UC Berkeley is at risk of becoming financially unsustainable, while one-third of the colleges in the country are already “on a financially unsustainable path,” according to a study conducted by Bain & Company — the company previously hired by the campus to make it more cost efficient.
The study — a collaboration between global firms Bain & Company and Sterling Partners — declared UC Berkeley, UC Davis, UCLA and UC Santa Cruz, along with 28 percent of the nation’s colleges, at risk of becoming financially unsustainable.
According to the study, UC Santa Barbara, UC San Diego, UC Riverside and UC Irvine are not financially unsustainable, but are already trending toward financial unsustainability.
The study synthesized data from 2005 to 2010 to generate two ratios — one comparing the change in percentage of equity as a part of assets, and the second comparing expenses as a percentage of revenue — for each of the 1,692 colleges studied in order to determine their financial sustainability.
Despite none of the undergraduate UC campuses receiving a solid financial score, UC spokesperson Steve Montiel said he is not worried because he said the credibility of the study is “questionable,” as it is based on only two financial ratios.
“UC is a $23 billion enterprise that — unlike many other state-funded public universities across the nation — has other strengths from which it can draw,” Montiel said in an email. “These include its research enterprise, its medical centers and private philanthropy. And rating agencies thoroughly review UC’s financial prospects every year, finding our ratings ‘stable’ throughout the current financial crisis.”
However, the current financial crisis has precipitated issues such as steep state funding cuts and escalating fixed salary, benefit and energy costs, according to Montiel.
Consequently, Montiel added that the university instituted the Working Smarter Initiative in July 2010, which has given way to $289 million dollars in savings and new revenue since then and hopes to increase these savings to $500 million by 2015 by consolidating payroll and other administrative services.
According to the study, UC Berkeley specifically had a 4 percent drop in the equity ratio and a 13 percent drop in the expenses ratio over the five years studied — even though in 2009, the campus hired Bain & Company to diagnose the campus operational and financial environment and work on creative solutions to combat dwindling state support.
Bain & Company’s analysis in April 2010 helped UC Berkeley formulate plans for the campus Operational Excellence initiative — which aims to save the campus $75 million annually starting in 2016 by creating new processes for efficient administration — according to Melanie Hurley, communications coordinator for the Operational Excellence Program.
“Operational Excellence projects are a key part of making the University more financially sustainable but there are other strategies as well, including diversifying the University’s sources of revenue to lessen UC Berkeley’s reliance on state funding,” Hurley said in an email.
Representatives at Bain & Company could not be reached for comment as of press time.