SUBJECT:  State Budget

Dear Colleagues:

I write to provide you with the information we have received to date about likely financial challenges facing the University of California.

As you know, California's strong economic expansion of the late 1990s has ended-- an expansion that had enabled the state to enhance existing programs and to permanently fund many new programs. K-12 and higher education were major beneficiaries of this revenue growth.

As you also know, the stock market and the state's income tax receipts have now decreased considerably. Add to this the events of September 11 that accelerated the decline in many industry sectors, plus the fact that the state adopted its current budget by reducing its reserves, and it is clear that we have a need for significant reductions in spending. It is estimated that California may be facing a budget shortfall of between $8 billion and $14 billion in the 2002-03 fiscal year.

The Governor's October 23 Executive Orders require state agencies to freeze hiring and prepare for an additional 2001-2002 spending reduction of $150 million. As well, and more importantly, state agencies are asked to prepare for significantly greater budget reductions for 2002-2003. The two orders request cooperation with this effort by the UC system, but they also state that UC cuts should not "interfere with meeting [our] educational mission."

We have always cooperated with the state when it has faced a budget downturn, and we certainly expect to do so again. The UC Office of the President continues to work closely with the State Department of Finance regarding the size of the University's mid-year reduction. In the meantime, President Atkinson has asked all of the UC chancellors to be cautious about hiring and other financial commitments. Thus, it behooves us now to do whatever we can to slow spending. Spending now to avoid having to contribute from 2001-2002 budget allocations is not recommended, since any necessary budget reductions will be taken off the top of 2002-2003 allocations.

As was true in the last economic downturn, we will be strategic in determining the best way to achieve savings, and we will always remain focused on our long-term objective of continued and enhanced excellence in teaching, research and public service. Although we anticipate more definitive direction from the Office of the President in the near future, I have asked each Vice Chancellor to begin developing principles against which we can measure different tactics to generate savings or budget reductions.

We will also be mindful that we need to protect the essential support services of our campus that are critical to our academic mission. We are well aware that many support staff positions were eliminated in the last economic downturn, and that we must carefully evaluate how future budget reductions will impact support staff and the essential services they provide.

Although the State's fiscal situation is serious and difficult choices must be made in the months ahead, many economists believe that this fiscal crisis will be short-term in nature. The fundamentals of California's economy are strong. The 1970s, '80s, and '90s each began with economic problems of varying degrees. At those times, the University responded with actions that preserved its academic quality. With the strong support of the people of California and its leaders, the University's funding improved substantially when the State's economy improved.

As more information becomes available in the next few weeks, you will be hearing more about UCSD's plans for the current year and next year's budget.

In this time of uncertainty and adjustment, I believe in the dedication, patience and spirit of the UCSD faculty and staff. The strength of UCSD truly is its people. Our collective efforts as a community will be critical to UCSD's success in overcoming the challenges that lie ahead.

                                                Sincerely,

                                                Robert C. Dynes
                                                Chancellor