Berkeley’s budget: tradeoffs, choices, and challenges

Erin Gore, Berkeley’s associate vice chancellor for budget and resource planning, arrived on campus on July 1, 2009, as UC Berkeley was beginning to tackle the most difficult financial crisis in its history. With the annual state budget process now getting under way again — and students, staff, and faculty descending on Sacramento to make the case for renewed state investment in higher education — she sat down with the NewsCenter to assess the campus’s budget picture.

Q. You’re still fairly new to Berkeley — though it might not feel like it, given the intense scrutiny paid to budget issues these days. For those who don’t know you yet, briefly describe your professional background.

A. Before coming to Berkeley I co-headed the education and nonprofit group at Banc of America Securities [an investment banking subsidiary of BofA], where I had the opportunity to work with universities and nonprofits across the country who were expanding with capital projects. I also worked extensively with their boards, presidents, and senior staff on strategic planning. My experience also includes budget and forecasting with both the City Council and the Office of Management and Budget in New York City.

Erin Gore, associate vice chancellor for budget and resource planning (Peg Skorpinski photo)

Q. What brought you to Berkeley?

A. I grew up in the Bay Area. Both of my parents are Cal alums, and they instilled in me a passion for public education. So when I was offered the opportunity to work with the No. 1 public university in the world, I seized it.

Q. Some would say the task of managing the Berkeley budget these days is more “challenge” than “opportunity.” By July 2009, when you started this job, you must have realized you were walking into the eye of a hurricane.

A. [Laughs.] I accepted the job prior to the May referendums failing, but yes, I knew there were stormy seas on the horizon.

Q. What did you find as you began digging into the budget?

A. Clearly, there had been a lot of thought given to the nuts-and-bolts budget, in terms of looking at how cuts were allocated, and looking at the impact of the reduction in state revenue. The challenge we have here at Berkeley is that we have not yet implemented a campuswide budgeting system. We have a very robust financial system in terms of transactions, but what we don’t have is a comprehensive system that allows us to easily compile information about the budget. It’s much easier for us to look historically at our financial statements right now than it is for us to robustly project revenue and expenses for the year.

Q. Is that primarily a software issue?

A. It’s two things. Part of the answer is a computer-software solution, but that’s really the second step. First, with this year’s budget process we’re rolling out a comprehensive template that’s populated from the financial system with actual information from fiscal 2009. We’re having everyone on campus not only put in a budget for this year, but project comprehensively revenue and expenses for next year. Until now we’ve focused on incremental revenues and expenses or cuts.

Q. Explain how the change will help Berkeley’s budgeting process.

A. The primary challenge is in trying to summarize the effects of the cuts, and capture the impacts of the reduction in state revenue. We can, at a very high level, show the reduction in state revenue, but determining how that flows through all the different parts of a decentralized campus is much more difficult. First, having every vice-chancellor unit as well as the schools, divisions, and colleges putting in the same format their budgets for this year and next year will give us much more useful information about our budget picture. Then we can take that information and use it to design the budget tool next year. And we’ll be building off tools that are already in use by our sister campuses.

Q. You’ve heard the calls for more transparency in the budget since the day you arrived at Berkeley. But how do you increase transparency given the information-gathering issues you’ve just described?

A. That’s something I’m absolutely committed to, but yes, it’s another challenge. Rolling out the budget call letter [sent annually to vice chancellors to begin the campus budget process] with the new template is a key step forward. The second step will be that our next financial statements will have a more robust management discussion and analysis. The consistent use of these improved financial statements, in combination with a more robust budgeting tool, should provide a much clearer picture of the campus’s financial health.

Q. Is that the way you see your role? You’re not a policymaker, but informed policy decisions — or informed criticism, for that matter — depend on accurate, comprehensible budget data.

A. Historically, the essential charge for anyone in this position has been compiling all the budget information for key campus decisionmakers. That’s still the case, obviously, but with the additional responsibility — especially crucial in the current environment — of then getting that information to the campus community as well.

Q. You took a big step in that direction by giving a presentation last month to the Academic Senate. A key part of your message was that we have far less money available for addressing our budget shortfall than is generally believed.

A. That’s true. As we look at our approximately $1.8 billion budget, the largest portion — about 37 percent — consists of so-called “restricted use” funds. These restrictions are imposed externally, either by the federal or state government or by the private donors. At the other end of the spectrum, less than a third of our revenue — 27 percent, or $483.5 million — comes without designated restrictions, meaning we have some flexibility in how we spend it.

Q. But that doesn’t necessarily mean it’s available for fiscal emergencies like the one we’re currently experiencing.

A. Not at all. “Unrestricted” doesn’t mean “uncommitted,” and in fact the bulk of those funds are used to pay ladder-faculty salaries. It simply means there are no external restrictions placed on how we can use them.

Q. There’s another category labeled “unrestricted designated use.” What does that cover?

A. This classification includes about 36 percent of our revenue, some $652 million, which has designations placed on it by policy. That could be UC Office of the President policy, policies or agreements the UC system has entered into with the state, or policies imposed by UC Berkeley itself. We’re embarking on a comprehensive review of the policies over which we have some measure of control as a campus.

Q. One huge variable we can’t control is state funding. We started the last fiscal year with a $148 million shortfall. Do we know what the next year will look like?

A. Right now we’re just entering into the state’s budget process. We’re in a favorable position, but clearly, since the federal government did not provide the $6.9 billion of revenue requested by the governor, there will be some difficult tradeoffs and choices. And that’s after the governor plugs the current year’s budget deficit of about $8 billion.

Q. Which is still better than last year.

A. It’s way better than last year. [Laughs.]

Q. Does that portend a brighter future for us here at Berkeley?

A. Based on what we know, there’s not an expectation of another mid-year cut for UC, so that’s good. But we certainly anticipate more rough water ahead for higher education as the state struggles to address its budget problems.

Q. Your presentation also showed how much of Berkeley’s operating expenses go to salaries and benefits — and how much of that goes to instruction and research.

A. That’s right. Salaries and benefits comprise 63 percent of all expenditures, which for a higher-education institution is not really surprising. What we need to keep in mind as we look at this number is that if we consider salaries by activity, 60 percent of it — more than $580 million — is in core-mission-related services like faculty salaries, instruction, and research. Another 8.5 percent, or $83 million, goes to student services.

Q. So on the one hand we have limited available funds, and on the other, limited places to cut back. Is this where Operational Excellence comes in?

A. As we look at the larger expense pie, and all the categories that Berkeley spends its funds on, the Operational Excellence effort is key to making those expenditures more efficient, and to enabling us to put as much of our funds as possible into the core mission.

Q. Your entire slide-show presentation is now posted on Budget Central, for anyone who wants to see it. But that was really the first step in a move toward greater budget transparency.

A. Yes. We have a number of meetings planned over the next two months to continue to engage in dialogue about Berkeley’s current financial situation, as well as to work with the campus as we create our new budgeting system. So it’s both about talking about what we do now, and then working toward the vision of having a campus budget tool that provides better information and a clearer picture of how to get where we want to go.

We’ll be meeting with student groups like the ASUC and the Graduate Assembly, along with additional faculty groups, including the deans and department chairs. We’re also talking with advocacy groups, and to parents and alumni groups — trying to help them convey the impacts of the state cuts on the Berkeley budget to legislators from their districts.

Q. Meanwhile, what’s the prognosis for next year?

A. We should continue to be concerned. The California state budget still has a big hole to fill. We’re better positioned than last year, but we haven’t seen the hoped-for recovery in state revenues yet.

Q. And what can staff, faculty, and students do to help solve our budget crisis?

A. Take advantage of Budget Central, both to learn more about the budget and to offer feedback and suggestions. And do whatever you can to make the case for state reinvestment in higher education. We need to address this crisis both here on campus and in Sacramento.

For more on Berkeley’s budget, visit the Budget Central website.