Campus Notice
University of California, San Diego

May 22, 1996
SUBJECT: UC State and Federal Budget
For your information, the following are President Atkinson's and Associate Vice President Larry Hershman's remarks related to the 1996-97 State budget and the Federal budget.
If you have any questions concerning this notice, please call Robert Brents at 534-3619.
Margaret F. Pryatel
Assistant Vice Chancellor
---------------------------------------------------------------------------- President Atkinson and Associate Vice President Larry Hersman made the following remarks today (May 17), regarding UC's state and federal budgets, at the Regents meeting in San Francisco.
Mike Lassiter
Director, News & Communications
We want to update you briefly on the events taking place in Sacramento and in Washington as they affect the University's budget.
At the State level, we have been participating in Assembly and Senate budget hearings for the last two months and they have generally been going very well. The Governor is expected to release revised revenue projections and budget changes next week.
At the federal level, agreement was reached on 1996 funding levels for those agencies whose regular 1996 appropriations bills were not previously enacted. These include many of the federal programs of greatest importance to the University. The agreement deals only with the current fiscal year -- which began seven months ago. There is no agreement on a longer term budget plan on how to balance the federal budget within 7 years. This remains of concern to us because of the implications for the University.
I would like Associate Vice President Hershman to address the details of the 1996-97 State budget and the federal budget.
As President Atkinson indicated, the Governor is expected to release the May Revisions to the budget next week. The May Revisions will include an updated projection of State revenues, which for the first three months of the year have been consistently higher than projected. We remain optimistic that revenues for the current budget year, and next, will exceed the projections included in the Governor's January budget.
The May Revise will tell us also how the Governor proposes to spend any additional revenue. Under the constitutional requirements of Proposition 98, over half of any increase in State revenue will go to K-12 schools.
While we are pleased with the trend in revenues, there are major issues to be resolved. The Governor has made a number of statements suggesting the potential need to reduce the budget he proposed in January.
The context for these statements is important.
The Governor's budget is dependent on a number of actions occurring at the State level and at the Federal level. These include actions such as permanent elimination of the renter's credit; reductions in health and welfare programs; increases in federal funding related to illegal immigration; Medicaid reforms; federal welfare reform. The Governor also has proposed a 15 percent reduction in individual and business taxes to be phased in over three years. To date, many of the outcomes upon which the Governor based his January budget have not materialized.
The subcommittees in each house still have much work to do.
Generally, the Senate and Assembly seem headed toward supporting different priorities. While we, at this time, anticipate the Assembly budget looking much like the Governor's proposal the Senate budget is likely to focus on different priorities. The Senate seems inclined to support lesser cuts in health and welfare and is unlikely to support the Governor's full tax reduction proposal. The Senate is likely to augment the budget for selected programs during the subcommittee process.
We expect the subcommittees to finish their work by the end of next week as is normal. Action will then shift to a joint Assembly-Senate conference committee and negotiations among the leadership.
Major differences between the Senate and the Assembly will be resolved during the conference committee. We remain hopeful that there will be a State budget in place by July 1st.
With respect to the University's budget -- the subcommittees have been
holding hearings since late February. Generally, the hearings are going well.
In addition to supporting the Governor's January budget (honoring the compact and buying out the proposed student fee increase), the Senate budget subcommittee has augmented our budget as follows:
-- $5 million to increase funding for President Atkinson's initiative to expand Industry-University Cooperative Research Programs. The President previously indicated his intent to provide $3 million to launch this program.
-- $7.5 million to increase building maintenance with the expectation that the University will develop a multi-year plan to address the serious problems of deferred maintenance.
-- $4 million to expand University outreach efforts to develop and strengthen the academic skills of students in K-12 and the community colleges in preparation for admission to UC.
-- $2 million for the Drew University of Medicine and Science program which is run in conjunction with the School of Medicine at UCLA.
The Senate budget subcommittee also adopted supplemental language requesting that a statewide work group be created to develop a plan to deal with the financial problems facing the University's teaching hospitals. The work group also would address options to pay for the costs of providing a medical education in a clinical setting.
And, finally, the subcommittee augmented the CalGrant budget by $10 million. This is in addition to the $10 million increase proposed in the Governor's January budget. Almost $5 million would be used to backfill federal cuts. The remaining $15 million would be used to increase the level of grants as well as the number of grants.
While the Assembly budget subcommittee has held many hearings, they have not yet taken any actions to change the original Governor's budget.
We will keep you posted at the June and July Regents' meetings.
I want, now, to make a few brief remarks about the current state of play in Washington regarding federal funding for the programs that provide support to the University.
It wasn't until just last month, seven months into the current fiscal year and after two unprecedented federal government shutdowns, that Congress and the White House agreed upon the 1996 funding levels for many of the federal programs of greatest importance to the University.
As we discussed at the January Regents meeting, what held up final funding decisions for these programs was a fundamental debate between Congress and President Clinton on how to balance the federal budget. The outcome of this debate has been an agreement to balance the budget in seven years. There has also been agreement to use the Congressional Budget Office estimates as a basis for planning. The plan will include reductions in the growth of the Medicare and Medicaid programs, welfare, and in domestic discretionary spending as well as some tax relief.
No agreement was reached on the level of reductions; or the trade-off between cuts in programs and tax relief. And, major differences remain on whether to provide block grants to states for Medicaid and welfare programs.
The University remains very concerned about the unresolved issues surrounding entitlement program reforms. Substantial savings from these programs is an integral part of the plan to balance the budget in seven years. Therefore, if an eventual agreement on entitlement reforms is reached that does not yield enough savings, there will be pressure to further reduce domestic discretionary spending, the portion of the budget from which UC gets most of its federal funds.
The final funding picture for fiscal year 1996 shows little growth in overall federal support for research. The National Institutes of Health was the only major research agency to receive an above inflation increase, at nearly 6 percent over last year's funding level. The National Science Foundation, Department of Defense, and Department of Energy each received below-inflation increases for research, as well as suffering substantial cuts to some specific programs. Funding for the National Endowment for the Arts and the National Endowment for the Humanities was reduced by almost 40 percent. These cuts are significant since the two programs are the single largest source of support for arts and humanities activities nationwide.
Both the Congress and the President are committed to reductions in domestic discretionary program spending in order to balance the budget in seven years. As a result, for planning purposes, we are assuming a continued trend of flat funding for basic research during this period. When estimated inflation is taken into account, this means there could be a reduction in purchasing power of as much as 25 to 30 percent.
Overall, student financial aid funding is held to relatively flat levels. Most campus-based aid programs were frozen at 1995 levels. Funding for many graduate fellowship programs and some of the smaller student aid programs were consolidated or eliminated in favor of maintaining funding levels for the need-based programs. A slight increase was provided to raise the maximum Pell Grant award from $2,340 to $2,470, and no changes were made to the Direct Student Loan Program, in which eight of our nine UC campuses are participants.
Since there was no agreement reached on Medicare and Medicaid program reforms, there were ultimately no significant changes in the policies dictating the funding received by our teaching hospitals.
For 1997, we expect a debate over balancing the budget similar to the one this year. The President's 1997 budget request adheres to a seven-year balanced budget path, including reforms in entitlement programs and reductions in discretionary spending, and follows many of the funding outlines set during the budget negotiations last winter.
The budget request proposes a 1 percent overall increase for University-based research, which is well below the rate of inflation. Within the total proposed funding, some research programs do considerably better than others. NSF research receives an increase nearly double the rate of inflation. The Department of Energy and Environmental Protection Agency research both receive increases slightly above inflation. On the other hand, funding for research at the Department of Defense and NASA is
relatively flat while funding for NIH is held at just below inflation levels.
The President's request for student financial aid continues to place a priority on the need-based aid programs and takes the majority of cuts needed to balance the budget from the student loan lending community. The budget request also continues the trend from grants to loans as the primary means for assisting students with their college educations. The President again proposes to increase the Pell Grant maximum award and to further consolidate or eliminate funding for many smaller aid programs, including the State Student Incentive Grant program which provides some support for the State's Cal Grant Program.
The budget request includes little detail on funding for the Medicare and Medicaid programs. The President proposes to reduce the rate of growth for Medicare and Medicaid spending over seven years at the same level of reduction proposed in earlier budget negotiations with Congress. Congress has also signaled its intent to introduce a series of budget related bills later this year, two of which will address reforms in the Medicare and Medicaid programs. We will keep you informed as details of these proposals become clearer.
Congressional reception of the President's budget request has been predictably cool; and Congress will soon come out with its own version.
It is difficult to project, with any certainty, the outcome of the federal budget debate this year. This is a presidential campaign year and budget issues are highly politicized already. This volatility is likely to yield dramatic debates that may cause some of the fundamental decisions regarding the course of federal funding to be put off until after the November election; thus becoming the work of the next Congress.
I would be happy to answer any questions after President Atkinson's closing remarks.
Before concluding this presentation, I want to thank all the members of the University community--including Regents, members of the President's Office, Chancellors and other members of the campuses, and alumni-- who have been so instrumental in helping our Washington office present the University's case during the many long and difficult discussions that have been occurring with regard to the federal budget negotiations. I will now turn to Vice President Baker to talk briefly about these efforts.