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Regents Scrutinize Fiscal Crisis

The University of California Board of Regents took the unusual step of devoting its entire public session on March 16 to analyzing UC's budget crisis and discussing the tradeoffs inherent to various scenarios of coping.

By Carolyn McMillan, UC Office of the President

The university faces a stark gap between diminishing state support and rising operational costs — a gap that will grow larger in coming years unless UC finds a stable source of revenue growth.

"This is not a blip. This is 20 years of reduced funding for the university," President Mark G. Yudof told the board. "We need a long-term plan. Our collective job is to figure out how to do it."

Yudof noted that UC already has made substantial budget cuts in the last few years, and there currently are 8,000 faculty and staff positions unfilled. As the regents and UC administrators evaluate how best to go forward, preserving UC's world-class research and education must be a priority, he said.

"In all the variables you hear today, there is one constraint and a guiding star we must follow and that is quality. Quality is non-negotiable."

Regents Chairman Russell Gould proposed the daylong workshop to give the regents the fullest picture possible of the fiscal dilemma facing the university and the difficult choices that lie ahead.

Chancellors: greater budget flexibility

The chancellors of UC Santa Cruz, UC Irvine, and UC Berkeley briefed the board on how their campuses are being affected by UC's ongoing financial struggles. They said that greater budget flexibility would help them handle their fiscal challenges with the least harm possible.

"We've protected our academic programs at the expense of our support units," UC Santa Cruz Chancellor George Blumenthal said, noting that the budget for core functions at his campus will be 21 percent smaller than it was four years ago if pending cuts are enacted. Given the size of the deficit, narrowly targeted cuts will not be possible.

"We will not be able to make the cuts strategically. We will have to cut everywhere," Blumenthal. "These cuts will go right to the heart of our research and academic missions."

Yudof will return to the board with a firmer budget plan in May, and will be looking for guidance from the regents on both short- and long-term fiscal questions.

UC expects to have a budget shortfall in fiscal 2011-12 of nearly $900 million. That figure includes a proposed $500 million cut in state support as well as rising costs for mandatory expenses such as utilities, retirement plan contributions and health insurance.

Governor Jerry Brown proposed cutting UC's funding as part of an overall strategy for closing a $26 billion state deficit. The proposed reduction follows years of unpredictable and diminishing levels of state support. If Brown's budget is enacted, UC's state funding in fiscal 2011-12 will be at the same level as 1998-99, when there were 73,000 fewer students. And for the first time in the university’s history, student tuition would contribute more to UC's core budget than state funds do.

Fiscal situation in flux

Gould noted that the fiscal situation is very fluid. Current budget projections could change in the coming months. The biggest unknown is whether Brown's plan to extend taxes through a special election in June will go forward. UC could be looking at an even bigger hit in state funding if there is no tax extension.

All 10 campuses and UC's Office of the President are working to spare academic programs from the brunt of pending budget cuts by allocating most of the reduction to administrative functions.

Campuses in the UC system are working aggressively to enact administrative efficiencies, implement shared services, and look for new sources of revenue. But even with those measures, they anticipate staff layoffs, deferring faculty hiring, enrolling more out-of-state students, and consolidating or cutting some programs.

UC Irvine Chancellor Michael Drake said his campus had even turned off hot water in bathrooms as part of an effort to "save every nickel and dime." The bottom line is that UC needs to find a way to continue its tradition of academic excellence, he said.

"We need to maintain that A-plus we've worked a century and a half to earn," Drake said.

In an effort to soften the impact on campuses, UC's Office of the President will absorb a $50 million cut. That amounts to about 17 percent of its budget and comes on top of $55 million in cuts since 2007-08.

In addition, the Office of the President is reviewing, in consultation with campus leadership, all centrallysupported programs and services with an eye toward reducing costs further while still providing central services, achieving economies of scale and providing common goods.

"We should not be doing anything centrally unless we can save money or provide a common good," Yudof said. "We're doing many things only because historically we've done it. We need to make it as easy as we can for the campuses to make their cuts."

Long-term stability sought

The short-term fixes for the coming fiscal year may solve the immediate budget predicament, but a bigger, long-term challenge remains unless UC finds a steady and predictable source of revenue, said Nathan Brostrom, executive vice president for operations.

Costs for pension, capital renewal, and other mandatory expenses will keep rising. Unless UC finds a reliable revenue source to cover those costs, it could have a $1.5 billion budget gap by fiscal year 2015-16. Those projections assume that UC moves aggressively to enact administrative efficiencies that are in the pipeline.

Regents, reacting to that long-term prognosis, agreed that UC is at a crossroads and needs to answer fundamental questions that could affect student enrollment, tuition and fees, and the size and scope of campuses.

"All bets are off. No longer can we say the Master Plan even exists," said Regent Sherry Lansing, in reference to California's 50-year-old blueprint for ensuring that all Californians had access to higher education. "We have a core value system we have to protect. I'm asking every one of us to be really entrepreneurial."

Regent Norman Pattiz suggested that one place for UC to start was by capitalizing on all it does for California.

"This is an institution that is very important to the economy of California. Maybe we should look at ways to exploit our value to the economy of California, the economy of the world."

Carolyn McMillan is managing editor with the UC Office of the President Integrated Communications.

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