UC Berkeley announces new cost-cutting measures amid structural deficit

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Update 02/10/2016: This article has been updated to reflect additional information and interviews from campus officials, professors and students.

Amid continuing financial challenges, the campus announced comprehensive cost-cutting measures Wednesday morning, with plans to reimagine administrative systems, investments and discretionary expenses.

The campus is faced with what Chancellor Nicholas Dirks described in his announcement as a “substantial and growing” structural deficit that the campus cannot sustain in its current trajectory.

One of the campus’s primary sources of revenue — tuition and fees — has been frozen for undergraduate students for the last five years. Meanwhile, inflation continues to inch upward, and costs beyond the university’s control have continued to rise, all in the context of an era of public disinvestment, according to campus sources.

The administration aims to overhaul longstanding structures by which the campus operates through this extensive planning process, led by Executive Vice Chancellor and Provost Claude Steele.

“Because this deficit does not reflect a short-term dip in funding, but a ‘new normal’ era of reduced state support, responding to this deficit requires that we take a long-term view,” Dirks said in the announcement.

This year, the campus faces a $150 million deficit, which represents 6 percent of its operating budget, according to current projections. Structural deficit means that the campus continually spends more than it acquires in revenue.

Even Cal Athletics, which many perceive to be the campus’s biggest revenue generator,  will not escape budgetary review. Intercollegiate Athletics has run a deficit in recent years, with even more strain put on its pocketbooks by debt obligation — about $18.1 million annually until 2032 — accumulated after upgrading Memorial Stadium.   

Ben Hermalin, professor of economics and chair of the Academic Senate, said that the campus’s financial situation has been known for a while. It is not, he said, as if Dirks woke up this morning and decided the campus was in serious financial trouble.

“The letter makes public a process that has already begun,” Hermalin said.

He added that last spring, when the terms of the budgetary funding agreement between UC President Janet Napolitano and Gov. Jerry Brown were solidified, the campus really understood where its finances were headed. That realization “kicked things that were percolating into high gear.”

“It’s pretty much just arithmetic at that point,” Hermalin said.

UC Berkeley’s cost structure is particularly reliant on student tuition and fees, which make up 30 percent of the campus’s total revenues, according to campus officials. In-state undergraduate tuition rates are not set to increase until the 2017-18 academic year.

Jason Constantouros, a fiscal and policy analyst at the California Legislative Analyst’s Office, said UC campuses retain the money they earn from student tuition. Thus, flagship campuses such as UC Berkeley and UCLA, which enroll higher percentages of out-of-state students, collect more money through the supplemental tuition these students pay.

These campuses, however, also incur greater costs for faculty as they compete against prestigious private institutions in the hiring process.

“The budget challenge they are addressing resulted from a variety of factors, some being well-intentioned campus choices made over time, and others being the financial pressures faced by many universities nationally,” Napolitano said in a statement Wednesday.

The campus assigns blame to declining state funding — even with a recent uptick —  for its dependence on tuition in recent years. In the 1980s, UC Berkeley received approximately half of its funding from the state. Now, state funding represents about 13 percent of UC Berkeley’s operating budget.

“This endeavor must not be interpreted as an abandonment of our commitment to a public mission nor to our efforts to advocate for increased public funding for higher education,” Dirks said in the message.

Campus sources noted other UC Berkeley-specific costs, such as necessary seismic retrofitting expenses because of the campus’s location near the Hayward fault.  The campus has invested about $2.1 billion in constructing and maintaining facilities, of which roughly 60 percent, or about $1.25 billion, addressed seismic safety issues.

Annual debt service obligations have thus grown from about $25 million to $100 million in that time period.The campus also has a large inventory of aging facilities that require higher maintenance costs.

Hermalin said some capital investments in these buildings were paid with debt, and many campus officials did not anticipate that state funding would not return to prerecession levels.

Having experienced a previous round of budget cuts, Dirks said the campus is more acquainted with what cost-cutting strategies work. Last time around, then-chancellor Robert Birgeneau implemented Operational Excellence, an initiative that made budget cuts across the board.

“We’re going to be a lot more strategic in the way we both reorganize processes and structures, and we will do that … in a very open and transparent way,” Dirks said in a phone press conference.

The campus administration is considering short-term measures that include increasing revenue from its real estate assets and expanding online and master’s programs that bring in money, while reducing enrollment for some doctoral programs.

Dirks said in the announcement that some of these changes will be “painful.”

“Change is difficult, we accustom ourselves to the structure we inherit and then inhabit, but in this case there will be changes we simply have to make,” Dirks reiterated in the press conference.

Hermalin said that given the fact that the campus is set to absorb 750 additional in-state students, it would be surprising if the administration decided to lay off nontenure-track faculty. Staff should anticipate possible layoffs, Hermalin said, or at the very least, tighter control of staffing levels, meaning that when staff members leave or retire, the campus will carefully consider whether they are worth replacing.

Senior research fellow at UC Berkeley’s Center for Studies in Higher Education John Douglass sees this as simply another round in a cycle of attempts to reduce operating costs. Dirks’s announcement is a statement declaring that all options are on the table, he said.

During the last round of budget cuts in 2012, UC Student Association President Kevin Sabo said, it was low-income staff members whose positions were cut, while upper-level administrators remained.

“One vice chancellor position is the equivalent of a handful of service workers,” in terms of cost, Sabo said.

The layoffs recently made in Campus Shared Services, or CSS, mark current campus efforts underway to streamline work processes.

ASUC Senator Wes Adrianson is also concerned about which programs the campus will prune — mental health and ethnic studies programs are often on the cutting block, he said, even as the size of administrative staff continues to grow.

Adrianson noted that the campus sees partnerships with private entities as a potential source of revenue for its long-term sustainability.

“Most of us are incredibly concerned about how we maintain Berkeley’s set of values,” said Henry Brady, dean of the campus Goldman School of Public Policy, regarding potential private partnerships.

The campus has identified its potential options and now must determine its cost-cutting decisions.

“We are committed to using this not just as a moment of ‘Oh dear, we have to cut again,’” Dirks said at the conference, but rather as a chance to examine the institution as a whole.

The administration will establish a new Office of Strategic Initiatives and advisory council to provide coordinating efforts, and will begin implementing prescribed changes this summer.

Suhauna Hussain is the university news editor. Contact her at [email protected] and follow her on Twitter at @suhaunah.

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  • Professor S Freeman

    EVOLVE OR BECOME EXTINCT

    Another large state university offers Distance Learning education.

    Suggest UC Berkeley contact George Mason University for tips about starting Distance Learning

    “Mason Online provides students with the opportunity to take the same classes offered on campus in an online format. Many distance education courses may be completed at home, while stationed abroad, or while traveling. Mason’s online programs and courses maintain the same academic rigor and integrity as their campus-based counterparts, providing you with an active and collaborative learning environment while
    offering greater flexibility to fit your needs.”

    http://masononline.gmu.edu/about/

    • hexa_gone

      Some chemistry cant be made by dustance learning. That would be likely spinning tales and not good chemistry (which UC Berkley definitely is not a mere tale spinner).
      From the breakdown of contibuters to the deficit, it looks like they have just been like true educators, making education available. Costs incurred are unfortunately due to the inevitable rising pensions, seismic retrofitting and (declining?) state fund or is it declining percentage?)
      I hope UC Berkley gets help from donors for the world has definitely benefitted from much of the college’s output. 150million is only a small slice of America’s military spending that brings terrorists into America.
      Doesnt seem like the college has been spendthrift or anything but just that costs rise faster than income and increasing this income source may once again keep talented people who can’t afford out of reach with the necessary resources! Education limited to the elites will definitely dull the capability and vibrancy for the school.
      I am sure a GoFundMe and writing off some interests from existing loans can get the college out of the reds.

  • Alex

    The problem is that tuition is locked for all the University of California campuses, and so we expect to be better than Stanford while charging the same in tuition as UC Merced. Eventually we will have to discuss disengaging from the system itself and UC Regents so that we can financially re-structure and continue to provide an elite education in perpetuity, if we want to stand tall then we will have to do it alone.

    • CalAlum99

      Problem is, a huge majority of funding for each university is from its endowment, and UCB is viewed as having a large one. I don’t see the Regents looking to address this.

      • Nunya Beeswax

        UCB does have a large endowment, but spending down your capital is generally regarded as poor fiscal policy.

  • Nunya Beeswax

    So in the last five years we’ve addressed rising costs and shrinking revenue by establishing an Operational Excellence division, a Campus Shared Services division (currently hemorrhaging spondulix), and now an Office of Strategic Initiatives. Because nothing saves money like adding multiple layers of middle (mis)management.

  • Dan Spitzer

    The cost-cutting should start with the elimination of moronic departments such as Ethnic, Middle Eastern and Near Eastern Studies. These departments are so ideologically-bound that they actually diminish the quality of a student’s education and their elimination would both save money and cease students wasting time at Cal…

    • Nunya Beeswax

      Not that I have much use for cheerleading either, but even if they’re not eliminated they ought to be combined into one Ethnic/Area Studies department.

      • Dan Spitzer

        Actually, in the history, anthro, poli sci, and economics departments, students can get everything they need to learn about particular cultures and that which is attendant to them. They don’t need separate departments saddled with ideological baggage or the “we are always victims” perspectives from poorly prepared professors…

      • Robert Wilson III

        The real problem is the idiotic redundancy of courses that are offered. Prime example from Dan’s comment below: “Actually, in the history, anthro, poli sci, and economics departments, students can get everything they need to learn about particular cultures and that which is attendant to them.”

        And I’m sure it’s much worse than this, with (probably) at least 5 courses teaching intro computer science (idiotic), multiple biology majors with different major requirements that overlap 90% of the time (idiotic), etc.

        The days of departments bickering and disagreeing on the content of general service courses are *way* behind us.

  • Jon

    “The administration will establish a new Office of Strategic Initiatives and advisory council to provide coordinating efforts, and will begin implementation of prescribed changes this summer.”

    UC Berkeley’s budget gets tighter. UC Berkeley sets up more administrators and bureaucracy to manage the budget getting tighter.

    In what kind of wacko world does this make sense?

    Oh, the one where the “leaders” are incompetent bureaucracy already, and the new positions can be cushy roles for hiring more of their friends and business associates, while creating excuses and someplace to point to that “did the research” to tell us how cutting wages, benefits, or job security for the regular workers is needed.

    • CalAlum99

      You don’t think one FTE overseeing a $150M initiative isn’t supported? The issue IMO is what talent they hire, and what appetite they actually have for real fiscal reform.

      • Jon

        Why re-invent the wheel? The ‘Operational Excellence’ team formed with the last round of budget cuts is still sucking money out of the budget… for what? http://oe.berkeley.edu

        Do you really think it will just be one FTE? It will be that and a whole new team of consultants, analysts, etc that are all ridiculous fluff. If the administrators, managers, and “leaders” just did their job, they could work out the deficit themselves, but they want to offload that to yet more bureaucracy while they continue being ineffective in their roles.

    • Nunya Beeswax

      Right with you, Jon.

      Oh, and remember the story last month about John Wilton stepping down as VP of Administration and FInance? I have it on good authority that he’s leaving in protest over this boondoggle of a “strategy.” Nice to know there’s at least one person in a top position who’s not a yes-man and a careerist.

  • DRJJ

    Seems these educators need to be educated re how to pay their bills.. Ask any liberal and they’ll tell you to borrow, spend and gamble your way out!

  • ShadrachSmith

    The question university students should ask candidates: Will you require universities to use free on-line text material?

    That will help you find out who your friends are :-)

  • JohnFHudson

    A lot of ill informed folks will be screaming to cut athletics. Football has net earnings of about $26M. Ticket revenues from football are being counted on to service the debt for rebuilding the stadium. Rugby has been endowed by alumni. The same is true of baseball. Basketball is self-supporting. What does that leave to cut?

    • Gene Nelson

      That leaves gymnastics, soccer, field hockey, tennis, x-country — all those sports where the only people in the stands are the parents of the players.

      • JohnFHudson

        All of the sports you list are girls sports (or at least there are girls’ teams). What about Title IX? You also forgot about crew, track and field, and aquatic sports.

        • Gene Nelson

          All? My god, you make yourself look like such a fool. Gee, there are no male gymnasts or soccer players or tennis players or x-country runners? You are an idiot and you are so wrong. My list was balanced. Your ignorance is laughable. And the players are women not girls. It is cute that you call out ill informed people when you are SOOOO ill informed.

          • JohnFHudson

            If you bothered to read my parenthetical addition you would have seen that I am aware that there are male teams in some of these sports. Apparently you were too preoccupied with attacking me to have read it.