Berkeleyan

Chancellor Birgeneau speaks out on the budget crisis

'No silver bullet' for campus financial woes

| 26 August 2009

By all accounts, the UC system is facing the most serious financial crisis in its history. Staff and faculty at all of its 10 campuses will soon see their paychecks cut, their work time reduced, and their workloads increased. Berkeley has experienced significant layoffs already, and campus units are being forced to cut an average of 20 percent from their operating budgets for this fiscal year. Prospects for increased support from the state of California — which slashed UC's funding by $813 million this year, precipitating the crisis — are slim.

With the campus gearing up for a fall semester unlike any since his arrival in 2004, Chancellor Robert Birgeneau met with the Berkeleyan to discuss the challenges ahead — and what his administration is doing to meet them.

Berkeleyan: The tone of last month's regents meeting was probably best captured by your warning that "we can manage for one year, but not beyond" under new salary and hiring constraints. How do you see the impacts of the state's funding cuts at the start of the fall semester?

Chancellor Birgeneau: First of all, the reason for saying that we can manage for one year is that I don't think either our faculty or our staff will tolerate this level of salary cuts much beyond a year. I think people, especially those who are mobile — they will take a 10 percent cut for the good of Berkeley for one year, but other offers are going to come along. We see op-eds appearing in the newspaper now about how the University of Texas is going to recruit some fraction of our faculty, for example. So I think that the competitive landscape means that we cannot continue with reduced salaries much beyond this year. That is number one.

Number two, it has a huge negative effect on morale when you look at your paycheck and it is 10 percent, 8 percent, 6 percent less than it was last year — and perhaps even more so for people earning low incomes, because they are struggling just to exist in the Bay Area as it is. We just cannot continue that. Whether or not we will be able to ramp the furloughs down to zero in one year or have to phase them out more gradually is something we won't know until we learn what the actual budget situation is for next year.

Q. Are you optimistic, then, that Sacramento will increase our funding next year? And if not, what's our strategy for turning things around?

A. It's outrageous that UC's funding was cut so severely by the state. At the same time, I am not counting on increased state support in the near future. We must have a multi-pronged strategy. There is no silver bullet. In the many discussions we've had about this with the senior leadership team, we can see a strategy of "getting back to normal" on a time-scale of three to four years. There is nothing magic that we can do within one year that is going to completely resolve all our financial issues.

Q. How do you envision the road back to "normalcy"?

A. First of all, there has to be new revenue, including increased fees, though that will be determined by the regents. I also think that we will inevitably see a change in the mix of our students — we will see more out-of-state students than we currently have, because out-of-state students pay their full cost of education.

Secondly, we think we can do a number of things more efficiently. Over the next six months we're going to go through an intense, broad-scale examination of procurement and other forms of campus spending and administration to see what things we can do less expensively.

Third, we are working hard on our real-estate portfolio in order to minimize the amount of space that we are renting. We spend a lot of money on rent in the Berkeley area, much more than is optimal for us.

Fourth, we can do a better job in managing our debt.

And fifth, we of course will have to work hard in Sacramento.

Q. You're not giving up on state funding, then.

A. My own belief, and I know it goes against everything that has happened, is that the only real option in the short term for Californians and for UC is new revenues.

Q. As you know, all projections indicate multi-billion-dollar deficits for the state for years to come. How do you draw blood from a stone?

A. New money could easily come from higher taxes on high-income earners. You know, I argued with some of the Democrats very early on, when gasoline prices were high, that if prices rose another 20 cents per gallon no one would notice,  because who cared whether gas was $3 or $3.20 a gallon? That 20 cents, if it was dedicated to higher education, would have a huge impact.

It's popular to say that the State should take money out of prisons. [Vice Chancellor] Frank Yeary cites this statistic that there are now more prison guards in California than there were prisoners in 1982, which is a horrible statement about society as a whole. So are there places where you could save money? Yes. On the other hand, do I want to take the money away from other programs that support the poor and disadvantaged? No. So my view, at least in the short term, is that the state should find other revenues — and that they should be dedicated to higher education.

Q. You wrote in an op-ed piece recently, "The real challenge for Berkeley is not whether it can remain one of the greatest universities — there is no doubt that it will — but whether it can do so and still retain its unique public character." What does "public character" mean to you?

A. Let me give you an example. Currently, we return one-third of our fees to financial aid to enable students from financially challenged backgrounds to come to Berkeley. We could go a long way toward solving our current financial problem by saying we are not going to do that anymore. Now, that would be a terrible thing, and completely contradictory to our public character. But we could do it, just as we could emulate the privates — and we get a fair amount of pressure to do this — by having legacy admissions. That would also be a violation of our public purpose, because we would be admitting people for reasons other than the fact that they have earned the right to be here.

As a public institution, we are committed to guaranteeing access to students independent of the financial well-being of their families. If we were to give that up to ensure that we can continue to pay competitive salaries to our faculty, that would be a negation of our public character.

Q. Yet despite that commitment, your op-ed raised the question of whether Berkeley can retain its public character. How do you view the challenge?

A. The state has completely disinvested in us. Even before this crisis, about 2,000 of our students were unfunded — that is, the campus was paying the costs of their education. Now, with the new budget cuts, our entire entering class of 9,300 California residents is unfunded — the undergraduates, the graduates, and the transfer students. That is a huge disincentive and an unstable financial model. That missing money has to be replaced one way or another. My hope is that our alumni and friends will step up even more than they have in the past, and that we will not only see an increase in philanthropy, but that it will be directed toward basic core support of the university — including salaries for faculty and staff.

Q. What do you say to those who worry that an increased reliance on private philanthropy itself poses a threat to our public character?

A. I think that it is a misunderstanding of finances to talk about "the privatization of Berkeley" simply because the funds are nongovernmental. Once we have the funds, they are then controlled by a public entity. So they become public funds. The one thing we have to ensure is that the source of the funds has no influence whatsoever on how we spend them, and that we can continue to dedicate them to a public purpose, respecting, of course, the donor's intent for the gift.

Q. As an elite institution, could Berkeley benefit from increased autonomy from the UC system?

A. I have urged the Office of the President and President Yudof to allow the individual campuses to optimize their local situations as much as possible, which means devolving as much control to the campuses as possible. Take financial aid, for example. We have played a leadership role here at Berkeley in understanding the challenges faced by middle-class families. So instead of having the financial-aid system controlled by the Office of the President and having some redistribution of funds, frankly, I would like undergraduate-student financial aid entirely determined at the campus level. That is one example.

Q. What about fee structures?

A. In Access and Excellence I floated the idea that we should allow individual campuses, within some range defined by the regents, to set their own fee policy. I soon discovered that this was quite controversial. My own view is that at this time in history, when I think it's likely that we are going to see fees going up at a fairly rapid pace, that it's not the right time to be considering additional, campus-specific fee increases.

Q. How long do we have to get our financial house in order before the UC system, and the Berkeley campus, suffer irreparable harm?

A. I think that we have more than one year, but not five. I can't say very precisely. The fact is that almost all the universities that we compete with very directly for faculty have financial challenges which are similar to ours. Now there are other institutions that have been less affected by the downturn, and faculty could choose to go to those. But most of those do not offer the kind of environment we have here at Berkeley. So that would be a life decision. Salary obviously matters a lot in the long run, but in the short run people are at places like Berkeley and Stanford and Harvard and MIT because they are exciting places to be.

Q. How do you read the current mood of faculty and staff?

A. Among faculty, people are obviously upset about the salary cuts and the furloughs. We hear from faculty that if it is for a year, it's all right, but it had better not last more than a year. I have not heard many stories of people actively looking for jobs. I got an e-mail just in the past few weeks from a faculty member who had an offer from Harvard but decided not to go, because Berkeley is a more interesting place to be for what that person does. So it's not as if faculty are jumping ship.

Staff are demoralized. That is my sense, anyway. They are understandably concerned about layoffs. We have very loyal staff, and they work hard, and I think, for most of them, they thought that if they worked hard and did their job they were guaranteed career employment at Berkeley if they so chose. Now people are worried that that pact is suddenly going to be broken. I do think most of them appreciate that to the extent the pact is broken, it is broken by the state, not by us.

Q. Is the state's Master Plan for Higher Education, which guarantees access to UC for the top 12.5 percent of high-school seniors, still viable?
           
A. I think that the Master Plan is being challenged. The Master Plan rests on the state carrying its part of the financial burden, which it is not doing. Before very long, the people of California are going to have to decide that to have a higher-educational system that offers a high-quality education, there must be adequate state support.

At Berkeley, because of our history and our preeminence, we have many options, whether it's philanthropy or being able to control the mix of in-state and out-of-state students — we have options that some of the other UC campuses, especially the younger ones, do not have. So I'm actually quite worried about the overall health of the UC system as a whole. I'm more worried about the system as a whole than I am about UC Berkeley itself.

Q. You mentioned "the challenges faced by middle-class families." Can you elaborate?

A. One of the silver linings amidst all these clouds is that Cal Grants survived this budget process, even though the governor himself suggested that the program should be canceled. That would have been the end of public education in California. Everything that we treasure in public education would have been  completely vitiated. So as long as we have the Cal Grant program intact, including covering any fee increases — as well as the Blue and Gold program, federal Pell Grants, and the one-third set-aside for fees — I think we can continue to maintain access for people whose family income is under $60,000 a year.  Even if we continue to increase fees, with the Cal Grant program and the return-to-aid, the overall cost of attending will go down for this group. This sounds counter-intuitive, but it is a fact.

However, if you come from a family whose income is $100,000, so that you receive little or no financial aid, then the costs for you at Berkeley have skyrocketed. If your family income is $100,000 a year, can you imagine having two children in college with each one costing $28,000?

So there is an access crisis. But it is a crisis of the middle class.

Q. And what can be done to address that?

A. We're going to have to start providing financial aid for people in the income range of $80,000 to, let's say, $130,000. The challenge is, where is that money going to come from?

Q. We keep returning to that same question, it seems.

A. It always comes back to that, unfortunately. One thing we could say is, well, we will increase the self-help level, and let people in the lower-income brackets pay more, and transfer money from lower-income to higher-income families. That doesn't seem very attractive. I've advocated for increasing the return-to-aid from one-third up to 40 percent, and to use the additional funds to fund middle-class students. But in our current financial crisis, I think that's not viable. I had been working hard with some private donors and with foundations to try to obtain a Hewlett-type challenge grant for this purpose, and was making progress until the market crash. I actually thought that we were going to get there. But then foundations and wealthy individuals suddenly found they had much less money than they thought, and those possibilities, at least, have been put on hold.

Q. You've been chancellor now for five years. Did you ever expect the job to involve so much accounting?

A. You know, I got so much pleasure in seeing the creation of the Berkeley Diversity Research Institute, the Energy Biosciences Institute, the Center for Stem-Cell Research, the Blum Center for Developing Economies, as well as advocating for various social causes important to our campus community — whether it was against Proposition 8, or in support of undocumented students — those are the things we academics who are also administrators love to do. This is not as uplifting. [Laughs.] But it is absolutely necessary, and it's also not the first time in my career that I've had to deal with budget cuts. These are just a different magnitude.

One thing I'm very proud of is that we have a business team that is incredibly talented.  This includes individuals like Nathan [Brostrom, vice chancellor for Administration], Frank Yeary — who turns out to be a genius at this kind of thing — and most recently, Erin Gore [associate vice chancellor for budget and resource planning] and a number of others, as well as Scott Biddy [vice chancellor, University Relations] on the fundraising side. So I'm at least very happy as a pure academic that I have people to help who are so skilled on the business side, because I don't have these kinds of knowledge and skills. I'm a physicist.

Q. As we begin the fall semester — and contemplate the reality of furlough days, salary cuts, increased workloads, and the rest — what message do you have for staff and faculty?

A. Everyone should be clear about one thing: We are not going to let Berkeley deteriorate. We should not underestimate or mask the challenges that we are facing. But I think that we are facing them extremely well.  We have done as well as we possibly could have with this shock that we got in May, as we saw our budget shortfall suddenly increase by $80 million, almost doubling our overall budget shortfall to $150 million for this year. It was shocking, to all of us. We had been having regular budget meetings since January, and we thought that we had a plan that was basically going to get us through quite smoothly. Suddenly there we were with $80 million more in cuts, which is approximately 15 percent of our operating budget.

We will be working very hard to find savings in our operations and to find new revenues that will progressively bring us back to equilibrium. But it's important to keep in mind that we see this as a several-year process. I cannot stress it enough: There is no silver bullet. We are all in this together.