LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

University of California (6440)

The Governor proposes $339.4 million from the Higher Education Capital Outlay Bond Fund of 2004 (on the March 2004 ballot) for 34 projects and $55 million from lease revenue bonds for one project. The Governor's proposal provides $274 million to fund 19 continuing projects and $120.4 million for 16 new projects.

Infrastructure Plan

In the 2003 California Five Year Infrastructure Plan, the University of California (UC) identified a need for $3.4 billion of capital outlay between 2003-04 and 2007-08 (see Figure 1). Of this amount, $323 million was approved in the 2003-04 Budget Act and $394 million has been proposed in the 2004-05 Governor's Budget.

Figure 1

University of California
2003 Infrastructure Plan

(In Thousands)

 

2003-04

2004-05

2005-06

2006-07

2007-08

Total

Needs Identified by UC

Critical infrastructure deficiencies

$74,857

$76,067

$68,000

$95,600

$95,600

$410,124

Enrollment/ caseload/population

192,222

592,710

394,052

428,157

443,436

2,050,577

Facility/infrastructure modernization

19,097

201,100

204,225

204,225

190,000

818,647

Program delivery changes

35,714

35,598

71,312

Totals

$321,890

$905,475

$666,277

$727,982

$729,036

$3,350,660

Projects Scheduled for Funding

Critical infrastructure deficiencies

$74,501

$23,967

$31,892

$42,000

$41,000

$213,360

Enrollment/caseload/ population

192,222

257,689

202,911

200,457

215,736

1,069,015

Facility/infrastructure modernization

19,097

21,500

104,222

96,225

82,000

323,047

Program delivery changes

35,714

35,598

71,312

Totals

$321,534

$338,754

$339,028

$338,682

$338,736

$1,676,734

Approved in 2003-04 and Proposed in 2004-05

General obligation bonds

$311,701

$339,436

 

 

Lease-revenue bonds

11,000

55,000

 

 

Totals

$322,701

$394,436

 

 

General Issues Regarding UC Capital Outlay

The UC has one of the state's most expensive capital outlay programs. As such, it is important that such a program be managed in a cost-effective way. To help achieve this, we recommend existing facilities be utilized more efficiently, construction costs be controlled, and faculty research facilities can be funded from reimbursements—such as UC's research overhead revenue. These issues are discussed below, and our general findings are then applied in our analysis of specific projects proposed for funding in 2004-05.

UC Instructional Facilities Continue to Be Underutilized  

We recommend the Legislature direct the University of California to base its state-funded capital outlay plans on utilization of instructional facilities year-round in accordance with state utilization standards.

Existing state utilization standards for higher education require classroom stations (typically, a student's desk) to be occupied and in use 35 hours per week and teaching laboratory stations about 20 hours per week. The UC's overall utilization is below these standards. The university reports that, segmentwide, its classroom stations are being utilized about 28 hours per week (80 percent of the standard) and teaching laboratory stations about 18 hours per week (90 percent of the standard). All general campuses except Riverside use their facilities less than the state's utilization standards. For example, Berkeley utilizes its classrooms 72 percent as much as required by the state's standards and Davis and Santa Cruz use their teaching laboratories about 82 percent as much as called for by the standards. This means, overall, UC might be able to accommodate as many as 25 percent more students in existing classrooms and 10 percent more in existing teaching laboratories just by utilizing them as required by the state's standards.

In addition to underutilization of its instructional facilities in terms of hours-per-week, UC's classrooms and teaching laboratories are also underutilized during the summer. The UC recently reported about 20,000 full-time equivalent (FTE) students were enrolled at general campuses during summer term 2002. However, the campuses accommodate about 170,000 FTE students during each of its other terms, so up to 150,000 additional FTE students could be accommodated in summer term at all campuses. This means that by enrolling as many students in summer as in other terms, as many as 38,000 more students could obtain a full academic year of instruction than UC campuses are currently serving. This would be a 23 percent increase in the number of students served using UC's existing physical capacity.

Increasing UC's utilization of its facilities is a cost-effective option for increasing the segment's instructional capacity while minimizing the need to construct new instructional facilities to accommodate enrollment growth. We recommend the Legislature take into account the segment's underutilized capacity when considering university proposals to construct new instructional facilities. We also recommend the Legislature make clear its interest in efficient utilization of instructional facilities by adoption of appropriate supplemental report language.

Construction Cost Guidelines Are Recommended

We recommend the Legislature fund construction of new University of California (UC) buildings based on construction cost guidelines similar to those used by the California State University (CSU) and the community colleges. 

The California State University and community colleges have used reasonable construction cost guidelines in implementing their capital outlay programs. The CSU and community colleges have done this for many years, while consistently constructing attractive, durable, and functional buildings.

The UC, however, does not adhere to construction cost guidelines. The UC's construction costs have consistently been much higher than those at CSU and the community colleges. They are also high when compared to similar buildings constructed elsewhere in the country (after adjustment for geographical differences in construction costs). For example, the five projects with which we raise issues below have construction contract unit costs that range from $507 to $734 per assignable square foot (asf) (see Figure 2).

Figure 2

University of California
Construction Contract Costs

Building

Unit Cost
(Dollars per asf)

Irvine:  Engineering Unit 3

$507

Los Angeles:  Life Sciences Replacement Building

734

Riverside:  Materials Science and Engineering Building

535

San Diego:  Music Building

651

Santa Cruz:  Digital Arts Facility

522

For comparison, CSU and California Community College construction contract cost guidelines for similar buildings are shown in Figure 3. The figures illustrate that UC's costs are considerably higher than those for CSU and the community colleges. 

Figure 3

CSU and CCC Construction Contract Cost Guidelines

(Dollars per asf)

Building Type

CSU

CCC

Engineering

$335

$292

Science

466

398

Music

361

321

Audio-visual arts

357

412

Accordingly, we recommend that the Legislature use construction cost guidelines for UC based on the cost of constructing similar buildings at peer institutions nationwide (adjusted for inflation and geographical differences in construction costs). As discussed in more detail in our 2000-01 Analysis (page G-68), we recommend that costs be based on the 75th percentile of costs of these comparable buildings. This means 75 percent of the buildings in our data base of comparable buildings cost less than the UC guideline we recommend. Our recommended construction cost guidelines for UC are shown in Figure 4. Although we show a cost guideline for research, we recommend UC research space be funded from nonstate sources—as discussed below.

Figure 4

University of California
LAO Recommended Construction Cost Guidelines

Building Type

Dollars per asf

Classrooms

$326

Teaching laboratories

476

Offices

301

Research

497

Faculty Research Facilities Can Be Funded by Reimbursements

Faculty research facilities can be funded from reimbursements—such as research overhead revenue. Since these facilities can be self-financed, we recommend that the Legislature reserve state bond funds for other higher education facilities.

Historically, the state has not funded construction of UC facilities that generate sufficient revenue for them to be "self-financing." Frequently, this is done through UC's issuance of revenue bonds. For example, the state does not fund student housing and parking garages because they generate enough revenue to pay for themselves. Another major example is teaching hospitals, which generate hospital services revenue.

The UC research facilities also generate revenue for the university, and are capable of being self-financed. The revenue comes from research contracts and grants. Over half of UC's research revenue comes from the federal government, and the rest from for- and not-for-profit private companies and foundations and from the state. In 2002 UC received about $3.2 billion from contracts and grants. Included in this amount are "overhead" revenues which UC charges to recover the costs of facilities and other indirect costs. In effect, UC recovers each year from the sponsored research that takes place in its research facilities enough funds to pay for the amortized cost of the facility.

Given that UC has the ability to finance its research from this revenue source, we believe that state funding should be reserved for other facilities—such as classrooms and teaching laboratories. Accordingly, in the project-specific discussions that follow, we are recommending no direct state funding of research space. It should be stressed that we are not recommending deletion of proposed research space—only that it be funded from research overhead revenue (or other nonstate sources—such as gifts).

Projects Recommended for Partial Reimbursement Funding

Irvine: Engineering Unit 3

We recommend the Legislature shift partial funding for the Engineering Unit 3 facility at the Irvine campus from state bonds to reimbursements because faculty research space can be funded from reimbursements and estimated construction costs are high. (Delete $2,426,000 from Item 6640-302-6041[5] and add $2,426,000 from reimbursements for preliminary plans and working drawings, and recognize a shift of $31,629,000 of future costs from state funding to reimbursements.) 

The budget includes $3,440,000 for funding of development of preliminary plans and working drawings for an 86,895 asf engineering building at Irvine. The budget proposes 74,195 asf of the project be funded from state sources and 12,700 asf from nonstate sources. The portion of the building proposed for state funding has future costs of $44,853,000 for construction and $3,150,000 for equipment. Figure 5 shows how the budget proposes that the state portion of the project be funded.

Figure 5

Irvine:  Engineering Unit 3
Proposed State Funding

(In Thousands)

Phase

General Obligation Bonds

Preliminary plans

$2,218

Working drawings

1,222

Construction

44,853

Equipment

3,150

  Total

$51,443

Figure 6 shows the proposed uses of the space in the building. While the university indicates the state-funded part of the proposed building is needed to accommodate enrollment growth, only 21 percent of it will be instructional space (classrooms plus teaching laboratories) while 59 percent will be for faculty research.

Figure 6

Irvine: Engineering Unit 3
Use of Space

Type

Asf

Percent of Total

Research

43,950

59%

Offices

14,775

20

Teaching laboratories

10,070

14

Classrooms

5,400

7

  Totals

74,195

100%

We have the following concerns with this project:

Figure 7

Irvine:  Engineering Unit 3
LAO Recommended State Building
Construction Contracts Cost

 

 

LAO Recommendation

Type of Space

Amount (asf)

Cost Guideline
(Dollars per asf)

State Cost
(Dollars in Thousands)

Classrooms

5,400

$341

$1,841

Teaching laboratories

10,070

476

4,793

Offices

14,775

301

4,448

Research

43,950

Reimbursements

  Totals

74,195

 

$11,082

Recommended Funding. For these reasons, we recommend the Legislature approve funding the faculty research space from reimbursements—such as research overhead revenue—and fund the other space in the project based on our recommended construction cost guidelines. When other project costs not directly related to construction contracts are included, our recommended funding from general obligation bonds (the Higher Education Capital Outlay Bond Fund of 2004) and reimbursements is shown in Figure 8.

Figure 8

Irvine:  Engineering Unit 3
LAO Recommended Sources of Funds

(In Thousands)

Phase

General Obligation Bonds

Reimbursements

Total

Preliminary plans

$654

$1,564

$2,218

Working drawings

360

862

1,222

Construction

13,224

31,629

44,853

Equipment

3,150

3,150

  Totals

$17,388

$34,055

$51,443

Applying our recommendation reduces the impact of the project on the Higher Education Capital Outlay Bond Fund of 2004 by $2.4 million in the budget year and future costs by almost $32 million. This will make over $34 million available to fund other high priority projects in higher education.

Los Angeles: Life Sciences Replacement Building

We recommend the Legislature shift partial funding for the Life Sciences Building at the Los Angeles campus from state bonds to reimbursements because faculty research space should be funded from reimbursements and the estimated construction costs are high. (Delete $1,970,000 from Item 6640-301-6041[5] and add $1,970,000 from reimbursements for preliminary plans, and recognize a shift of $58,028,000 of future costs from state funding to reimbursements.)

The budget includes $2,200,000 for funding of the development of preliminary plans for an 87,238 asf building to replace the existing 115,846 asf Life Sciences Building at Los Angeles. The building is proposed to be partially funded from nonstate sources. The budget proposes a total project cost of $87,029,000, with $66,733,000 coming from state funds and $20,296,000 of nonstate funds. The state-funded portion of the project consists of construction of the Life Sciences Replacement Building. (The portion of the project to be funded with nonstate funds consists of the renovation of Hershey Hall.) Figure 9 shows how the cost of the state-funded portion of the project is proposed to be funded.

Figure 9

Los Angeles:  Life Sciences
Replacement Building
Proposed State Funding

(In Thousands)

Phase

General Obligation Bonds

Preliminary plans

$2,200

Working drawings

3,873

Construction

60,660

  Totals

$66,733

Figure 10 shows the proposed uses for the spaces in the state-funded replacement building. It shows that the building will contain over 72,000 asf of faculty research space—83 percent of the building total.

Figure 10

Los Angeles:
Life Sciences Building Replacement
Use of Space

Type

Asf

Percent of Total

Research

72,584

 83%

Offices

8,839

 10

Teaching laboratories

4,584

5

Other

1,231

 2

  Totals

87,238

 100%

We have two basic concerns with the proposed funding level for this project:

Figure 11

Los Angeles:  Life Sciences Building Replacement
LAO Recommended State Building
Construction Contracts Cost

 

 

LAO Recommendation

Type of Space

Amount (asf)

Cost Guideline
(Dollars per asf)

State Cost
(Dollars in Thousands)

Research

72,584

Reimbursements

Offices

8,839

$301

$2,660

Teaching laboratories

4,584

476

2,182

Other

1,231

301

371

  Totals

87,238

$5,213

Recommended Funding. When other costs not directly related to construction are included, our recommended funding from general obligation bonds (the Higher Education Capital Outlay Bond Fund of 2004) and reimbursements is shown in Figure 12. 

Figure 12

Los Angeles:  Life Sciences Building Replacement
LAO Recommended Sources of Funds

(In Thousands)

Phase

General Obligation Bonds

Reimbursements

Total

Preliminary plans

$230

$1,970

$2,200

Working drawings

406

3,467

3,873

Construction

6,099

54,561

60,660

  Totals

$6,735

$59,998

$66,733

Compared to the funding proposed in the budget, this will free up almost $60 million of the Higher Education Bond Fund of 2004 for higher priority projects elsewhere in higher education.

Riverside: Materials Science and Engineering Building

We recommend the Legislature shift partial funding for the Materials Science and Engineering Building at the Riverside campus from state bonds to reimbursements because proposed construction costs are high and faculty research space should be funded from nonstate sources. (Delete $2,971,000 from Item 6640-302-6041[9] and add $2,971,000 from reimbursements for preliminary plans and working drawings, and recognize a shift of $37,954,000 of future costs from state funding to reimbursements.)

The budget includes $3,749,000 for development of preliminary plans and working drawings for a 76,940 asf building with future costs of $52,220,000 for construction and equipment, for the Materials Science and Engineering Building for the College of Natural and Agricultural Sciences (CNAS) and the Bournes College of Engineering (BCOE) at Riverside. The CNAS will occupy 23,625 asf in the proposed building, BCOE will occupy 25,275 asf, and the building will include 18,370 asf of general assignment classrooms, and a 9,670 asf nanofabrication core facility.

We are concerned with this project because the construction cost is high and the majority of the building is proposed to be devoted to space for faculty research rather than student instruction or other necessary uses.

Figure 13

Riverside:  Materials Science and Engineering Building
LAO Recommended State Building
Construction Contracts Cost

 

 

LAO Recommendation

Type of Space

Amount (asf)

Cost Guideline
(Dollars per asf)

State Cost
(Dollars in Thousands)

Research

51,070

Reimbursements

Classrooms

18,370

$326

$5,989

Teaching laboratories

1,650

476

785

Offices

5,850

301

1,761

  Totals

76,940

$8,535

Recommended Funding. With research space funded from reimbursements and other spaces funded at the construction cost levels we recommend, our recommended funding for this project from general obligation bonds (the Higher Education Capital Outlay Bond Fund of 2004) and reimbursements is shown in Figure 14.

Figure 14

Riverside:  Materials Science and Engineering Building
LAO Recommended Sources of Funds

(In Thousands)

Phase

General Obligation Bonds

Reimbursements

Total

Preliminary plans

$332

$1,268

$1,600

Working drawings

446

1,703

2,149

Construction

9,932

37,954

47,886

Equipment

4,334

  Totals

$14,266

$41,703

$55,969

Applying our recommendation reduces the impact of this project on the Higher Education Capital Outlay Bond Fund of 2004 by almost $3 million and future state costs by almost $38 million. This would make almost $41 million available to fund other high priority projects in higher education.

Riverside: Genomics Building

We recommend the Legislature shift partial funding for the Genomics Building at the Riverside campus from state bonds to reimbursements because faculty research space should be funded from reimbursements and construction costs are high. We further recommend that UC revert to the General Fund $44.6 million of proceeds from the sale of surplus land at Riverside. (Delete $55,000,000 from Item 6440-301-0660[1], and add $55,000,000 to Item 6440-301-6041[24] with $17,624,000 from the Higher Education Capital Outlay Bond Fund of 2004 and $37,376,000 from reimbursements for preliminary plans, working drawings, construction, and equipment.)

The budget includes $55 million for development of preliminary plans, working drawings, construction, and equipment for a 63,986 asf Genomics Building at the Riverside campus. The new building will be occupied by the College of Natural and Agricultural Sciences and will contain 45,004 asf of faculty research space (70 percent), 18,418 asf of offices (29 percent) and 564 asf of other space (1 percent). The budget proposes to fund this project from lease-revenue bonds.

Background. The administration and UC entered into an agreement whereby the $55 million of proceeds from the sale of surplus land the university is planning to sell at the Riverside campus would be reverted to the General Fund in the current year in exchange for the administration agreeing to issue $55 million of lease-revenue bonds to finance the construction of this Genomics Building. (The 2004-05 budget plan includes revenues of $55 million in 2003-04 related to this agreement.) When the now-surplus land was purchased, 81 percent of the purchase price was from the General Fund and the remaining 19 percent from university funds. The issue of disposition of the proceeds from the land sale is separate from that of the merits of the proposed Genomics Building, and we discuss them separately below.

Merits of the Proposed Funding Level for Genomics Building. We have the following concerns with the funding proposed for this project:

Figure 15

Riverside:  Genomics Building
LAO Recommended State Building
Construction Contracts Cost

 

 

LAO Recommendation

Type of Space

Amount (asf)

Cost Guideline
(Dollars per asf)

State Cost
(Dollars in Thousands)

Research

45,004

Reimbursements

Offices

18,418

$301

$5,544

Other

564

301

170

  Totals

63,986

$5,714

Recommended Funding. With research space funded from reimbursements and other spaces funded at the construction cost levels we recommend, our recommended funding is shown in Figure 16. Because of savings to the Higher Education Capital Outlay Bond Fund of 2004 (general obligation bonds) we have recommended on other projects in this chapter, we recommend that state funding come from the Higher Education Capital Outlay Bond Fund of 2004 rather than lease-revenue bonds (the Public Buildings Construction Fund) as proposed by the Governor.

Figure 16

Riverside:  Genomics Building
LAO Recommended Sources of Funds

(In Thousands)

Phase

General Obligation Bonds

Reimbursements

Total

Preliminary plans

$252

$1,308

$1,560

Working drawings

324

1,682

2,006

Construction

6,628

34,386

41,014

Equipment

10,420

10,420

  Totals

$17,624

$37,376

$55,000

Applying our recommendation reduces the impact of this project on the Higher Education Capital Outlay Bond Fund of 2004 by $37 million. This will make this amount available to fund other high priority projects in higher education.

Disposition of Proceeds From Surplus Land Sale. Since the state provided 81 percent of the purchase price for the now-surplus land at the Riverside campus, we recommend the Legislature acknowledge the state's interest in 81 percent of the $55 million of sale proceeds—that is, $44.6 million. We therefore recommend UC be directed to revert $44.6 million of the sale proceeds to the General Fund. The remaining $10.4 million which UC retains could be applied by UC to fund the Genomics Building.

Projects Recommended for Deletion

San Diego: Music Building

We recommend the Legislature delete $3,802,000 for preliminary plans and working drawings for the Music Building at the San Diego campus because existing facilities are not utilized year-round at the state's standards and renovation of existing facilities has not been adequately explored. (Delete $3,802,000 from 6640-301-6041[13].)

The budget includes $3,802,000 for development of preliminary plans and working drawings for a 47,000 asf building, with future costs of $36,333,000 for construction and equipment, for a new Music Building at the San Diego campus. The new building would be occupied by the music department and would contain 35,055 asf (75 percent) of teaching laboratories, 10,275 asf (22 percent) of offices, 750 asf (1 percent) of research space and 895 asf (2 percent) of other space. Construction of this building would increase the amount of music department space from about 36,000 to 64,000 asf (a 75 percent increase).

We are concerned about this project because existing music department facilities are not fully utilized, and we question the campus's assertion that acoustic conditions in existing music department facilities in Mandeville Auditorium cannot be corrected to a reasonable level by renovation.

Existing Facilities Not Fully Utilized. The latest enrollment information UC has made available (2001-02) indicates the San Diego campus—which has a capacity to accommodate about 20,000 FTE students—had only about 100 FTE students enrolled during summer term. Therefore, the campus can accommodate about one-third more students if summer term is utilized as fully as other quarters.

Renovation of Existing Facilities Not Considered. One of the two principal facilities currently used at the San Diego campus for music department programs is the 800-seat Mandeville Auditorium. The university says there are acoustic deficiencies at Mandeville (sound reverberation, echo, and insulation) that make it unsuitable for music department needs. As a result, the proposal includes a 400-seat recital hall in the proposed Music Building. The university, however, has provided no information to show that it evaluated acoustic renovation of Mandeville Auditorium as a less costly alternative to constructing a new recital hall. Since acoustic renovation of existing buildings can be successful using relatively inexpensive wall treatments and architectural modifications, it is not clear if the university has evaluated alternatives which would meet programmatic needs. Given these concerns we recommend the Legislature not approve this project. This would result in budget-year savings of $3.8 million, with future-year savings of $363 million (all state bonds).

If, however, the Legislature elects to fund this project, we recommend it be funded in accordance with our recommended construction cost guidelines, discussed above. The university has proposed an estimated construction contracts cost of $30.6 million—almost $651 per asf—and the estimated total project cost is $40.1 million—$809 per asf. These costs are significantly higher than the $434/asf which results from applying our recommended construction cost guidelines.

Santa Cruz: Digital Arts Facility

We recommend the Legislature delete $1,330,000 for the Digital Arts Facility at the Santa Cruz campus for working drawings, construction, and equipment because existing facilities are not being utilized year-round at the state's standard and research space should be funded from reimbursements. (Delete $1,330,000 from Item 6640-301-6041[22].)

The budget includes $1,330,000 for development of preliminary plans for a new 25,600 asf Digital Arts Facility at the Santa Cruz campus, with future cost of $19,341,000 for working drawings, construction, and equipment. The new building will be occupied by the Arts Division, which includes the visual arts, music and theater arts departments, and the digital arts and new media program. It will contain 14,870 asf (58 percent) of research space, 4,158 asf (16 percent) offices, and 6,565 asf (26 percent) teaching laboratories. The project also includes a 1,140 asf addition to the Theater Arts Complex.

We are concerned with this project because the university has not adequately evaluated using existing facilities to meet programmatic needs, and research space in the proposed facility should be funded from nonstate sources. We also note UC had not previously identified the project as a priority in prior state plans.

Need for New Facility Has Not Been Justified. The state has funded three projects on the Santa Cruz campus for arts programs in the last seven years and the campus now has almost 158,000 asf assigned to the Arts Division. These recently completed projects are summarized in Figure 17.

Figure 17

Santa Cruz:  State-Funded Arts Division Projects
In the Last Seven Years

(Dollars in Thousands)

Project

Completion

Amount of Space (asf)

Total Project Cost

Music facility

1996

19,172

$12,300

Improvements to arts facilities

1998

26,206

14,329

Film and digital media renovations

2002

10,998

4,679

  Totals

 

56,376

$31,308

It is unclear why these recently completed projects—together with an additional 100,000 asf assigned to arts programs elsewhere on campus—are not adequate for programmatic needs of the campus.

Facilities Not Utilized Year-Round. The campus is largely unused for instructional purposes during summer term. The latest enrollment information UC has made available shows that in the summer less than 300 FTE students—all graduate students—were enrolled at the campus. If the university used its instructional facilities fully in summer term, it could accommodate almost one-third more students without the need to construct new instructional facilities.

For these reasons, we recommend deletion of the project, for budget-year savings of $1.3 million and future savings of $19.3 (all state funds). If, however, the Legislature elects to fund this project, we recommend that: (1) the research space be funded from reimbursements and (2) the remaining space be funded in accordance with our recommended construction cost guidelines.


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