February 22, 1997

Dear Colleagues :

I am accepting the November 15, 1996 Network 21 Funding Strategy Report presented to me by the Network 21 Budget and Policy Oversight Committee. The report was widely disseminated and comments received have been carefully considered. The number of persons commenting on this funding strategy was much smaller than the response to the Committee's previous funding recommendations presented in its March 18, 1996 Network 21 Completion and Utilization Plan. This suggests a relatively broad acceptance of the recommended funding strategy despite the fact the new fees present campus units with significant budget challenges.

Nevertheless, important concerns have been presented by those who commented. The comments center on six concerns. Those concerns, the Committee's responses, and my decisions follow:

1) NON-I&R FUNDED UNITS -

Several commenters observed that the recommended funding strategy places a significant financial burden on units that are not eligible for I&R funding, e.g., UNEX, CVDLS, etc. Specifically, these units would pay both the infrastructure and full local costs of maintaining the Network.

Committee Response: The Committee understands that the recommended funding strategy places a significant burden on units that are not eligible for I&R funds. In fact, it was the topic of considerable discussion and concern during the Committee's deliberations about the impact of the proposed rates. Nevertheless, the Committee continues to believe that Central Campus funds should not be utilized to underwrite, or otherwise reduce, the cost of services to Auxiliary Units and other units ineligible for I&R resources. These units benefit significantly from this important campus service and should bear the legitimate costs of delivering networking capability.

It should also be noted that the cost estimates provided by those who commented on this matter are considerably higher than these units will be billed. IT has reviewed these estimates with representatives from the units commenting and has determined that the costs will be significantly less than estimated by the unit.

However, we recognize that the non-I&R eligible units have minimal lead time to plan for these new costs placing a particular burden on budgets that are funded through contracts negotiated on the basis of past expenses. Given these circumstances, the Committee recommends that the full charges to the affected units be phased in over a three-year period. These units would be billed for 50% of the estimated costs for 1997-98, 75% of the costs in 1998-99, and assume responsibility for the full costs in 1999-00. The phasing in of the new charges will allow the non­I&R funded units time to include them in future funding proposals and to make the necessary internal reallocations.

The suggested phase-in should not apply to Student Housing because: (a) Housing has had the advantage of working directly with IT throughout the planning and implementation of Network 21 and has understood from the beginning that they would have to pay the full costs of bringing the network to on-campus housing; and (b) Housing has relatively more flexibility in the recovery of revenues to pay the fees, than other auxiliary enterprises.

Central Campus funds in the amount of approximately $100,000 will be required to compensate for the 50% reduction in revenues to IT for 1997-98.

DECISION: I accept the Committee recommendation to phase-in the fees.

2) CHARGING RESEARCH CONTRACTS -

There is considerable concern related to the uncertainties about direct charging Network 21 operation and maintenance fees to research grants and contracts. Many faculty and funding agencies argue that the University recovers indirect costs from research grants and contracts that pay for infrastructure like Network 21 which by definition precludes direct charging grants and contracts for the costs of operating and maintaining the network.

Committee Response: The Committee spent considerable time on this very complicated issue, including consulting the campus accounting expert on overhead recovery. OMB Circular A-21, "Cost Principles for Educational Institutions," promulgates the Federal regulations on allowable costs including differentiating between direct and indirect costs. It does not specifically address whether information technology costs should be charged as direct or indirect costs. Circular A-21 does state that, "...salaries of technical staff, laboratory supplies (e.g., chemicals), telephone toll charges, animals, animal care costs, computer costs, travel costs and specialized shop costs shall be treated as direct costs wherever identifiable to a particular cost objective."

Given the campus' historical categorization of information technology costs as indirect costs, however, and recent trends in the interpretation of Circular A-21 by funding agencies, the committee concurs that it will likely be very difficult for principal investigators to convince a funding agency that network operations and maintenance costs are an allowable direct charge.

Meanwhile, the Committee recommends implementation of the proposed funding strategy.

DECISION: The funding strategy will be implemented as proposed. However, this particular matter will require further attention. First, I am directing the Office of Planning and Budget to carefully consider the network costs in support of extramural grants and contracts as part of Planning and Budget's present campus wide study of I&R support budgets. Second, we will emphasize the need for the UC Office of the President (UCOP) to exercise leadership to assure a timely and workable resolution to this difficult funding challenge given all UC campuses and research universities around the country are struggling with the costs of information technology, including whether these costs are eligible direct costs to extramural grants and contracts. Third, the information technology costs will be carefully considered during the soon-to-begin Davis Campus indirect cost rate review.

3) UCDNET CONNECTIONS -

A number of comments have been received from persons representing units that will remain on UCDNet because the Project does not connect them to Network 21. These persons believe that it is unfair to charge them while they do not receive Network 21 benefits. Some persons also object to the proposed funding strategy requiring that charges be assessed for each device at the same rate as NAM fees. One person offered that, "This seems very unfair to those of us on the south side of the freeway."

Committee Response:The Committee understands the basis for the comments and anticipated that many would view this recommendation as unfair. Nevertheless, the Committee continues to support the proposed device fee for those who will remain on UCDNet. There are three very important reasons for assessing all network users. First, the proposed funding strategy is intended to produce a reliable and regular income stream to support all networking on campus. Although users on UCDNet will not be connected to Network 21, the Division of Information Technology has on-going costs associated with operating and maintaining the campus network for UCDNet users that must be funded. Second, fees must be set to provide incentives for network users to migrate to Network 21, as these services become available. Third, there is no other practical alternative to the per device charge. The Committee believes that this aspect of the funding strategy should be carefully monitored over the first six months of the fiscal year to determine if reconsideration is warranted.

The Network 21 Buildout project, recommended in the Committee's report, is intended to connect those who will not be connected by the present Network 21 Project. Work is in progress on the planning phase of this follow­on Buildout project.

DECISION: I accept the Committee recommendation.

4)COMPUTER TEACHING LABORATORIES -

Two Engineering departments have expressed very strong concerns about the financial impact of the proposed Network 21 operations and maintenance fees given they operate department computer teaching laboratories. One department chair commented, "Our Department supports, both in terms of computer equipment and programming staff, extensive computer facilities which otherwise would have to be provided at great expense by the Office of Information Technology (IT)....it appears rather unfair that we should be penalized for contributing to the computer resources of our campus....Thus, our Department would like to request that all NAMs located in our computer teaching laboratories...should be exempted from the flat per NAM charge imposed on academic units."

Committee Response:The Committee acknowledges that computer labs deserve special consideration and represent an unresolved issue. However, the issue extends far beyond engineering departments. Every campus unit that provides instruction is faced with making optimum use of information technology to deliver its instruction and with the challenge of acquiring and reallocating resources for that purpose. Further, it must be recognized that the two engineering departments are different in that they not only use technology as a tool or vehicle, but also as an end in itself (they teach in the area of information technology). The latter aspect should be an element within those departments' academic support budgets. For example, Chemistry, Biology, and other science disciplines have academic support budgets that take into account laboratory instruction. However, it is very important to note that such costs are well-institutionalized and budgets have been adjusted over several decades to accommodate them. Networking costs are very new by comparison.

There are several discussions/studies now taking place that should assist in addressing the funding of instructional computer labs. UC campuses will receive new State funds specifically designated for instructional use of information technology on July 1, 1997. The Office of Planning and Budget and the Division of Information Technology, in consultation with the appropriate advisory bodies, will soon recommend an allocation strategy for funds which will surely take into account instructional computer labs. Planning and Budget is also studying academic support budget levels which includes addressing issues such as the adequacy of support levels for departments with instructional computer labs. The Committee recommends that the campus be prepared to consider budget reallocations as may be indicated by the Planning and Budget analysis.

Finally, the Committee recommends that you authorize implementation of its funding strategy with the understanding that the Planning and Budget Office, the Division of Information Technology, and the Network 21 Committee will work with College of Engineering and other units to identify appropriate strategies needed to ensure adequate support for instructional computing labs.

DECISION: I accept the Committee recommendation. However, I expect the Office of Planning and Budget and Information Technology to provide me with specific strategies for addressing the concerns noted above by June 1, 1997. Such strategies should minimize disincentives to innovate through the use of information technology in the presentation of campus instruction.

5) STAFF REPRESENTATION ON NOOC -

Staff Assembly has asked that "at least two staff who are instrumental in their departments for implementing and managing resources that will result from decisions that the Network Operations Oversight Committee (NOOC) will make should be appointed to the NOOC.

Committee Response:The Committee appreciates the Staff Assembly concerns and the importance of appointing a NOOC that has the representation and knowledge to provide the Provost and Executive Vice Chancellor with the best possible advice. We suggest that the Committee further consider the membership taking into account the Staff Assembly comments within the context of the NOOC's charge as an oversight committee. A recommendation will be forwarded to you by April 1, 1997.

DECISION: I accept the Committee recommendation.

Overall, I find no fundamental changes to the recommendations in the Committee's November 15, 1996 Funding Strategy Report, including the recommendations applicable to the Network 21 operations and maintenance rate structure, the further buildout of the network, and the proposed Student Technology Fee. Therefore, I endorse the Committee recommendations.

With regard to the Network 21 Operation and Maintenance fee, the Office of Planning and Budget will implement the proposed "Local Costs" fees at the reduced level of $4 per NAM, effective July 1, 1997, to provide campus units with as much assistance as possible in this first year of such fees. I authorize this reduced rate in recognition of the challenge that campus units will face in identifying the resources needed to pay the NAM fee even at this substantially reduced level. A temporary allocation will be required for 1997-98 to reduce the $9.80 per NAM fee to $4 per NAM. The Central Campus funds offset will be decreased over several years until the monthly NAM charge to campus units ultimately reflects all local variable costs. This fee will be examined on a year-to-year basis to assure all relevant information, including the availability of additional resources to campus units, is taken into account when setting the rate.

I very much appreciate the campus community participation and patience in working through the financial and implementation issues associated with this very difficult and critically important campus project. And, thanks to you for giving the Network 21 Project your personal attention during these past two years. There is much left to do, but I am encouraged that our course is properly set to effectively leverage information technology for instruction, research, public service and related administrative and support services. Please refer questions to Associate Vice Chancellor Carole Barone or Special Assistant Gerald Hallee.

Sincerely,

Robert D. Grey