; they get so many dollars per student, and they are free to spend these dollars however they wish. Salaries still need to be paid and books bought, of course, but the thinking is that, in a system as big as UC's, there is bound to be a tremendous amount of discretion at the margin, and these are the dollars, the theory goes, that will give campuses the ability to shape their own destinies in a way they could not before.

"I really regard this as a major change in the way the University functions," says UC Riverside Chancellor Raymond Orbach. "Now if we want a new graduate program or new undergraduate program," he says, "it can be developed independently of other budget restrictions." Beyond this, he says, the new budgeting methodology provides a critical element of predictability. If a campus adds so many students, it will get a specified number of dollars. There is no waiting to how given allocations will work out. Campuses should have a much clearer idea in advance of the resources they will have.

All this newly granted freedom comes at a price, however, which the Office of the President has subsumed under the watchword "accountability." The assumption is that a series of accountability "compacts" - one for each campus - eventually will be agreed to by the chancellors and the president. Under these, each campus will agree to meet certain expectations: so much funding for financial aid, so much progress on time-to-degree, and so forth. Sandra Smith, UC's assistant vice-president for planning, notes that at the moment UC is involved in discussing how these compacts will be drawn up. Chancellor Orbach says he expects that "each campus will write a letter to the President in which we will propose a set of accountability measures; each [letter ] will be different."

One of the accountability measures called for by UCOP has caused a fair amount of controversy on the campuses. It is that each campus meet or exceed a specified universitywide teaching load. The state has insisted that ladder-rank UC faculty teach an average of 4.8 quarter courses per year. UC currently meets this expectation, but only by averaging teaching loads across all its campuses. Some campuses are above the average while others are below it. Under the new accountability compacts, every campus will be expected eventually to meet the 4.8 minimum. "We have a commitment to the state for a certain course load at the University," says UC's Director of Budget, Larry Hershman. "Now we're going to have one for each campus; that's a big difference."

Deficit Years Prompted Change

The change to a new budgeting system at UC came about in part because of the wretched budget years of the early 1990s. "Campuses had to make big cuts in those years, but were allowed to take them wherever they could," says Richard Jensen, UC Santa Cruz's associate chancellor for planning and budget. Thus, one campus took more from maintenance, while another took more from administration. This effectively gutted the fixed budget categories that supposedly were balanced both within campuses and across the system.

The problem for UCOP was that it could not see how to get this genie back in the bottle; having allowed cuts to be made in myriad ways, any formula it could devise for "normal" funding by category would leave a given campus with a surplus in one area, but in deficit in another. One appealing solution was to provide campuses with dollars, not dollars in categories. Thus the change.

The president's initiative clearly will make budgeting easier for the campuses, but does it stand to have meaningful academic effects? "Campuses as they have existed are boxed and walled with respect to what they can do," says UC Provost Judson King. "What this does is provide running room." UCR's Orbach says he expects the budgeting changes will allow campuses to move more in individual directions. "When money comes in categories, it's difficult to develop your own character," he says.

One view of the old system, with its differential funding for different types of students, was that it encouraged campuses to arrange academic plans so as to gain a higher proportion of graduate students. If that impetus existed, it presumably is gone now, given the $6,800 that will be provided for any student - from a high-cost Ph.D. in the sciences to a low-cost humanities undergraduate. Some Senate members have wondered, however, if this will not lead to a similar type of budgetary gaming, under which larger, graduate-heavy campuses would have an inducement to seek greater numbers of lower-cost undergraduates for the differential "profit" they will provide.

Enrollment Plans Necessary

Given these kinds of concerns, all parties are agreed that for the new plan to work, campuses must develop detailed enrollment plans and then be required to stick to them. Only with such plans in place can the initiative's touted budgeting predictability become a reality.

One concern that has been raised about the new system has to do with major academic initiatives. Under the old system, campuses would come to UCOP with plans for such programs and UCOP would decide which of them to fund. Thus, "major projects" was a kind of funding category like many of the others. Budget Director Hershman, says, however, that this is one category that will be retained. "Campuses will still need help in starting major new programs," he says. "We'll find a way to take money off the top to help out with these."

Finally, with the budget initiative, the president has marked out a clear direction for professional schools that charge differential fees: they will increasingly be expected to make their own way. The initiative calls for them generally to receive no funding for enrollment growth and no funding for inflationary cost increases outside of salary increases. With the special fees they have charged since 1994, such schools as law, medicine and business have moved to a small extent toward being self-sustaining units; the president's budget initiative will push them further in this direction.