|Issue 4 November 2002
Regents adopt UC budget request for the coming year and send
it to the state for consideration
Special legislative session on the budget begins
Governor introduces state budget proposal for 2003-04
Legislature holds hearings on the budget; each house develops
a budget proposal of its own
State revenues are updated and governor issues the "May
Revision" to his original budget proposal
Legislature sends final budget to governor for action
June: Governor signs budget
1: New fiscal year begins
Regents update original UC budget request to conform to final
budget adopted by the state
Dear UC Colleague:
new budget cycle is beginning, and though we do not have a
great deal of new information about the State's budget situation
since the last edition of this newsletter, I would like to
update you on our planning at the University of California.
State of California continues to face a very serious fiscal
challenge, with a budget deficit for 2003-04 estimated at
more than $20 billion. As a result, significant cuts to State-funded
programs appear likely, and Governor Davis is calling a special
session of the Legislature in December to begin considering
will work very hard over the coming months to make the best
possible case in Sacramento for the University's needs. The
good news is that Governor Davis and the Legislature have
made public education a very high priority. The bad news is
that the State's budget challenge is so significant that no
State agency is likely to escape budget cuts.
we approach this challenge, I have two top priorities:
we must maintain quality and access in the core instructional
program. That means funding for enrollment growth and funding
to maintain the high-quality educational experience that
students expect of UC.
we must provide salary increases for staff and faculty
so that we do not fall further behind the market. Competitive
salaries are key to quality - we must prevent further salary
erosion and also begin to close the salary gap. As you will
read below, UC is again giving staff and faculty additional
retirement funds to help offset these salary issues somewhat.
you may know, I recently announced my intention to retire
as president, effective Oct. 1, 2003. In my remaining 10 months
on the job, I will focus very intently on keeping the University's
budget on as secure a footing as possible.
my retirement and the budget challenges facing us, I hope
you will keep in mind that the University of California is
an inherently strong and stable institution - due in no small
part to the talent and dedication of our staff and faculty.
We have faced many budget ups and downs over the years, but
we have emerged from the difficult years only to grow, thrive,
and expand our positive impact on California. I am fully confident
this will be the case once again.
approve budget request for 2003-04;
cuts remain likely but await further information from state
of California Board of Regents has approved a basic budget request for
the 2003-04 fiscal year, requesting state funding that fulfills the Partnership
Agreement with Gov. Gray Davis but also acknowledging that significant
budget cuts ultimately may be required.
reduction in state revenues, due largely to a dropoff in capital gains
and stock options as a result of the stock market decline, has left the
state with a major fiscal challenge. The 2002-03 state budget authorizes
the governor to make $750 million in reductions to state operations in
the current fiscal year; those cuts have not yet been made. But the state
at this time is also facing a budget deficit estimated at more than $20
billion - about one-fourth of the state budget.
recently announced that he will call a special
session of the Legislature on Dec. 9 to begin considering solutions
to the state's budget challenge. The governor said he will propose $5
billion in reductions and other state budget actions at that time. His
full 2003-04 state budget proposal will be issued in January.
November meeting, the Regents discussed general categories of budget options
available to the university in a budget-reduction environment.
UC vice president for budget, said that over the longer term, the university
will continue to seek full funding of the Partnership, a funding and accountability
agreement between UC and the Davis administration. For the shorter term,
Hershman outlined a series of options available to UC in a budget-cutting
environment. No decisions will be made until more is known about the
state's budget priorities. The options include (not in priority order):
needs -- Delay restoration of Partnership funding that has been
reduced for instructional equipment, instructional technology, libraries,
and building maintenance
instruction -- Delay implementation of state funding for summer
instruction at some or all of the four remaining campuses
fees -- Restore student fees to the level that existed prior to
the 10 percent undergraduate fee reduction of the late 1990s
policy -- Consistent with the university's interest in a long-term
fee policy, implement student fee increases for undergraduate, graduate,
and professional school students, providing sufficient financial aid
to preserve access to the university
programs -- Reduce funding for support programs, such as administration
and student services, recognizing the need to provide adequate support
for core teaching, research, and public service programs
service -- Reduce funding for public service programs, such as outreach
and Cooperative Extension, taking into consideration university and
-- Reduce state funding for research, limiting such cuts to programs
that received major increases over the last several years - and protecting
from further cuts those research programs that were reduced 20 percent
in the early 1990s and another 10 percent in 2002-03
of these options is attractive," Hershman said. "We are going
to work very hard in Sacramento to make the case for the University's
budget priorities and minimize the need for cuts. But given the seriousness
of the state's fiscal challenge, we also need to consider carefully how
the University might best absorb a budget reduction while maintaining
the standards of quality that have always defined UC."
In the absence
of firm information from the state about the extent of budget cutting
that will be required at UC, the budget adopted by the Regents requests
the basic level of Partnership funding. Key elements of the Partnership
budget request include:
growth -- The budget requests state funding for enrollment growth
of 8,000 students in 2003-04, a figure that includes the "overenrollment"
of at least 4,000 students in the current year (enrolled students for
whom the state is not providing funding).
-- The Regents' budget requests funding for an average 4.5 percent salary
increase for eligible faculty and staff, along with funding for merit
increases for eligible employees. All salary increases are subject to
collective bargaining requirements, where applicable.
fees -- The budget includes a student fee increase of 6.5 percent
unless the state is able to provide equivalent funding under the Partnership.
The increase would apply to both mandatory systemwide fees and professional
school fees. The 6.5 percent figure is only a planning figure at
present; the final figure may well differ based on the state budget
situation. More information about student fees is below.
the budget presentation to the Regents can be found at http://www.ucop.edu/regents/regmeet/nov02/6gfattach.pdf.
second consecutive year, UC provides employees with additional retirement
money to help offset disappointing state salary funding
In an effort
to mitigate disappointing 2002-03 state funding for staff and faculty
salary increases and to acknowledge the continued hard work and dedication
of faculty and staff, the UC Board of Regents has approved additional
retirement funds for eligible UC employees by way of a special retirement
account, called a Capital Accumulation Provision (CAP), will put the equivalent
of 5 percent of the employee's salary into a separate retirement account
in the University of California Retirement Plan (UCRP), where it will
earn a specified rate of interest (currently 7.5 percent). Employees will
have access to the funds when they retire from or leave UC. UC employees
who are active members in the UCRP on April 1, 2003, will be eligible
for the CAP.
could provide a considerable amount of additional money for employees
over time. For example, at the current assumed interest rate of 7.5 percent,
an employee earning $35,000 per year would have an extra $3,600 in retirement
funds in 10 years, and an employee earning $60,000 would have an extra
about the CAP, including eligibility information, please go to: http://www.ucop.edu/news/archives/2002/nov15art1.htm.
Q. Will UC offer an early-retirement program
to help with the budget situation, as it did when it faced similar
budget challenges in the early 1990s?
A. UC is looking at a range
of options to deal with the budget challenge, and we have not decided
yet if any type of early-retirement program will be among the options
we pursue. If the university does consider some form of early-retirement
program, it likely will not be an across-the-board program, as was
the case a decade ago, but rather a program designed to target selected
areas and specific budgetary objectives.
important to remember that a key difference between today's circumstances
and the early 1990s is that UC currently is facing dramatic student
enrollment growth, which, among other things, means that UC will
need more, not fewer, experienced faculty and staff over the next
8-10 years. Also, we still don't know if we will be facing cuts
to our 2002-03 budget, and it will be months before we have a final
2003-04 budget. So, it's really too soon to determine whether any
form of early-retirement program would be warranted.
What kind of salary increases are UC administrators receiving this
A. Senior managers at UC are receiving the same salary
increases for 2002-03 - 1.5 percent - that other UC employees are
receiving this fall.
Do the investment losses that UC has experienced with companies
like Enron and Dynegy, as well as the continued stock market slump,
threaten our retirement benefits?
A. The university's retirement
benefits are not in jeopardy and the Retirement Plan remains very
sound, as evidenced by the fact that the Plan continues to require
no employee contribution. UC's Retirement Plan investments are broadly
diversified, so that performance slowdowns in one area or particular
investment cannot abruptly threaten the overall financial health
of the Retirement Plan or the university's ability to pay retirement
losses like WorldCom, Enron, and Dynegy represent very small portions
of UC's total investment portfolio. Still, the university feels
a very strong obligation to employees, retirees, the public, and
the state to do everything possible to recover some of these losses.
As you may know, UC has been named lead plaintiff in the Enron and
Dynegy lawsuits and is aggressively pursuing settlement.
information about UC Retirement Plan investment performance is available
Additional information about the Enron and Dynegy lawsuits is available
If student fees are increased, how will students and their families
A. It is not yet known whether or how much of a student
fee increase will be required to help the university maintain its
programs amid budget cuts. The Regents' budget includes a 6.5 percent
fee increase or equivalent state revenue for planning purposes,
but the final figure may vary depending on the state's budget priorities.
If a student fee increase does occur, one-third of the revenue
from the increase will be returned to financial aid in order to
mitigate the impact on lower-income students, and Cal Grants
also will help reduce the impact.
systemwide student fees have not increased in eight years - they
actually fell 10 percent in the late 1990s for resident undergraduates
- and UC's fees are now more than $2,000 per year below the average
of its comparison institutions. For context, a 6.5 percent fee increase
would amount to about $225 per year for resident undergraduates;
a 10 percent increase would be about $340.
more information student fees, see http://www.ucop.edu/news/factsheets/2002/student_fees.pdf.
Is UC receiving any funding for its facilities needs?
A. Yes. Proposition 47, a statewide general-obligation
bond measure for public education facilities, was approved by California
voters on Nov. 5. As a result, the Regents have approved a $316
million capital improvements budget for 2003-04 that would fund
a number of projects throughout the UC system to retrofit buildings
against earthquakes, construct new facilities for enrollment growth,
and modernize outdated infrastructure. State funding for these projects
will be provided by Proposition 47. More information is available
a question? Send it to email@example.com.
Due to the volume of submissions, we can't promise an answer to
every question - but the feedback is important, and we will do our
best to answer some frequently asked questions in our next edition.
MORE INFORMATION ON:
also is available on the web at www.ucop.edu/news/budget/issue4.html.