The University of California System is in serious trouble. The budget shortfalls have forced administrators to cut all faculty salaries by 8%. I wonder how long before other schools start raiding the UC system for talent; I’ve already heard rumors of certain high profile academics planning to leave. What was once the pride of public university education seems on the verge of collapse. However, the UC strategy of cutting faculty salaries to save money is fundamentally flawed. Here’s why:

When a university researcher gets a grant - be it from government or the private sector, the university charges what is known as overhead recovery. These “indirect costs” are meant to supplement the direct costs of the grant. The direct costs cover the microscopes, but not the electricity that runs those microscopes. The grant covers the salary of the post-doc but not the janitor who cleans the office of that post-doc. So, the university charges indirect costs to the funding agency - usually around 50% of the direct costs. If I get a grant for $100,000, the university receives $150,000 - $100,000 for my grant, and $50,000 in overhead.

Seemingly unrelated is the notion of summer salary. Academics are typically payed on a 9 month schedule - during the school year. However, almost all academics work year round; when the school year ends for undergraduates, there is still graduate and post-doctoral training, and research to be done. Because the summer months are spent mostly devoted to research, and the academics are not paid by the university for that time, it is not uncommon for academics to write summer salary into their grants. Summer salary typically comes to 2/9ths of the yearly salary.

Moreover, a fair number of academics (particularly in medical schools), will write course buy-out into their grants. The basic idea here is that if the academic is working on a research project for a granting agency, the agency pays the school a portion of the academic’s salary to lighten the teaching load. At my school, I can buy out up to 25% of my teaching time, but at most schools (including the UC system) it goes as high as 50%

So, let’s take a funded professor’s salary. The University gets back .11% from overhead recovery on summer salary (2/9th*.5 overhead). The University gets back 50% from course buy out, and another 25% on overhead recovery of course buyout. In case you haven’t been keeping track, that’s 86% of the salary. That means for every dollar the university cuts from a faculty salary, they save 14 cents: They gain the dollar, but lose 86 cents from grants. This is a strikingly inefficient way to save money.

Granted, not all academics are fully funded - very few humanities professors, for example. But the best academics in the sciences are. Those are the ones most likely to leave if UCLA cuts their salaries - because they not only will be desirable to other universities but to industry as well. Those people are also the most likely to be able to raise the university money in other ways (e.g. patents, industry sponsorships of the university, not to mention non-salary overhead recovery, etc.). Not only does the university save little by cutting their salaries, but if those cuts cause them to leave, then the university might actually lose money.

I would think there would have to be better ways to try and trim the budget.

(Aside: Both Jeff Tedford and Rick Neuheisel make more than $1.25 million a year for coaching football at the UC’s. The former has over $4.5 million in bonuses possible in his contract. I wonder if they had their salaries cut by 8%?)

(Second Aside: While looking up the previous aside, I learned that Arizona State’s coaches salary is tied to the graduation rate of his players. I thought that was a pretty cool clause…)

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