UC-AFT's Proposal for the University of California Budget

Since Governor Brown has asked for input on how to reduce the costs of administration, several unions have developed a plan. Our idea is that the state should offer to reduce the amount of the $500 million dollar cut by $250 million if the UC uses the following method to reduce its administrative cost:

1.   Eliminating management inefficiencies will save the system $250 million in General Fund savings annually. An analysis of system wide-data reveals that UC could save upwards of $500 million by bringing management ratios in line with best practices. UC Berkeley’s current Operational Efficiency findings support the conclusion that UC is saddled with growing layers of unnecessary management. For instance, supervisors at Berkeley’s campus oversee an average of just 4 persons. Moreover, since at least 2004, UC’s management has grown twice as fast as non-management employees. In addition, $1.6 billion in cash compensation went to management in 2009, which is 8% of the entire UC budget. Managerial bloat is a costly systemic problem throughout all levels of UC, and by adjusting UC’s system wide management ratio from 7:1 to 10:1, the UC could eventually save over $530 million annually.  We believe that a $250 million reduction is achievable for 2011-12.

 2.  In addition to cash compensation, UC’s senior managers are compensated through a number of supplemental health, welfare, and retirement benefits. Many of the senior managers who receive these benefits are paid through state funds, causing this benefit to include state funding. Eliminating the Senior Management Supplemental Benefit Program would result in $2.5 million in General Fund savings annually.

 3.  Eliminating the 415(m) Restoration Plan would generate $20 million in General Fund savings annually, beginning 2021. This plan mostly benefits long-service, high-income faculty and senior managers by supplementing their annual retirement income with additional income beyond the $195,000 pension limit established by the Internal Revenue Code. The Internal Revenue Code authorizes public pensions to establish excess benefit plans, such as UC’s 415(m) Restoration Plan. Without the 415(m) Restoration Plan, some long-service faculty and administrators would reach the maximum pension benefit of $195,000 as early as their 50s, which UC claims creates potential retention problems. 415(m) Restoration Plan benefits are paid directly from the University’s departments as a quarterly assessment. Roughly 200 retirees now receive 415(m) benefits totaling $5 million annually. Up to 1,000 members are projected to be eligible in the next ten years. Presumably, the cost of these benefits would be five times greater by 2021. Closing this plan to the 800 members who would otherwise become eligible over 10 years would save up to $20 million per year, at the end of the 10 years.

Since this plan deals with reducing unpopular senior management retirement costs, we believe the state should offer an IOU of $100 million for the state’s portion of the employer’s contributions to UCRP.  Moreover, the state should ask the UC to determine the exact number and cost of state-funded positions.  While UCOP claims that 33% of covered compensation funds state-supported positions, we believe it is much less.

We also believe that the Governor should outline how much the UC’s budget will be reduced if the tax propositions do not pass in June.  If we had this information, we could help campaign for the extension of these taxes. Finally, we believe that the UC should not use the state budget cuts to reduce enrollments, layoff workers, or eliminate undergraduate classes.  Part of any agreement should focus on reducing administrative costs, while maintaining educational quality.