OFFICE OF THE ASSOCIATE VICE CHANCELLOR
RESOURCE MANAGEMENT
March 26, 1993
ALL AT UCSD
Last week you received a press release regarding the one-time
salary cut part of the budget balancing plan that was to be
discussed at the Friday, March 19, 1993 Board of Regents'
meeting. At that meeting, the Regents adopted that proposal.
For your information, following is President Peltason's
presentation to the Regents that addresses the plan to accommodate
the 1993-94 budget shortfall at the University of California.
John A. Woods
Associate Vice Chancellor
******************************************************************
>>UC NEWSWIRE<<
(510) 987-9200
REGENTS MEETING PRESIDENT J. W. PELTASON
RIVERSIDE MARCH 18-19, 1993
University of California
RECOMMENDED PLAN TO ACCOMMODATE
1993-94 BUDGET SHORTFALL
We spent time last month reviewing the deterioration in the
University's budget and what the results have been. A copy of
that presentation was mailed with today's agenda item, and I'm
not planning to go over all the details again today. I do want
to repeat just a few of the basic facts, however.
-- State funding has failed to meet the University's basic
needs for four consecutive years. We would have about
$950 million more in next year's budget if we had been
funded for inflation and workload growth over the four
years beginning in 1990-91. Instead of a $1.7 billion
State-funded budget, we would have a $2.7 billion State-
funded budget.
-- The State will be providing less money to the University
next year than it did in 1986-87, even though inflation
will have increased by over 30 percent and we have about
10,000 more students.
How have we coped with the situation? Looking at just the
three years beginning in 1990-91, this is what has happened:
Faculty and staff have gone without a cost-of-living increase for
two years in a row; staff received no merit increases in 1991-92,
and faculty merits were delayed for a year; we've cut campus and
Office of the President budgets by $345 million, eliminating
funding for about 5,000 positions; and student fees have more
than doubled, if you include a fee increase related to this
year's budget shortfall that won't be implemented until next
year. Financial aid has been provided to cover the fee increases
for needy students.
Despite everything that has happened so far, next year will
be worse. In the Regents' Budget, we requested a modest increase
to cover fixed costs, workload, and some inflation. None of this
was funded, leaving us with a problem of $104.5 million. In
addition, our base budget was cut by $138 million. In total, we
have a problem of nearly $243 million.
As we discussed last month, our short-term options are
limited: We can cut budgets, which results in workforce
reductions; we can freeze or cut salaries; and we can raise fees.
I described an emerging consensus last month that included all of
these basic elements. The plan that we are recommending today is
similar to that scenario but not identical. The net student fee
increase is somewhat less, and cuts to campus budgets are also
somewhat less, reflecting a widespread belief that we've already
cut more than can be managed in such a short time. We have had
to defer staff merit increases by half a year in order to
generate additional savings.
Our recommended plan reflects the discussion with the Board
last month, which helped to focus the issues, as well as a
process of consultation with Chancellors, the Academic Council,
staff and students. That process continued and intensified after
the February meeting. The plan now before you reflects a
reasonable degree of consensus, more than might be expected,
perhaps, given the wide variation among our campuses with respect
to size, age, and history. I do not claim that every individual
is satisfied on every point, however.
I plan to review each of the elements of the plan and then
ask for your questions and comments. You may want to follow my
discussion by looking at the summary table which is attached to
the Regents' item.
The plan is divided into Part A and Part B. Part A
represents reductions of the original Regents' Budget request,
meaning that we will not incur some expenditures that we believed
were necessary but cannot afford.
First, while the Regents' Budget requested a 5 percent mid-
year salary increase, we are now recommending that our employees
receive no COLA for the third year in a row. A mid-year COLA is
still planned for State employees next year.
Although the Regents' Budget requested full-year merit
salary increases for all employees, our plan now recommends full-
year merits only for faculty. The merit review process involves
a careful review of each individual's accomplishments and is,
therefore, the foundation that supports the University's
excellence. For that reason, the Academic Council consistently
has ranked full-year merits among its highest priorities. Our
plan recommends half-year merit increases for staff, except that
executives at the higher levels will receive no merits for the
third year in a row.
Under our plan, campuses will receive no new funding for
enrollment workload even though the Regents' Budget requested
support for additional students. In the current year, the budget
supports 12,000 fewer students than are actually enrolled. This
number should drop to about 10,000 next year because we expect an
enrollment decline of about 2,000 students. Despite having more
students than we are budgeted for, we continue to maintain access
under the Master Plan by admitting all eligible students at the
undergraduate level, and we are providing a quality education.
That is our most important commitment and we will stand by it as
long as possible. We are managing, so far, by recalling retired
faculty on a part-time basis and by using temporary faculty. We
can keep that up for a while, but not indefinitely. Eventually,
we will be forced to turn away eligible students unless our
budget improves.
Chairman Brownlee of the Academic Council recently wrote to
me, following up on his statement at the February Regents'
meeting. His letter cited the Council's formal resolution, which
I will quote:
The Academic Council encourages the Office of the
President, in consultation with the Academic Council,
(1) to formulate systemwide guidelines for faculty
teaching loads in order to increase teaching and
teaching effectiveness; and (2) to develop an
administrative process to insure implementation of the
guidelines. The Council looks forward to working with
you in developing a detailed proposal and putting it
into effect as soon as possible.
I want to quote the last paragraph of Professor Brownlee's
letter, also:
Let me emphasize that accelerating our implementation
of the sound strategic plan charted originally by the
Smelser Report will have extremely positive results.
It will improve undergraduate education in important
ways; it will help the University guarantee students
that they will receive more, rather than less in return
for increased fees; and, as an integral part of a
larger effort to protect excellence, it will help
preserve the University for future generations of
California's students.
I fully support and endorse the faculty teaching initiative. We
can be very proud that the quality of undergraduate education has
been protected and even has improved in the face of shrinking
resources. Our data show that the number of classes offered has
remained essentially stable despite the budget cuts, that
campuses have expanded opportunities for undergraduates to
interact with faculty, and that greater efforts are being made to
remove bottlenecks that slow down student progress toward a
degree. The University of California continues to serve its
students well.
Returning to our budget plan, campuses and the Office of the
President will receive less than they need to meet inflation and
fixed cost increases. We will fund health benefits for new
annuitants, revenue bond payments, maintenance of new space, and
a minimum amount for price increases; but none of the other cost
increases identified in the Regents Budget will be covered.
The actions I have just discussed reduce the original
Regents' Budget by nearly $77 million. Part B of our plan
addresses the remaining shortfall through salary and benefit
cuts, budget cuts, and a student fee increase.
I am very reluctantly recommending a one-time across-the-
board five percent pay cut. Our proposal is similar to the plan
adopted by the State of California this year, which provides that
funds lost through a pay cut will be made up at the time of
retirement or separation. Specifically, our plan calls for a
temporary five percent pay cut next year, with an equal
percentage credited to each employee's retirement system CAP
account (Capital Accumulation Provision), which would be
available upon retirement or separation. Some employees, such as
certain student employees, will be exempted; and the University
will comply with all requirements to provide notice, consult, and
meet and confer with employee groups.
I am recommending a one-time salary reduction, with a CAP
credit of equal percentage, only as a last resort and only
because we have no viable alternatives to offer at the moment.
However, we are going to continue looking at alternatives such as
an accelerated early retirement program, additional layoffs, and
refinancing of bonds. If we can develop reasonable alternatives,
and if we don't get another budget cut, we will return to The
Regents later on with a revised recommendation. For now, because
we are working under time constraints related to today's meeting
and the requirement that a plan be presented to the Legislature,
we are recommending a one-time pay cut. It is a temporary
measure which buys a year of time for developing longer-term
solutions to our budget problems.
To give you an idea of the effect of our plan on an
individual University employee, the Regents' item used the
example of someone making $40,000 a year. For such a person, a
five percent salary reduction of $2,000 would translate into an
$1,100 reduction in take-home pay on an after-tax basis. Two
thousand dollars would be credited to this employees' CAP account
next year, and this amount plus interest would be available upon
retirement or separation, and would be taxable at that time.
Nonetheless, even though employees will be repaid at some
future date, a pay cut means a substantial loss of real dollars
in the present and sends a negative message about the University
across the nation. A pay cut threatens irreparable harm, and the
damage must be undone as quickly as possible. The University of
California is a great place because we are able to attract and
keep great people. In order to do that, we have to pay
competitive salaries. That is a fundamental fact of life.
We must guarantee a restoration of base salaries in 1994-95,
meaning a guaranteed 5 percent salary increase. In addition, we
must make every possible effort to provide a real salary increase
of at least another 5 percent. While I hope the State will
provide some amount of salary increase in 1994-95, a total of 10
percent seems unlikely. We should plan to solve at least a part
of the problem on our own. We need a long-term plan that
protects and even enhances the quality of our programs while also
recognizing the fiscal constraints we will probably continue to
face.
As the key component of such a plan, the Academic Council
has recommended that we accelerate the process of reviewing the
quality of academic programs and take subsequent action as
appropriate. That process has begun. Some programs may be
reduced, consolidated, or eliminated as a result; others will be
strengthened. The net result should be substantial savings over
time. Savings from program reductions and consolidation take
four or five years to achieve, however, because students must be
allowed time to complete their degree work.
As an interim measure, therefore, we are recommending that
voluntary early retirement be offered to eligible staff members
as soon as possible but no later than January 1, 1994, and to
eligible faculty by July 1, 1994. The details of our proposal
will be worked out through an internal consultation process and
will be brought to The Regents for approval within a few months.
At today's meeting, we are requesting the Board's approval in
concept so we can proceed with our planning.
To the extent that voluntary programs are successful, we can
minimize the need for layoffs. Thus, we are also considering a
temporary extension of the TRIP program under which staff
employees volunteer to reduce both time worked and time paid.
Returning again to our budget plan for next year: We
propose to reduce health care benefits by limiting the
University's contribution to the cost of the less expensive
plans. Employees would be given an opportunity to change plans
during the November open enrollment period before the new policy
is implemented on January 1.
The budget plan includes a cut of $35 million to campus and
Office of the President budgets. For the Office of the
President, this means a cut of 10 percent from all fund sources,
which is significantly greater than the cut to campuses. A
portion of the $35 million cut will be specifically targeted to
hospitals and clinical teaching programs, and we expect the
remainder to be offset by further efficiencies and improvements
in management practices.
You need to be aware that campus and Office of the President
budgets will be cut more than $35 million next year. They will
have to absorb, additionally, the remainder of a phased cut
related to the 1992-93 budget shortfall. We decided to phase
that cut over two years in order to avoid placing too heavy a
burden on the campuses all at once.
Looking at the four-years beginning in 1990-91, campus and
Office of the President budgets will have been cut by a total of
$380 million by next year. Most of this will translate into
workforce reductions; the nonsalary budget has already been cut
to the bone. Funding for over 5,000 General Fund positions has
already been eliminated; next year's cut eliminates funding for
about another 1,000 positions. Campuses will make every possible
effort to protect core instructional programs as they implement
the budget cuts. They will place the heaviest emphasis on
finding further ways to reduce administrative expenses.
In the Office of the President, also, we are completely
serious about reducing administrative expenses. I have appointed
a committee to evaluate all activities of the Office of the
President, and I have set as their goal a 10 percent reduction in
expenditures in each of the next two years. This will be in
addition to cuts already made over the three years 1990-91
through 1992-93. The committee includes members of the Academic
Senate as well as senior administrators from the campuses and the
Office of the President. Once the committee has presented its
report, I intend to ask the Academic Council to make an
independent evaluation of the committee's findings and
recommendations and to work with me in assessing whether there is
more we can do to streamline our operations. As another effort
to cut costs, we are looking at ways we can reduce facilities
expense, including leasing less space commensurate with a smaller
staff and also exploring a possible move to less expensive
quarters.
The final element of our budget plan is a net student fee
increase of $390 per year, reflecting two separate actions: a
reduction of the previously approved temporary fee related to a
current-year loan, and a new fee increase related to the 1993-94
budget shortfall. About a third of the revenue this generates,
or $22 million, will be set aside as additional financial aid to
cover the fee increase for needy students.
Total student fees, including the Educational Fee, the
temporary fee, the Registration Fee, and miscellaneous campus
fees, will be about $4,000 next year. Undergraduate fees are
estimated to be about $330 less than projected average fees at
our four public salary comparison institutions next year.
With the recommended increase, student fees will have
increased nearly 150 percent in four years. Over this period,
fee revenue has offset about 27 percent of the University's
budget shortfalls; additional fee revenue has been set aside to
cover the fee increases for needy students. Because the fee
increases are being driven by the budget shortfalls, and because
this fact is not always well understood by students and by the
public, we are planning to restructure student fees. We are
considering reverting the Registration Fee and the Educational
Fee to their historic uses, while creating a new fee to recognize
deficiencies in State funding. This plan would not shave one
dime off student fees, nor would it increase them; it would
simply help to make the purposes clearer. We will bring a
proposal to The Regents later on as part of a long-term plan for
student fees and financial aid. In the meantime, we are
continuing to work with CPEC and the other segments of higher
education on the appropriate level for student fees and financial
aid.
We have done our best to help ensure that no student is
denied access because of the fee increases. In the four years
beginning in 1990-91, including additional funds related to the
fee increase now proposed, we will have increased financial aid
by approximately $107 million of UC grant funds, on a permanent
basis, to help deal with the fee increases. Overall, looking at
all fund sources, more than $700 million in financial aid flows
annually to UC students. Slightly more than half of all our
students receive some form of financial aid.
In 1991-92, we established a Fee Grant Program to cover fee
increases for needy students. Under the program, financial aid
was provided on a sliding scale, with all low-income students
receiving grants and other needy students receiving a combination
of grants and loans, depending upon parental income. Fee grants
were provided exclusively from UC funds.
Beginning next year, under a new "Minimum Grant Commitment"
program, fee grants will be funded with a combination of UC and
other grant funds, such as Cal Grants or Pell Grants. This will
free-up some UC grant funds that can be used to help low-income
students with non-fee expenses. The net effect of our new policy
will be to increase the proportion of grant funds going to the
neediest students, thus helping to minimize their loan debt. Fee
increases will continue to be covered for needy middle-income
students; however, they will continue to receive more loans and
less grant assistance than the neediest students.
To illustrate how our program works: If you look at recent
fee increases, a student whose family income is less than $30,000
receives 100 percent grant funds to cover the fee increases. A
student whose family income is in the $30-$45,000 range receives
about 2/3 grant funds and 1/3 loans. And a needy student whose
family income is in the $45-60,000 range receives a little less
than half grant funds, with the remainder in loans.
In addition to maintaining our own commitment to cover fee
increases for needy low- and middle-income students, we will also
continue to work with the State and Federal governments to urge
that financial aid be given a high priority and to try to
simplify the process of obtaining financial aid. In addition,
through our private giving programs, chancellors and other campus
representatives are making special efforts to encourage donors to
earmark their gifts for student financial aid. The Chancellors
and I recently sent a letter to the Alumni Associations of the
University of California, urging them to augment existing alumni
scholarship, grant, and loan programs.
It hardly needs saying that we face budgetary problems of
extraordinary magnitude. We have focused so far on short-term
options and across-the-board strategies, not out of choice but
out of necessity. But obviously we must plan for a future that
will require us to protect the University's excellence despite
continuing fiscal constraints--for exactly how long, no one can
say.
We are not the only university facing this challenging
prospect. American universities generally are going to have to
become even more productive in the future than they have been in
the past. As you know, I have asked the University community to
work together on four initiatives that we hope will enable us to
ride out these difficult times. The initiatives to sustain
academic quality are especially critical. The University of
California is going to have to make major structural changes in
how we do business, over and above how we manage the University,
and the review of the quality of our academic programs that is
just getting underway will be a key component of our plans for
the long term.
Our future will not be--or at least it should not be--simply
the sum of all the pressures we face, financial and otherwise.
It will also be the product of our plans, our decisions, and our
dreams. And I am certain that no one person, or small group of
persons, can construct a vision of the future for a place as
complex, as diverse, and as far-flung as the University of
California. Everyone in the University--Regents, students,
faculty, staff, alumni, and friends--has a role to play and a
contribution to make. It is both our responsibility and our
privilege to shape that future as a community, and I will be
working as hard as I can in the weeks and months ahead to bring
us together so we can do exactly that.
When I accepted your invitation to become President, I told
you that while I did not underestimate the seriousness of our
budgetary problems, I also believed that the University is so
vital to California that the people of this state will help us
find a way to preserve and strengthen it. I also told you that I
would count on your wisdom, advice, and support. Let me just
conclude by saying that I still believe the former and I am still
counting on the latter.
I will be pleased to have your questions and comments on the
recommended budget plan.
>>UC NEWSWIRE<<
ATTACHMENT
University of California
Recommended Plan to Accommodate
1993-94 Budget Shortfall of $242.5 Million
$ million
A. Reductions from Requests Made in the Original
$104.5 Million Regents' Budget Request
1. No cost-of-living salary increase (COLA) for faculty
or staff. 39.3
2. Provide full-year merit salary increases for faculty,
reduce costs by providing half-year merits for all other
employees except no merits for Executive Program members
at the higher levels. 8.0
3. No new funds for enrollment workload and related costs. 17.3
4. Inflation-related cost increases in nonsalary budgets
will not be fully funded. (Fund only minimum price
increase, health benefits for new annuitants, revenue
bond payments, maintenance of new space; no other cost
increases will be covered.) 12.3
Subtotal: Reductions from Original Regents' Budget (Reduces
Total Problem from $242.5 mil. $165.6 mil.) (76.9)
B. Additional Cuts Proposed to Balance Budget
5. Salary and Benefit Actions:
a. Salary reduction of %% for faculty and staff, one
year only; an equal percentage will be credited to
employees' UCRP CAP accounts, which they would be
entitled to upon retirement or separation. This plan
is similar to the State of California's plan in the
current year. Base salary levels will be restored
in 1994-95. 78.6
b. Plan for another voluntary early retirement program
(VERIP) for eligible UCRP members in order to
generate savings that can be used in 1994-95 to
restore salaries to their 1992-93 level and to begin
phasing towards a competitive salary position. Staff
VERIP effective no later than 1/1/94; faculty VERIP
effective 7/1/94.
c. Reduce health care benefits for employees and
annuitants; limit UC contribution to cover only the
lower-cost plans, effective 1/1/94. 8.0
6. Reduce campus and Office of the President budgets, which
will result in further workforce reductions. Part of the
cut will be targeted to hospitals and health sciences
clinical programs; remainder of the cut to be accommodated
through improved management efficiencies. 35.0
7. Student Fee Increase and Related Financial Aid:
Fee level already approved for 1993-94 ..... $3,649
Reduce temporary fee for loan repayment from
$150 to 100 per year for 5 years; reflects
intent to reduce from $70 million to
$50 million the amount borrowed to help
accommodate 1992-93 budget shortfall ......... -50
Add fee increase related to 1993-94 budget
shortfall ..................................... +440 (66.0)
Provide additional financial aid to cover fee increase
for needy students (-22.0)
Net revenue to help fund 1993-94 budget 44.0
Net fee increase ........................... (390)
TOTAL 1993-94 FEE LEVEL, including Educational Fee,
Registration Fee, and miscellaneous campus
fees ....................................... $4,039
TOTAL REDUCTIONS $242.5