Report 2016-130 Recommendation 36 Responses

Report 2016-130: The University of California Office of the President: It Failed to Disclose Tens of Millions in Surplus Funds, and Its Budget Practices Are Misleading (Release Date: April 2017)

Recommendation #36 To: University of California

To ensure that its staffing costs align with the needs of campuses and other stakeholders, by April 2020 the Office of the President should reallocate funds to campuses when adjustments to its salaries and benefits result in savings.

Annual Follow-Up Agency Response From October 2022

UCOP reallocated a total of $166.3M to the campuses, as documented in the November 2019 Regents item. The total impact of public-sector weighting and narrowing of the salary ranges within the CSA's timeframe did not produce additional savings that could be allocated to the campuses. Since FY17-18, UCOP has deployed ways to maintain its personnel-related costs that included a year with no salary increases as well as a curtailment program. UCOP continues to face workforce and salary pressures which have been worsened by high inflation creating retention issues and a growing inability to fill open recruitments in the competitive job market.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Full implementation of this recommendation is pending the Office of the President's implementation of recommendation 23. As we discussed in the assessment of that recommendation, policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and, thus, we believe that the Office of the President's implementation falls short.

Annual Follow-Up Agency Response From October 2021

UCOP reallocated a total of $166.3M to the campuses, as documented in the November 2019 Regents item. The total impact of public-sector weighting and narrowing of the salary ranges within the CSA's timeframe did not produce additional savings that could be allocated to the campuses.

For three years from FY17-18 to FY19-20, UCOP remained on a flat state direct appropriation. In FY20-21, this appropriated amount was reduced by over twelve percent due to the COVID-19 pandemic. In FY21-22, the budget assumed restoration of funding back to FY19-20 levels. Over this period, UCOP has deployed ways to maintain its personnel-related costs that included no salary increases as well as a curtailment program. UCOP continues to face pressures that result from moderating salaries that may have future consequences that include high turnover rates and a growing inability to fill open recruitments in the competitive Bay Area job market.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Full implementation of this recommendation is pending the Office of the President's implementation of recommendation 23. As we discussed in the assessment of that recommendation, policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and thus we believe the Office of the President's implementation falls short.

Annual Follow-Up Agency Response From April 2020

UCOP reallocated a total of $166.3M to campuses over the past three years as was reported in Schedule G of the November 2019 Regents item, which has been provided to the CSA. The net reallocation of funds to campuses from adjustments to salaries and benefits was $3.1M. UCOP reallocated funds by reducing employee benefits costs by $3.3M (as submitted to the CSA in April 2019). The total impact of public-sector weighting and narrowing of the salary ranges within the CSA's timeframe increased costs in the short term by $.2M as employees were brought up to the new minimum narrowed ranges.

The weighting of public-sector comparators lowered the underlying market data for Career Tracks salary range midpoints by 2%. Based on this analysis and narrowing the ranges, UCOP adjusted its salary levels and ranges to meet its established targets. As presented to the Regents in March 2019, existing employee salaries are not impacted by changing the midpoints unless it falls below or above the range. Because 91% of UCOP employees are currently paid below the 75th percentile of their range, the only short-term adjustments that occurred were to bring salaries up to the low end of the range per recommendation #24. Lowering midpoints by 2% overall can reduce the overall budget in the future if positions turn over or employees reach the range maximum sooner, but these do not produce short-term material impacts and the former would be difficult to calculate given factors such as years of experience that go into salary setting decisions.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Full implementation of this recommendation is pending the Office of the President's implementation of recommendation 23. As we discussed in the assessment of that recommendation, policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and thus we believe the Office of the President's implementation falls short.

Annual Follow-Up Agency Response From November 2019

The net indirect allocation of funds to campuses in this category is $3.1M from savings that reduced the demand on unrestricted funding and fund balances. UCOP has indirectly reallocated funds to campuses by reducing employee benefits costs by $3.3M (as submitted to the CSA in April 2019). The total impact of public-sector weighting and narrowing of the salary ranges within the CSA's timeframe increased costs by $.2M as employees were brought up to the new minimum narrowed ranges. Future savings resulting from including public-sector weighting are not included. Total direct and indirect reallocation activity over the past three years, $166.3M, is being reported in Schedule G of the November Regents item, which has been provided to the CSA.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Full implementation of this recommendation is pending the Office of the President's implementation of recommendation 23. As we discussed in the assessment of that recommendation, policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and thus we believe the Office of the President's implementation falls short.

Annual Follow-Up Agency Response From April 2019

The methodology for narrowing the salary ranges went through extensive stakeholder review as described in the update on the salary range recommendation. In the case of the workstream focused on narrowing the salary ranges, no savings were identified from this work.

In the case of employee benefits, all savings have been realized in the FY18-19 budget. Because UCOP is on a direct appropriation of State general funds which is reimbursement based, UCOP cannot accumulate unspent funds and therefore has no surplus funds to reallocate.

Reallocation of funds follows the Fund Reallocation Guidelines and decision tree that are located in UCOP's Operating Budget Manual located here, https://ucop.edu/ucop-budget/ucop-operating-budget-manual.pdf. Should there be savings in the future when UCOP has returned to campus assessment funding, the Fund Reallocation Guidelines provide a clear methodology for evaluating surplus funds, for reallocation.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

We are rating this recommendation as pending due to the concerns we expressed in recommendation 23 regarding the 8 percent salary range increase that the Office of the President applied which negated the impact of our recommendation. We will reevaluate any steps the Office of the President takes to resolve our concerns when assessing its April 2020 response to this recommendation.

1-Year Agency Response

The Office of the President has initiated efforts to track savings from employee reimbursement policy changes.

An update on the implementation of this recommendation will be dependent on actions taken in response to the April 2019 recommendations.

California State Auditor's Assessment of 1-Year Status: Pending

The status of this recommendation is pending the Office of the President's implementation of our staffing related recommendations due April 2019.

6-Month Agency Response

Implementation of this recommendation will be dependent on actions taken in response to the April 2018 recommendations.

California State Auditor's Assessment of 6-Month Status: Pending

The status of this recommendation is pending the Office of the President's implementation of our staffing related recommendations due April 2018 and April 2019.

60-Day Agency Response

Implementation of this recommendation is dependent on actions taken in response to the April 2018 recommendations.

Any potential savings from this process will either be reallocated to campuses or used for programs and areas that further support and benefit the campuses.

California State Auditor's Assessment of 60-Day Status: Pending

The status of this recommendation is pending the Office of the President's implementation of our staffing related recommendations due April 2018 and April 2019. The impact of this recommendation will vary based on the Office of the President's funding situation in April 2020; however, we are still concerned that the Office of the President indicates in its response that it does not plan to directly reallocate these funds to campuses. We look forward to the Office of the President's 6-month response to determine the level of campus input on these spending decisions.

All Recommendations in 2016-130

Agency responses received are posted verbatim.