Deans' Corner —
Beating the odds: Biology and the budget deficit

Geoffrey Owen, Dean of Biological Sciences, September 8, 2003

Deans' Corner Archive

Letters & Science is a college of five deans, reflecting the disciplinary scope and diversity of Berkeley's largest school or college. In the "Deans' Corner", they take turns reflecting on topics of current interest. The "Deans' Corner" is a virtual "Op Ed" page, or — if you prefer a concrete metaphor — a Sproul Plaza.

Here, Biological Sciences Dean Geoffrey Owen takes a look at the problem of supporting research in difficult times.

Every day brings more news about the huge California budget deficit and the political stalemate in Sacramento over how to deal with it. Should we raise taxes or lower them, cut spending or borrow? Serious attempts to deal with the problems await the outcome of a recall election in which the Governor's principal challenger is an ex-body builder. Doubtless, the State's economy will recover. The question is how quickly? And what happens in the meantime? As a Dean, I worry about the potential impact of prolonged austerity on the University and on the biological sciences in particular. But I also see opportunities to develop new resources for biological research that would offset losses due to further budget cuts.

How bad is a $38 billion deficit, anyway? Obviously, it’s bad, but how bad? Do other states or countries face similar problems and if so, are they trying to recall their political leaders? California’s is the fifth largest economy in the world, ranking behind those of the U.S., Japan, Germany and Great Britain, respectively, and only slightly larger than that of France. The gross domestic product (GDP) of California is about $1.4 trillion and accounts for just over 13% of the economy of the entire nation. A $38 billion deficit, therefore, represents about 2.7% of the state’s GDP.

Any member country of the European Economic Union with a budget deficit greater than 3% of its GDP is subject to financial penalties designed to encourage the adoption of deficit reduction measures. This policy, the Stability and Growth Pact, was originally proposed by Germany out of its concern that irresponsible financial policies could threaten the stability of the EU. Ironically, Germany’s deficit has exceeded the 3% threshold for two years in a row and its economy is in a mild recession. France, too, has exceeded the threshold but argues that this is a temporary thing. Interestingly, if the governments of France and Germany are being criticized by their electorates, it is generally for other reasons. Moreover, the EU has imposed no penalties on Germany or France, ostensibly because their economies are considered robust enough to absorb the impact of such deficits. Against this background, California’s budget deficit does not seem particularly egregious. So why should we be concerned?

One reason is that the California economy is especially dependent on entrepreneurial and high-tech industries and hence is unusually sensitive to fluctuations in both the national economy and the stock market. Because business taxes account for almost 9% of state tax revenues, significantly higher than the national average of ~7%, stock market fluctuations have a higher impact on tax revenues than in most states. Moreover, an extended downturn in the economy or in high-tech markets can lead to layoffs and a mere 1% rise in state unemployment cuts about 8% from the state’s tax revenues. Because of these and other factors, the economy of California is almost twice as sensitive to external factors as that of other states.

A recent analysis of California's fiscal problems by the Parthenon Group†, argued that the most effective way to cut the deficit was to introduce a temporary surcharge of 1% on personal income tax. One advantage of this strategy would be to force the federal government to share the burden of recovery (personal income tax, unlike other state taxes, is deductible from federal returns). Unfortunately, Californians generally believe that state taxation is already excessively high. The reality is that tax rates in California are lower than in many states and, of course, tax revenues pay for our roads, our services, our security and our schools. Let's not forget, too, that our per capita personal income is the third highest in the nation‡. Despite this, political pressure will probably thwart any attempt to raise taxes, even on a temporary basis. Instead, we can expect that education in California will again be targeted for spending cuts despite the fact that the state’s education system has been the engine of economic growth in this state for decades and that to cut it is to mortgage California’s future, both in economic and human terms.

The effect of further cuts on K-12 education could be devastating. According to the NEA, despite having the third highest per capita personal income in the nation, we currently rank next to last of the 10 most populous states in the fraction of personal income that we invest in K-12 education. California’s expenditure in dollars per K-12 student also ranks next to last in that group. We spend barely 64% of what New York or New Jersey spend on their students. We get away with this by having the most crowded classrooms of the ten most populous states. K-12 schools, of course, are almost totally dependent upon state and local tax revenues so the real tragedy of future spending cuts in education will happen there.

The outlook for the University of California is less bleak, though it is certainly challenging. According to a 2002 state senate report, "overall, state and local funding, including systemwide student fees, accounted for approximately 25.7 percent of the University of California's total cost of operations." The rest comes from other sources, prominent among which are research support grants from the federal government, and philanthropy. The challenge, over the next few years, is to find new sources of funds to offset the losses we expect in the state-funded portion of our operating budget.

How can this challenge be met in the biological sciences? The excellence of the biological sciences at Berkeley begins with the extraordinarily high quality of our faculty whose research in every area of biology is world-renowned. The Division of Biological Sciences secures more than $50 million annually in federal and institutional research support and an additional $12.5 million or so in the form of indirect costs. To maintain the quality of modern research requires more than just money, however. It requires staff to provide proper grants management, accounting and other services, and state-of-the-art facilities and equipment. Moreover, as post-genomic biology becomes increasingly multidisciplinary, it requires additional, more flexible resources for studies that involve biologists, chemists, physicists, statisticians and engineers. A single academic department, almost by definition, lacks the intellectual breadth and the resources to sustain such an effort. Yet if we fail to provide the necessary support, we can expect to lose our best faculty to institutions elsewhere that can provide it. To be in the forefront of this brave new interdisciplinary world requires that we rethink how we organize scientific research.

The Stanley Biosciences and Bioengineering Facility now under construction at the eastern edge of campus is the first to put such thinking into practice. Replacing Stanley Hall, it will house one of four California Institutes for Quantitative Biomedical Research, providing a structure in which multidisciplinary groups are brought together in a common enterprise. It will not be devoted to a single department but rather will house groups of faculty from several disciplines, departments and colleges in clusters designed to promote interaction and collaboration. Those clusters, by their nature, will qualify for large federal grants that support interdisciplinary research as well as for the more traditional grants to individual investigators. Once established, successful groups will then attract philanthropic support.

This model can be applied elsewhere in the biological sciences, though the coordinating structure is likely to be a virtual one rather than a new campus building. For example, a proposed Center for Microbiology and Infectious Disease, involving faculty from the College of Letters and Science, the School of Public Health, the College of Natural Resources and the College of Chemistry, will be a magnet for funding from a variety of sources. To create such a Center we will need to build on our common interests. We will need to seed the effort with modest funding. In repayment for that small investment, however, the Center will enhance the visibility of Berkeley researchers in an important and rapidly developing area of health and medical sciences, facilitate new interdisciplinary approaches to the scientific issues it addresses, and effectively garner new resources.

By taking the initiative in this way, the biosciences at Berkeley can become much stronger over the next few years, despite California's sobering financial problems. We will need to commit to a cultural change in which the walls between departments and colleges become more porous but in my view, that would be all for the good. For when you get to the bottom line, "science is science" and what you study, and how you study it, is simply a matter of taste.

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† "Fiscal Recovery in California", Roger E. Brinner & Joyce Brinner. The Parthenon Group/Global Insight, Inc. (GII)

‡ The highest per capita incomes are in New Jersey and new York, respectively.