Appendix C

REVENUE SOURCES

The following funding options were considered by the Network 21 Budget and Policy Oversight Committee.
  1. State Capital Budget Project for Buildout - A State Capital Project could be developed to replace major elements of the network. However, the short life of the equipment and competition with other projects makes this an unrealistic option. A State Capital Project would be more viable as a means of funding network buildout. There is high competition for limited state funds. There may be some potential for a State Minor Capital Program (under $250,000 per project) but competition is also keen here. No state minor funds were appropriated in 1994-95, and none are proposed for 1995-96.
    Note: UCOP staff indicate that there is a possibility that the State might make available capital funds specially designated for campus networking which would be over and above the normal university capital budget allocation. UCOP staff are planning to prepare a special capital submission either this year or next. The current estimate for all UC campuses is in excess of $150 million.
  2. Reallocation of Existing Resources - The Campus financial resources are not distributed across the campus in a way that enables all potential users to utilize the available, and soon-to-be-available, technology. This is primarily true in the Humanities and other academic disciplines where students and faculty are increasingly dependent upon technology. The present approach is to distribute funds based on a system of academic support dollars per faculty FTE that is likely not taking into account today's technology costs. This is a critical budget issue, outside the scope of this committee, that needs to be addressed.
  3. Student Technology Fee - It is unlikely that campus units will be able to subsidize the costs of operating and maintaining the network infrastructure provided in areas such as the Library, Memorial Union, student laboratories, classrooms, and student facilities largely devoted to extracurricular activities. More and more institutions of higher education are recognizing that traditional funding models are inadequate to cover the rapidly escalating costs of information technology. However, to prepare students for participation in graduate work or the business world, campuses must furnish access to modern computing facilities with appropriate support services. Consequently, a growing number of major research universities are assessing a student technology fee in the range of $75-$200 per academic year. Appendix E contains a selected list. A fee of $50 per quarter per student (phased in over 5 years) would fund approximately $700,000 per year or 29 percent of network operation and maintenance expenses and provide another $2,750,000 to enhance student access to and use of information technology through improved classroom facilities and support services, special equipment purchases, network connection sites, new student labs, upgraded hardware and software, and expanded network infrastructure. A committee would be appointed to oversee the expenditure of such funds and to assess the results. Despite the attractiveness of this option, the UC Office of the President has been less than receptive about any new fees. An alternative to a systemwide fee would be a one of the following means of financing:

    1. The Chancellor has the authority to increase registration fees and designate the use of the fee increase. (This is not a likely option at this time given the commitment of the legislature NOT to raise student fees.)
    2. The students could vote to assess themselves a Student Technology Fee through a referendum.

    If a Student Technology Fee is not feasible, the campus should implement one of the following alternatives:

    1. The Student Services and Fees Advisory Committee could recommend to Provost and Executive Vice Chancellor Grey a reallocation of Registration Fees to fund further access to technology for students. (This is not a likely option given the recent substantial budgetary reductions and associated reallocations.)
    2. Establish a ³User Charge² for information technology services beyond some baseline level of ³free² services.

  4. Data Communication Fee - Establish a Data Communication Fee as a viable and equitable means of distributing network costs to campus units and to students in on-campus housing. For purposes of campus units, the fee will be assessed based on the number of faculty and staff employees. There are approximately 10,000 campus employees. The assumption is that all employees will be utilizing information technology in some form within the next few years. Student employees are not included because of their limited work schedules and because they seldom have exclusive use of a computer. The Data Communication Fee will be approximately $8.00 per employee per month. The fee assessments will be calculated based upon the number of employees within each school, college, division, and administrative organization and then will be annually assessed to deans and vice chancellors. This provides the deans and vice chancellors flexibility to distribute these assessments in a way that best meets the needs of their respective organizations. The Data Communication Fee will generate approximately $960,000 via the assessments to deans and vice chancellors.

    The Housing Office will be assessed a charge equivalent to the Data Communication Fee for each student in on-campus housing. This charge will be included in the Housing room rates for the approximately 3,500 students living on campus. Housing would contribute approximately $340,000 per year to operate and maintain the network.

    It is important to note that the Data Communication Fee could increase to approximately $12 per employee/month if the proposed student technology fee is not approved. As noted above, this plan assumes revenue of $700,000 per year from the student technology fee to operate and maintain the network.

    Page 6 of this Appendix contains a template and a sample calculation. Fees of this magnitude suggest that either some level of campus subsidy, or campuswide resource reallocation, will be required or many departments will have inadequate connectivity irrespective of Network 21 availability.

  5. Voice Subsidy - Telephone Line and Toll Charge Increases represent another funding option. Such increases would partially offset the telecommunication (voice) reserves diverted over the past three years to support the data network. These increases are required to fund critical voice infrastructure upgrades and equipment replacements. The voice rate increases would also subsidize network operations and maintenance starting about the year 2000. Information Technology presently charges $26.72 per month for each phone line. A rate increase of $2.44 per month would still place campus rates for comparable features at $10 per month less than Pacific Bell rates. An increase of $1.34 per month in line charges for Student Housing would yield a rate comparable to Pacific Bell residential rates of $16.88 per month. Campus toll calls are discounted, owing to efficiencies produced by the campus switch interface to Pacific Bell, AT&T, and MCI. Information Technology assesses a 9.5% surcharge on such calls and could raise the surcharge 5% and still leave most campus rates below other long-distance options. This funding option is widely used by large universities and would generate about $400,000 per year.
  6. Campus Subsidy - A central campus resources allocation could be provided either as a long term subsidy for campus networking or as a short term bridge pending phase-in of an alternative rate structure. This option is unlikely given limited central campus funds. Several other UC campuses use this method.
  7. Information Technology Subsidy - This option would entail a redistribution of I.T. resources to subsidize a portion of the network. This option is not feasible in the short term given the depletion of voice reserves to fund the network over the past three years. More importantly, the Information Technology budget continues to have an unresolved shortfall in its annual budget. Once the debt on the campus switch is retired, some voice revenues should be available to assist with networking costs.
  8. Campus Assessment - A campus assessment similar to budgetary savings targets could be levied upon campus units. However, this option poses several significant problems because the assessment is levied against the unit's budgeted funds. For example, grant and contract funds are not budgeted and so would not be assessed with the result that some units would obtain free services. Further, a campus assessment penalizes units with large non-salary budgets, i.e., Physical Plant. Recharge funds would also have to be eliminated from the assessment because of Federal costing policies.
  9. Direct Data Line Fee - This funding method would charge campus users based upon the number of network ports used. This option was rejected because it would encourage users to connect via one port and string their own cable between computers in order to avoid port charges. These cost avoidance strategies would compromise the network management capabilities and the growth potential of the Network 21 technology. These actions would also create additional campus costs by duplicating portions of the infrastructure and have the potential to expose users to asbestos risks.
  10. IP Address Fee - This funding method would make it necessary to poll the network over extended periods of time to determine the actual number of addresses and connected computers in each department. Users are not required to register their addresses even though each computer attached to the network must have an assigned address. Similar to the Direct Data Line Fee, this means of charging would encourage users to choose alternatives that would avoid the address fee charges. This funding method also has the disadvantage of complex billing procedures and calculations.
  11. Connection Fee - This method is widely used on other campuses and entails charging users a one time fee for connection to the network. It is the means by which additional connections, outside the scope of the project (there will be 10,000 connections at Project completion), are intended to be funded. The actual cost per port averages approximately $475. However, the Oversight Committee believes that most campus units would only be able to absorb a $250 connection fee. This fee would generate approximately $250,000 per year assuming the addition of 1,000 new connections per year for three years, bringing the total number of active connections to about 13,000. The difference would be offset via the surcharge fee described in No. 14. Some departments may elect to install their own cabling as a means of avoiding the connection fee, thereby circumventing the advantages of Network 21.
  12. Construction and Remodel Project Budgets - Construction or remodel projects should include a component for network installation or upgrades. Network connection must be treated in the same manner as other essential utilities.
  13. Discretionary Funds - The Network 21 Project was capped at $23 million and some connectivity deferred to reduce the Project's draw on the campus' limited discretionary funds. Requesting discretionary funds to complete network buildout would be inconsistent with these actions.
  14. Network 21 User Surcharge for Buildout - This option would charge the initial users of the Network 21 system an incremental surcharge to finance Buildout projects. The surcharge would be assessed to those users benefited by the immediate cost and access advantages of Network 21 connection. The larger number of core area users should generate adequate funds to assist with connectivity for the remote users. The success of the surcharge option is contingent upon the ability of campus users to sustain this charge over and above the monthly cost to operate and maintain the network. A fee of $2 per month per worker would generate an average of $250,000 per year. The surcharge would only partially offset the amount of funding required to meet the total Buildout needs.
  15. Matching Funds Program for Buildout - The Campus Administration would further support buildout by sustaining a $500,000 per year contribution to match funds committed by the campus units. The priority setting for connectivity would, thus, be driven by the user appetite for connection rather than some administrative assessment of relative need (always a difficulty in this environment).
Departmental DescriptionAnnual Toll Charge: $ 996.00 This information is based upon a sample department in which all 17 staff members utilizeAvg Monthly Cost/Phone & Features: $ 50.00 the network and higher end telephony features. Annual toll charges were based uponNumber of Phones:17actual usage by this department.Number of Workers:17Router Ports:1Scenario I: With Student Technology FeeBudgeting FactorsCurrent ChargesFuture ChargesDifference% IncreaseVoice Rate Increase: $ 2.44 Voice Charges $ 11,196.00 $ 11,741.24 $ 545.24 4.9Toll Surcharge Increase:0.05Data Charges $ 840.00 $ 2,040.00 $ 1,200.00 142.9Buildout Assessment Fee: $ 2.00 Total Charges $ 12,036.00 $ 13,781.24 $ 1,745.24 14.5Data Communication Fee: $ 8.00 Scenario II: Without Student Technology FeeBudgeting FactorsCurrent ChargesFuture ChargesDifference% IncreaseVoice Rate Increase: $ 2.44 Voice Charges $ 11,196.00 $ 11,741.24 $ 545.24 4.9Toll Surcharge Increase:5%Data Charges $ 840.00 $ 2,856.00 $ 2,016.00 240.0Buildout Assessement Fee: $ 2.00 Total Charges $ 12,036.00 $ 14,597.24 $ 2,561.24 21.3Data Communication Fee: $ 12.00 Since the data communication and buildout charges will be distributed at the Dean/Vice Chancellor level, actual departmental charges may differ based upon college or division program priorities.
Network Illustrative Departmental Cost Analysis
This exhibit depicts the changes in annual communication costs as a result of Network 21 if the full costs were passed on to an individual department.
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Last modified 11/13/98