Hidden Wealth Report

An investigation of the University of California’s ability to pay fair wages & benefits for UC clerical & allied services represented by CUE.

UC’s Hidden Wealth - Updated
A Study for the Coalition of University Employees (CUE)

By Peter Donohue, Ph.D., PBI Associates
120 Pinehurst Way, San Francisco, California 94127
415-494-5495
pbiassociates@comcast.net

December 14, 2009

Executive Summary | Introduction | UC Jargon & GAAP Definitions

GRAPHS - Unrestricted Net Assets - State Appropriations - Tuition & Fees - Net Income from Medical Centers - Auxilary Enterprises Net Income - Unrestricted Gifts & Grants - Income from Laboratories - UC Operating Revenue - UC Net Income - Net Income Obligation Comparisons

EXECUTIVE SUMMARY

In 2001, the Coalition of University Employees (CUE) engaged economist Peter Donohue of PBI Associates to investigate the University of California’s ability to pay fair wages and provide benefits for the University’s clerical and allied services employees represented by CUE.
Dr. Donohue’s findings, endorsed by a neutral fact-finder in 2004, confirm the University of California has more than sufficient ability to pay more, while the University’s history of inadequate compensation for CUE represented employees continues. By the University’s own admission, its clerical and allied services employees’ salaries are far behind that of comparable employees of the California State University System (CSU), other comparable ‘national’ publicly-supported universities and public and private sector employers in California.

The University of California’s continuing injustice toward CUE-represented employees in today’s changing economic circumstances led CUE to engage Dr. Donohue to investigate if the University’s overall financial condition affords paying clerical and allied services employees fairly.

As in the original 2002 investigation, this report relies on the University of California’s audited financial reports and shows despite repeated public statements to the contrary, the University has the ability to pay for improvements in clerical and allied services workers’ salary and benefits without harming its educational, research and public service mission. The University’s ability to pay is not contingent on State appropriations, as administrators have repeatedly stated. It demonstrates once and for all the University’s refusal to offer CUE represented employees fair wages is NOT because it can’t do so, but simply because it won’t. Finally, this report highlights the enormous chasm between the treatment of high-level administrators and clerical and allied services employees, and the terrible consequences of this deliberate policy of under-paying CUE represented employees.

These are Dr. Donohue’s findings:

• The University of California has accumulated at least a $3.5 billion surplus, $3.0 billion higher than 1990-1991’s $0.5 billion unrestricted net assets.

• Since 1991, the University’s non-state revenues have grown 129%, topping the State appropriations 4.7% increase. The University’s dependence on State appropriations decreased over time, in 2008-2009, to only 13% of the University of California’s total revenue.

• Student tuition and fees increased 277% since 1990-1991, not including the 32% increase starting in 2010.

• The University of California’s net income from hospitals and medical centers has increased 272% since 1991, 11.8% in 2008-2009.

• The University of California’s net income from auxiliary enterprises (housing and dining, parking etc.) has increased 151% since 1991.

• Unrestricted gifts and grants have increased 1,480% since 1990-1991.

• The University’s net income from its Department of Energy labs was $667 million in 2008-2009.

• In 2008-2009, the University’s total operating revenues increased 4% to 6.7 times State appropriations, which are reported separately. Since 1990-1991, The University of California’s operating revenues have increased 130%.

• Because of the GASB 45 reporting rule mandating all (not just payable) long-term liabilities be included on income statements, the University’s inclusion of $3.24 billion of previously separately reported “retiree health benefit obligations” (and other long-term obligations) resulted in the reported net income of - $2.72 billion. If retiree health benefits and other obligations were reported separately, the University’s net income was $240 million in 2008-2009.

• With all long-term liabilities, the University’s unrestricted net assets were $3.55 billion in 2008-2009, a 262% increase since 1991. With obligations reported separately, unrestricted net assets were $6.51 billion in 2008-2009.

• Including all long-term liabilities on the University’s balance sheet, at the start of 2009–2010, the University’s $3.55 billion of unrestricted net assets or “reserve,” were 17% of operating expenses. Without all long-term liabilities, $6.79 billion of unrestricted net assets were the equivalent of a 33% “reserve” over operating expenses.

• Including all long-term liabilities, the University’s 17% “reserve” is twice the recommended reserve for state-supported universities. Without them, a 33% reserve is four times the standard recommendation, and is reflected in the University’s “AA” bond ratings.

• The University of California links CUE salaries to State appropriations but only 30% of CUE salaries come from State appropriations. 3% of CUE salaries are paid from student tuition and fees and 41% comes from the University’s sales and services revenues.

INTRODUCTION

Contrary to impressions fostered by University of California officials’ public statements, the University of California’s audited annual financial reports show the University to be in a robust overall financial condition. The University of California’s fiscal prospects are highly rated by Moody’s Investors Service (AA1) and Standard & Poor’s Ratings Group (AA.)

Why then are The University of California clerical and allied services workers represented by the Coalition of University Employees (CUE) paid far less than counterparts outside the University according to the University Of California’s own salary surveys? The evidence presented in this report shows that the University Of California has and can expect to have the means to improve CUE-represented employees’ compensation and working conditions.

The University of California budget terminology obscures how resources available for educational, and public service uses including fairly paying clerical and allied services workers many of whom are responsible for the University’s day-to-day operations are directed elsewhere. Nonetheless, the evidence is plain: the University of California has the means to improve CUE-represented workers’ salary and working conditions, and, in the current contract negotiations with CUE, the University must find the will to do so in order to establish “labor peace.”

Where are the University resources needed to improve CUE represented workers’ compensation and working conditions?

One answer is the University of California’s unrestricted funds, i.e. funds not restricted to specific uses by outside entities through appropriation, contract, grant, or bequest. The University of California’s annual financial reports define unrestricted funds as those which “may be designated for specific purposes by management or the Regents” (University of California 2007-2008 Annual Financial Report, p. 58.)

It is only University policy, not law or contractual requirements, which the University senior administration “commits” to unrestricted funds for specific uses or accounts. It is no different than covering additional expenses of the University including those incurred in collective bargaining: only the University of California policy stands in the way.

The other source of funds to pay for improvements in CUE-represented workers’ salary and working conditions are the University of California fund balances whose use is restricted.

A large share of CUE salaries and benefits are already paid from restricted funds.

Review of the University of California’s finances since 1990-1991 shows that these existing resources are not just a ‘one-time thing,’ (funding source) and they can be expected to continue into the near future, suggesting the University of California has and can expect the means to improve CUE-represented employees’ salary and working conditions, the University’s much-avowed goal.

UC JARGON& GAAP DEFINITIONS

Let’s keep it simple. Here are the basics for understanding this report’s findings.

• ‘Funds’ are only The University of California’s bookkeeping, the University’s way of organizing its resources;

• Budgets are forward-looking documents balancing expected resources and spending;

• The University of California’s Statement of Revenues, Expenses and Changes in Net Assets (income statement) shows the most recent fiscal year’s actual revenues, spending, transfers and fund balances while its Statement of Net Assets balance sheet shows assets, liabilities and equity as accumulated over the University’s history through the past year;

• What matters is if resources are restricted by outside entities, i.e. their use limited by law, contract, grant or bequest; otherwise, they are unrestricted, for use as the University chooses.

Auditors PricewaterhouseCoopers attest that The University of California’s annual financial statements best show the University of California’s overall financial condition in conformance with Generally Accepted Accounting Principles (GAAP):

In our opinion, based on our audits and the report of other auditors, the financial statements listed in the accompanying table of contents on page 5, which collectively comprise the financial statements of the University of California (the “University”), a component unit of the State of California, present fairly in all material respects, the respective financial position and plans’ fiduciary net assets of the University, it’s aggregate discretely presented component units, and the University of California Retirement System (the “Plans”), respectively, at June 30, 2008 and 2007, and the changes in the Plans’ fiduciary net assets for the years then ended in conformity with accounting principles generally accepted in the United States of America. (University of California, 2007- 2008 Annual Report, p. 47.)

Following GAAP for publicly supported universities, the University of California’s annual financial statements define unrestricted resources as those that “may be designated for specific purposes by management or the Regents”. Under GAAP, restricted funds are those whose use is limited by an outside entity’s law, contract, grant, bequest, i.e. not by the University Regents or management.

For the University’s creditors, lenders, contractors or vendors, what matters is what unrestricted resources the University has, whether budgeted or not, to meet its financial obligations to them. Those resources whose use is not already restricted by outside entities are unrestricted, available to meet those obligations.

Unrestricted resources the University has called “liened” in communications to CUE represented employees (Associate Vice Chancellor for Human Resources Dennis Shimek to the University of California Davis Vice Chancellor for Administration, “20001-2002 Salary Communication Summary, December 27, 2001” HR Communiqué #01-002) are actually unrestricted. The use of resources subject to a lien, a contractual claim on the property of another as security for payment of a just debt, would be restricted by an outside entity. Laypersons’ understanding of these words is the same. No different than resources the University calls “dedicated,” if unrestricted resources use weren’t available for use as the University chooses, they would be identified as restricted in the University of California’s financial statements. “Liened” appears nowhere in the University’s audited financial reports. All “liened” means is the University of California has plans for using these otherwise unrestricted funds other than improving CUE represented employees’ salary and benefits.

CUE-represented employees are among the University of California’s most important creditors, who advance their labor in anticipation of being compensated as to be stipulated under the contract being negotiated. As for other creditors, the true measure of the University of California’s overall financial condition and its ability to improve CUE-represented employees’ salary, benefits and working conditions are the University of California’s own PricewaterhouseCoopers-audited financial statements not the University of California’s budgets or the University’s own through-the-looking-glass jargon.