Transcript of John Wilton’s second video for Sproul Plaza, the app

This is the transcript of Vice Chancellor for Administration and Finance John Wilton’s second video for Sproul Plaza, UC Berkeley’s Facebook app, responding to questions from viewers of his first video, a primer on UC Berkeley’s budget.

Question 1

The question that received the most votes asked why the university continues to spend money on things referred to as “futile amenities” — such as LCD screens at Crossroads — when, according to the questioner, there is not enough money for certain classes. There was a similar question that inferred that the recent provision of the free, but licensed, software package to students was a low-priority expense compared with classes. There was one other related question that had to do with the perceived growth in senior administration positions. These questions are all about spending priorities.

First, regarding the LCD screens, Crossroads is run by Cal Dining, which is a non-profit, self-supporting campus “auxiliary” that receives no funding from the university or the state. Cal Dining generates its own revenue and uses those funds to invest in the products and services its customers want. When I asked for more information, I was told that the screens save money, provide more accurate information and avoid wasting paper. Apparently, a recent student focus group agreed with this assessment.

On the more important question — adequate investment in classes — the data would suggest that we are making progress. The provost allocated an additional $2.4 million last year and another $3.5 million this year to fund increased “common good” course offerings. As a result, Berkeley has added reading and composition courses and increased the availability of gateway courses in the physical sciences (math, statistics, physics and chemistry). We will also increase the number of foreign language courses. Finally, we have expanded the summer sessions program, which is offered to all students (non-residents and residents) at the same cost. We are now offering more courses and sections than we were a year ago, and we intend to keep this trend going.

While these are positive steps, I would agree that there is still unmet demand and that this is an area that we need to continually revisit to make sure we are doing all we can. But we also need to acknowledge where we are doing well. It is fact that over the past 5 years Berkeley has reduced the undergraduate time to degree for a single major to just below 4 years. We should also take pride in the fact that graduation rates at Berkeley remain very high – 91  percent of our students graduate after six years. Not bad compared to the 56  percent national average.

On the question on the free provision of a basic software package to all students, the thinking was pretty straightforward. We can buy the software licenses at the campus level for a fraction of what an individual would have to pay for the same product. We decided to subsidize this program for two years in order to get it off the ground and to be able to negotiate aggressively with the software providers. Students will then vote on whether they want to continue this program and finance it via a standalone fee. One of the benefits of this campuswide approach is that all students obtain the same software irrespective of their ability to pay.

On the question related to the expansion of senior administrative positions, the data I have does not support the assertion. For example, the number of senior administrators at Berkeley marginally declined between 2002 and 2011 from 69 to 66, and the cost fell from 0.75 percent of our total expenses to 0.72 percent. This definition includes the chancellor, vice chancellors, associate and assistant vice chancellors, the chief legal counsel and all academic administrators, such as deans and associated provosts. Given that the opposite view is so strongly held, it may be that there are other data, or people are focused on different definitions or people are looking at the UC system in its entirety instead of Berkeley. But irrespective of these differences, I would suggest that it is important to look at both sides of the ledger — that is, not only the costs but the benefits. For example, many of the people in this group raise considerable amounts of money for the campus. The two most important sources of revenue for Berkeley — that is, income from winning contracts and grants and our ability to attract philanthropy — both depend on the active participation, experience and knowledge of senior administrators. The revenues raised through these efforts are many, many times larger than what we spend. It is also necessary to keep perspective. The state has cut appropriations for Berkeley by $250 million since 2003; this is about 18 times the total compensation of the aforementioned group.

Before I leave this issue, it struck me as interesting that at the same time as Berkeley is criticized for carrying an excessive administrative overhead, it is also criticized for implementing Operational Excellence — which, at its core, is focused on reducing the non-academic costs of running the university. As discussed in the first video, to achieve this goal we will need to make an upfront investment in new systems, modern management practices and training. This will result in us having a slightly smaller labor force where our people are focused on higher-level activities. This strategy may require that we increase staff salaries in selected areas to enable us to retain and attract the required staff. Berkeley has to compete in the same labor market as others, and we have recently seen a marked increase in key staff members who are leaving due to salary differentials, including to institutions within the UC system. Sometimes the situation demands that you spend to save, and invest to grow.  

Question 2

The second most-popular question asked for an explanation of the 11 percent of expenses that were not detailed in the graph that I drew. A related question asked where we show expenses incurred by Intercollegiate Athletics.

In the first video I stressed that I was looking at the big picture and how the financing of Berkeley has changed over time. Consequently, I focused on the four main drivers of both revenues and expenses as a way to focus in on what matters. But I’m happy to share the full picture.  

In order to show more detail, we have put together two pie charts that tie to the total revenues and expenses as shown in our audited accounts.

On the revenue side, we now break tuition down into three subcategories — tuition, Pell and Cal grants and professional fees. Next is state Appropriations; then comes the revenue from contract and grants, which is now broken down into those from government and those from private partnerships; next is pure philanthropy and the returns on our investments, and last is “other revenues”. This “other” category includes revenues from the auxiliary enterprises, summer programs, rent, conferences, etc. It is interesting to note that these “other revenues” are growing at a fast rate and are now significant. This underscores one of the main points I made in the last video — that is, we should focus more of our time and effort on growing revenue as a means to ensure that we can maintain Berkeley’s excellence.

On the expense side, the new pie chart shows the same four main drivers discussed in the first video, namely, the academic departments, the VC for research contracts and grants, the VC for Student Affairs, and the VC for Admin and Finance. It completes the picture by breaking out Intercollegiate Athletics and the expenses related to the maintenance and repair of our buildings and facilities. And, finally we show, “other expenses” — which includes the VC for Equity and Inclusion, the chancellors office, University Relations, our information technology department plus other smaller departments.

With respect to the question on Cal Athletics, the pie chart shows that it accounts for about 3  percent of our total expenses, or about $70 million. What the pie chart does not show is that about $61 million of these expenses are covered by revenue that Cal Athletics raises itself, primarily through ticket sales, broadcast rights, concessions and philanthropy. The central campus has budgeted to provide Cal Athletics with about $9.5 million this year and we are planning to reduce this amount to about $5 to $6 million over the coming years. However, Cal Athletics is charged about $3 million a year to cover central overhead costs. This practice of making offsetting transfers between departments and central campus is not unique to athletics but is an unfortunate characteristic of our wonderful budgeting process. We are changing this, but that is the subject for another video or, given its complexity perhaps a full-length feature film.

Back to athletics, the net result of the internal transfers is that campus provides $6.5 million in net support, which equals about 0.3  percent of our total expenses. While it is true that the revenue allocated to support the athletics program uses fungible funds, a recent Academic Senate report supported the view of our development office that our athletics program helps to generate at least $25 million in philanthropy for the academic mission. If this is correct, then athletics actually makes a small positive contribution to campus finances.

Lastly, I have spoken about athletics only in terms of dollars. What this misses is the intangible benefits associated with building community, maintaining our connection to alumni and getting national exposure. While reasonable people may disagree on the role of athletics at Berkeley, I would submit that is important to remain focused on those issues that are quantitatively the most important and key to ensuring our continued success.   

Question 3

The third-most-popular question asked if Berkeley had considered accepting more international students as a means by which to alleviate budget pressures and increase the diversity of the student population. There were other questions closely connected to this theme, plus a question on why international and out of state students pay more.

First, it is important to state at the outset that Berkeley has more in-state students than the target of 21,000. We are over-enrolled in terms of in-state students. Of course, one has to acknowledge that, due to the cuts in state appropriations, the state no longer comes close to financing the difference between what in-state students pay and what it actually costs to provide a Berkeley degree. We estimate that state appropriations cover the difference for less than half of our in-state students. In reality, we fill the gap by generating other revenues, including, importantly, philanthropy.  

Having said that, Berkeley has been pursuing the strategy outlined in the question for a number of years. Currently, 14 percent of our undergraduate population are international or out-of-state students, and the intention is to grow this to about 20 percent. This will not only enable the campus to generate additional revenue (some of which will be used to provide financial aid, including for the new middle-class-access program), but this will also help us expand the geographic diversity of our student body to provide a campus that is more representative of today’s global work force.

Berkeley values the intellectual, cultural and geographic diversity that out-of-state and international students bring to campus. We remain committed to increasing the ethnic diversity of our student body and have made additional investment in outreach activities for underrepresented minority students. The number of non-resident, underrepresented minority freshmen doubled from 2009 to 2010 and increased again in 2011.

On the issue of why international and out-of-state students pay more — this is because we are required by policy to charge such students as close to the actual cost of a Berkeley degree as possible. This reflects the fact that the state has provided the land upon which Berkeley sits, made considerable investments in the past and still provides operational support via state appropriations. All of these come at the expense of California taxpayers. The same logic applies to public universities in all other states.

Question 4

There were two popular questions that asked about the university’s endowment. One wondered why we don’t have a significant endowment like elite private universities, and another asked about the endowment’s future.

The simple answer is that UC Berkeley is in the process of doing just what was suggested — building a multibillion-dollar endowment. The campus is currently engaged in a $3 billion fundraising effort — The Campaign for Berkeley — which has so far raised $2.36 billion from alumni, parents and friends of the university.

A key goal of the campaign is to raise endowment support for programs to benefit students and faculty, such as undergraduate scholarships, graduate fellowships and faculty chairs. One of the successes in this regard is the Hewlett Challenge, a $110 million gift that helped create 100 new faculty endowed chairs in just four years. Increasing private support is crucial for extending Berkeley’s status as the crown jewel of public higher education. 

It is worth explaining what an endowment is. An endowment is a permanent fund where the principal is invested and the university benefits from annual income generated by the fund. The principal is left untouched so it can continue to generate income in perpetuity.

Berkeley’s endowment was valued at $3 billion at the end of fiscal year 2010-11, up from $2.6 billion the previous year. Income generated by our endowment is an essential piece of our financial toolkit and supports top priorities.

This income stream is essential and is a key reason why, even in the midst of dramatic state disinvestment, we have been able to retain an exceptionally talented faculty and attract new talent. For example, since 2000, 74 of Berkeley’s young faculty have received Sloan Fellowships — a recognized marker of junior faculty excellence. Berkeley, along with MIT, has generated the most Sloan Fellows in the country during this period.

As far as the future of our endowment and fundraising is concerned, we are cautiously optimistic. Even in the midst of the worst recession since the Great Depression, Berkeley has continued to achieve philanthropic success. During the last fiscal year we received more than $300 million in contributions. According to the Council for Aid to Education, between 2005-10, donations to Berkeley increased by 54.6  percent, which is the fastest rate of increase achieved by any U.S. university, public or private. My colleagues in the development office are optimistic that this trend will continue. Thus, while we need to acknowledge the challenges we face, we should also applaud our successes. One of which is that there are signs that alumni, parents and friends of the campus understand what is at stake and are stepping up to lend their support.

Question 5

The fifth question that garnered the most votes relates to whether we are examining the efficiency of the campus infrastructure, with the questioner citing sprinklers that seem to be watering the sidewalk more than the plants themselves.

On the specifics, our facilities people informed me that we had a stuck valve, which would be fixed as soon as possible. I also found out that our sprinkler system is computer controlled and scheduled for watering only between 8 p.m. and 7 a.m. We can turn the system off when it rains (which we do) so that water is not wasted.

On a broader level, we are looking very carefully at every aspect of our operations to make sure we are as efficient as possible, and smart about how we use energy and water. Part of that is happening through Operational Excellence, which is on track to save us $75 million a year in administrative costs, and includes a significant energy-saving project: that is, the Energy Management Initiative, which includes four key projects focused on reducing energy use:

•   A high-profile Energy Office to track, oversee, and manage energy consumption;
•   An incentive program;
•   An outreach program that focuses on individual action;
•   A campus energy policy, to articulate guidelines and standards relating to all aspects of campus energy use.

Other green initiatives on campus are lead by the Sustainability Office and include:

• Implementing Bright Green programs to reduce our ecological footprint- — aiming to reduce emissions to 1990 levels by 2014, a goal that is ahead of California and UC policy requirements by six years.
• Raising awareness through our Talking Louder campaign and working with over 30 student groups to advance sustainability.
• Striving for transparency and accountability through an annual Campus Sustainability Report and Plan.

I urge you to contact the program director, Lisa McNeilly, if you have an interest in this area. You can find more information by going to the website: sustainability.berkeley.edu.