Issue 4 — November 2002

November: Regents adopt UC budget request for the coming year and send it to the state for consideration

December: Special legislative session on the budget begins

January: Governor introduces state budget proposal for 2003-04

Spring: Legislature holds hearings on the budget; each house develops a budget proposal of its own

May: State revenues are updated and governor issues the "May Revision" to his original budget proposal

Mid-June: Legislature sends final budget to governor for action

Late June: Governor signs budget

July 1: New fiscal year begins

Mid-July: Regents update original UC budget request to conform to final budget adopted by the state

Dear UC Colleague:
A 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.

The 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 solutions.

We 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.

As we approach this challenge, I have two top priorities:

  • First, 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.
  • Second, 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.

As 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.

Despite 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.

  Fiat Lux,

 Richard C. Atkinson

Regents approve budget request for 2003-04;
cuts remain likely but await further information from state

The University 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.

A steep 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.

Gov. Davis 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.

At their November meeting, the Regents discussed general categories of budget options available to the university in a budget-reduction environment.

Larry Hershman, 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):

  • Infrastructure/library needs -- Delay restoration of Partnership funding that has been reduced for instructional equipment, instructional technology, libraries, and building maintenance
  • Summer instruction -- Delay implementation of state funding for summer instruction at some or all of the four remaining campuses
  • Student fees -- Restore student fees to the level that existed prior to the 10 percent undergraduate fee reduction of the late 1990s
  • Fee 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
  • Administration/support 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
  • Public service -- Reduce funding for public service programs, such as outreach and Cooperative Extension, taking into consideration university and state priorities
  • Research -- 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

"None 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:

  • Enrollment 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).
  • Salaries -- 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.
  • Student 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.

Slides of the budget presentation to the Regents can be found at

For 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.

The special 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.

This account 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 $9,200.

For details about the CAP, including eligibility information, please go to:

Questions and Answers

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.

It's 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.

Q. What kind of salary increases are UC administrators receiving this year?
Senior managers at UC are receiving the same salary increases for 2002-03 - 1.5 percent - that other UC employees are receiving this fall.

Q. 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 benefits.

Individual 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.

Additional information about UC Retirement Plan investment performance is available at Additional information about the Enron and Dynegy lawsuits is available at

Q. If student fees are increased, how will students and their families be impacted?
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.

Mandatory 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.

For more information student fees, see

Q. Is UC receiving any funding for its facilities needs?
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 at

Got a question? Send it to 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.



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