Does UC Davis’ Reliance on Research Grants to Service Debt Make It Vulnerable?

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universitycat.pngLast week, the UC Davis released results from the Washington Advisory Group (WAG), analyzing its research portfolio and its strengths and weaknesses.  The university spent over a quarter million on this report, which, while hopeful, was quite critical of the university, calling to task the culture of the university as “risk-averse, modest, and insular.”

We know from local discussions in city politics that the city has looked to forge partnerships with the university to bring in high-tech spinoffs, but the report hit on this as a university problem, as well.  According to the report, “relationships with industry on research or joint programs were frowned upon by former administrations as counter to what a university is all about. As a consequence, collaborative programs with industry are new to Davis and are in response to government agency requirements or suggestions.”

However, one of the big questions that has been directed toward this study is funding.  We know that the university system as a whole has a funding problem, at least in terms of students and staff.  Tuition has risen drastically. There have been cutbacks in funding at the very moment when the university seems poised to make a big effort to move up its research ranking.

In an article last week from the Davis Enterprise’s Cory Golden, he reported that UC Davis is 36th among universities in the current academic ranks.

He writes, “Despite state general fund cuts that could total more than $228 million since 2008, depending on the outcome of state budget talks, UCD “knows what it has to do,” the consultants write, to improve to a rank of between 20th and 30th. That group  includes Northwestern University, UC Santa Barbara and the University of North Carolina, Chapel Hill.”

“Katehi has set a new goal of $1 billion in outside research support. UCD more than doubled such funding from $295 million in 2001 to a preliminary estimate of $679 million for 2009-10,” he continues.

The Enterprise article cites the work of a blue-ribbon committee on research, chaired by Claire Pomeroy.  She called it a “new era” for research.

“There’s a pent-up desire among the faculty and the staff and the students to really optimize how our research enterprise is functioning, and a recognition that we have some work to do in that area,” she said.

“The statement that we made in the blue-ribbon report on research that UC Davis is ‘less than the sum of its parts’ reflects the idea that we have incredible excellence here, and if we can just bring it together and support the people and give them the administrative support and infrastructure support, then we can really propel this university up to the next level.”

However, the WAG also cites what it calls significant financial risk, and that was not explicitly covered in the Davis Enterprise article. 

The report criticizes the university for lacking “an integrated university 5-year strategic plan including corresponding budget information.”

Along the same lines, “Garamendi funding of buildings on the UCD campus presents significant financial risks and will dramatically affect the ability of the campus to respond to strategic opportunities should there be a downturn in federal funding (or indirect cost rates reduced).”

The report continues, “Although this is a system-wide problem, UCD is particularly vulnerable because of the heavy reliance of the campus on state funding for research operations. Prudent financial planning taking these risks into account is necessary for the campus to reach its goals.”

This is not an insubstantial point, 43% of the university’s costs are directed toward service on the debt from the Garamendi bonds, an amount that is around $32 million.  According to our sources, almost all of this is new debt, amassed in the last six years as the university has only been able to issue Garamendi Bonds for the last six years.

How this works is if a researcher gets a grant from the federal government, the school would get $153,000, keep $53,000 of it and pass on $100,000 to the researcher.  Half of that money goes to pay down the debt on the Garamendi bonds.

That puts the university in a position where it is completely dependent on research money as a means to finance its debt.  And if it does not get additional research money, it will not be able to pay its debt and continue to function.

The Legislative Analyst’s office explains some of this.  “The university has funded construction of a wide variety of facilities, including a significant amount of space for faculty research, from revenue bonds backed by research overhead revenue,” they wrote in 2004.  “Garamendi bonds are used to finance faculty research buildings. The university pledges the research overhead revenue it will receive from faculty research activities in that specific building to repay the bonds that fund its construction.”

Is that a healthy or unhealthy relationship?  Clearly the panel at WAGs believe that the university needs a more comprehensive plan.

But Chris Carter, who is the university’s budget director, believes that this reliance does not make the university particularly vulnerable.  “Garamendi-funded buildings are sustained through research support.  The expenses associated with these buildings (e.g. debt service, maintenance) are covered by the indirect cost recovery funding generated from research grants that support the research that takes place inside the buildings,” he told the Vanguard on Wednesday.

“Thus, the campus is by design dependent upon research awards to cover the expenses associated with Garamendi-funded buildings.  However, it is not clear to us how a reliance on state funding makes the campus Garamendi-funded buildings particularly vulnerable,” he continued.

“The research in the Garamendi facilities on campus is almost exclusively federally-supported.  In addition, the total federal research support on campus has been increasing dramatically in recent years,” said Chris Carter.

“Since the Garamendi-funded Genome and Biomedical Sciences Facility was completed in 2004, for example, federal research awards at UC Davis have grown by almost 60 percent,” he concluded.

One thing that has happened is that the focus on research appears, at least to some, to have put the onus on research above teaching.  That puts university interests on a collision path with some of the student groups who are angry and frustrated at what has happened with regards to student fees and campus cutbacks at the same time the university seems to have millions elsewhere that they are pumping into expansion.

The WAG report guides the university towards moving up in the research rankings, but some fear this is being taken to a logical extreme.

Critics then point to projects such as $26 million on a newly-designed bookstore.  Obviously that money comes from other sources, but it does point to a system that is flush with some money but not other money, during a budget crisis that is epic in its proportions. While the university can obviously justify its spending priorities, and certainly point to disparate money streams, in terms of creating a less confrontational environment, some of these projects seem counterproductive.

—David M. Greenwald reporting

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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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10 thoughts on “Does UC Davis’ Reliance on Research Grants to Service Debt Make It Vulnerable?”

  1. E Roberts Musser

    dmg: “”Katehi has set a new goal of $1 billion in outside research support. UCD more than doubled such funding from $295 million in 2001 to a preliminary estimate of $679 million for 2009-10,” he continues.”

    When I first read about this “WAG Report”, my first thought was that it was too much in line with Katehi’s vision of privatizing a public university system with research dollars. This report, paid for by the university, just says what Katehi wants it to say.

    dmg: “According to the report, “relationships with industry on research or joint programs were frowned upon by former administrations as counter to what a university is all about.”

    Perhaps former administrators recognized the conflicts of interest that can arise when businesses pay large amounts of money for “research”. It is not an insignificant concern to be tossed aside lightly. It has to do with the integrity of the university and the research it chooses to do.

    dmg:”Critics then point to projects such as $26 million on a newly designed bookstore. Obviously that money comes from other sources, but it does point to a system that is flush with some money but not other money during a budget crisis that is epic in its proportions. While the university can obviously justify its spending priorities, and certainly point to disparate money streams, in terms of creating a less confrontational environment, some of these projects seem counterproductive.”

    The funding comes from one stream of funding – the taxpayers’ collective pockets. The funding is divided up in a huge shell game, so that receiving entities can justify wasteful expenditures on frills, while basics are not financed. In this way, more tax money can be demanded, bc basics have been engineered to be “scarce”…

  2. David M. Greenwald

    [quote]dmg: “”Katehi has set a new goal of $1 billion in outside research support. UCD more than doubled such funding from $295 million in 2001 to a preliminary estimate of $679 million for 2009-10,” he continues.”

    When I first read about this “WAG Report”, my first thought was that it was too much in line with Katehi’s vision of privatizing a public university system with research dollars. This report, paid for by the university, just says what Katehi wants it to say. [/quote]

    You have to be a little careful, that quote is not from the WAG report, but rather a university sponsored report. I’m not sure that your ultimate conclusion is wrong, just cautioning you on that.

    [quote]dmg: “According to the report, “relationships with industry on research or joint programs were frowned upon by former administrations as counter to what a university is all about.”

    Perhaps former administrators recognized the conflicts of interest that can arise when businesses pay large amounts of money for “research”. It is not an insignificant concern to be tossed aside lightly. It has to do with the integrity of the university and the research it chooses to do. [/quote]

    I don’t dispute that point, but I don’t think that’s why have not done it.

    [quote]The funding comes from one stream of funding – the taxpayers’ collective pockets. [/quote]

    This statement is clearly not true. There is a portion of the funding that is taxpayer funded. But a lot of it is privately raised or through fees.

  3. E Roberts Musser

    dmg: “I don’t dispute that point, but I don’t think that’s why have not done it.”

    ???

    dmg: “erm: “The funding comes from one stream of funding – the taxpayers’ collective pockets.”

    This statement is clearly not true. There is a portion of the funding that is taxpayer funded. But a lot of it is privately raised or through fees.”

    Good point. However, taxpayers and students (or their parents) are paying for a good portion of these frills. A good example is what happened with the Mondavi Center and Food and Wine Institute. It is my understanding the Mondavis gave “seed money” for both, but the University had to come up with the lion’s share of the funding for these two facilities. That money comes from student tuition, taxpayers and whatever other funding is available, that is then not available for the basics. I do not consider the Mondavi Center a basic.

  4. wdf1

    However, taxpayers and students (or their parents) are paying for a good portion of these frills. A good example is what happened with the Mondavi Center and Food and Wine Institute. It is my understanding the Mondavis gave “seed money” for both, but the University had to come up with the lion’s share of the funding for these two facilities. That money comes from student tuition, taxpayers and whatever other funding is available, that is then not available for the basics. I do not consider the Mondavi Center a basic.

    The Mondavi Center was funded by more private donations than just the Mondavis’. For instance Jackson Hall was funded by a major donation by Barbara Jackson. There were plenty of other major donors. Their names are all over the lobby engraved in stone. From a conversation I had with a key person affiliated with the Mondavi Center operations, UCD expects the Mondavi Center to operate financially independently of the university.

  5. E Roberts Musser

    wdf1: “The Mondavi Center was funded by more private donations than just the Mondavis’. For instance Jackson Hall was funded by a major donation by Barbara Jackson. There were plenty of other major donors. Their names are all over the lobby engraved in stone. From a conversation I had with a key person affiliated with the Mondavi Center operations, UCD expects the Mondavi Center to operate financially independently of the university.”

    That does not take away from the fact that the lion’s share of the Mondavi Center was not paid for through private donations, which is my understanding. Correct me if that is wrong…

  6. wdf1

    That does not take away from the fact that the lion’s share of the Mondavi Center was not paid for through private donations, which is my understanding. Correct me if that is wrong…

    What does “lion’s share” mean to you? 50.1%? 67%? 75%?

  7. E Roberts Musser

    Assuming nvn8v is correct (and those were not the figures I heard, but since he is referring to a link to a fact sheet I am willing to accept the above listed figures), 50% funding from campus funds/UC Regent’s loan is huge amount of money to fund a frill, don’t you think?

  8. David M. Greenwald

    I’m as cost-averse as anyone, but I can’t think of the Mondavi Center as anything but a huge success, I’m sure whatever public cost has long been reimbursed but it would be interesting to look into.

  9. wdf1

    50% funding from campus funds/UC Regent’s loan is huge amount of money to fund a frill, don’t you think?

    No.

    If all you look at when you see the Mondavi is a building, then of course it’s a frill. The whole university is then a frill on that basis. The point is what do you do with those buildings.

    When you have the Mondavi, events pump money into the Davis economy. People from out of town attend, maybe even have dinner in downtown Davis before or after. You can attract acts that would likely never come to Davis. Those speakers and performers can then meet and interact with students in relevant disciplines. It even adds a certain amount of value to your house. I don’t know about you, but I find that most folks like the idea of living in a community that has a vibrant arts scene. If you want value in your community, then you have to invest.

    Ultimately, the university will have put up 25%, because a loan is temporary in the long term. At least some of that money is justified for the UCD Music and Theater departments. Your performing arts groups don’t look and sound as good without a good venue. Without a good venue, you don’t have credibility to attract talented students.

    Because those talented students (musicians, for instance) come to Davis, they have a chance to interact with our community as teachers and performers. And perhaps with the right kind of invitation, they might even perform in places such as local schools and retirement communities.

    I don’t know what your criteria is, Elaine, but in my book it was a very good investment for Davis and the university.

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