Issue 4 — November 2002 BUDGET TIMELINE 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  President

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 http://www.ucop.edu/regents/regmeet/nov02/6gfattach.pdf.

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: http://www.ucop.edu/news/archives/2002/nov15art1.htm.

FOR MORE INFORMATION ON:
BUDGET NEWS
   www.ucop.edu/news/budget
EMPLOYEE BENEFITS
   http://atyourservice.ucop.edu/
OPEN ENROLLMENT
   http://atyourservice.ucop.edu/open_enrollment/index.html
UNION NEGOTIATIONS
   http://atyourservice.ucop.edu/employees/policies/labor_relations/index.html
PRESIDENT ATKINSON'S RETIREMENT
   www.universityofcalifornia.edu/atkinson/
UC NEWS
   www.ucop.edu/news
UC SYSTEM
   www.universityofcalifornia.edu

This newsletter also is available on the web at www.ucop.edu/news/budget/issue4.html.