SUBJECT:

1995-96 Budget Plan: Timing Considerations

For your information, following is the text of President Peltason's
presentation on the budget at the February 16, 1995, meeting of the
Regents.

If you have any questions concerning this notice, please call Pamela
Sanford at 534-3480.

Margaret F. Pryatel Assistance Vice Chancellor

REGENTS' MEETING
PRESIDENT J. W. PELTASON
FEBRUARY 16, 1995
UNIVERSITY OF CALIFORNIA
SAN DIEGO CAMPUS

1995-96 BUDGET PLAN: TIMING CONSIDERATIONS

  In January we presented a revised 1995-96 budget plan based on
the Governor's Budget and his four-year compact with higher
education. As I said last month, this plan represents a renewed
commitment to higher education in this state. It also
represents, for the first time in several years, a very welcome
opportunity to plan ahead with some stability. We're very
grateful to the Governor for his leadership and for his efforts
on the University's behalf.

  We did not seek Regental action on the budget plan in January
because we wanted to allow adequate time for the Board's
consideration of the issues. Since the January meeting, I have
been consulting with members of the Board, including Chairman
Leach and the Chair of the Finance Committee, Regent Connerly.
Based on those discussions, and taking other factors into
consideration, I have concluded that it would be best to delay
Regents' action on the budget plan until later. Let me give you
my reasoning.

  For the past two years, the budget plan proposed and approved
by The Regents early in the year has changed significantly in
July as a result of final budget actions by the Legislature and
Governor.

  For example, in March 1993, The Regents approved a $995
student fee increase for 1993-94. The increase was reduced to
$630 at the July 1993 meeting, with the reduction based on a
budget augmentation provided by the Governor and the
Legislature. The augmentation also included funds to reduce
the temporary salary cut from 5% to 3.5%.

  Similarly, in January 1994, The Regents approved a $620
student fee increase for 1994-95. In July, however, the
increase was reduced to $345 as a result of action by the
Legislature and the Governor to substitute other funds for a v portion of student fee income.

  Another reason for deferring action is that California's
economy appears to be steadily improving. Economic projections
for the budget year are routinely reassessed in May, and this
sometimes results in revisions to the Governor's January budget
plan as well as the Legislature's plan.

  All things considered, therefore, I believe it makes sense to
defer Regents' action on the 1995-96 budget. My recommendations
are, however, still before you, but I am going to delay my
request for you to act upon these until later.

  You are no doubt aware of statements from some legislators who
oppose any student fee increase whatsoever. We can all agree on
the desirability of keeping fees as low as possible; no one
wants to set fees one penny higher than necessary.

  But that is not the only policy issue before the elected
representatives of the citizens of this state. Access has
little value if the price we pay for it is quality. I believe
the University of California's mission--first and foremost--is
to provide our students with the excellent education
Californians have every right to expect from their public
university.

  We are not trying to serve the interests of faculty or staff
at the expense of the interests of students. We are proposing
to raise student fees for only one reason. Without additional
State appropriations, anything less than a 10% fee increase
would be disastrous to quality and a great disservice to
students themselves. It is their degrees that are at stake.

  The current budget plan, including both funds from the State
and from student fee increases, is in my judgment the minimum
amount needed. It is not difficult to point out the
consequences if we fail to get the $38 million the fee increase
represents. It would mean no cost-of-living salary increases
for faculty or staff, causing us to fall further behind the
competition, and an additional $10 million of budget cuts and
layoffs. Faculty salaries would lag 10.5% behind the comparison
institutions next year, which, as our presentations at Board
meetings have indiciated, would be disastrous for our ability to
recruit and retain faculty who meet UC standards. Even with a
10% fee increase--and by the way, that comes to $127 per
quarter--we are already anticipating $23 million of cuts. If
you add another $10 million--on top of over $400 million of cuts
in recent years--the result would be catastrophic. It would
precipitate not just further cuts in administration but a cut in
students' educational opportunities through cuts in faculty and
in the number of classes that we can offer, and would slow down
students' progress toward their degrees. We simply cannot take
any more reductions from the proposed level of funding without
the very real prospect of watching our quality slip away.

  Clearly we would prefer not to increase student fees--and also
to reduce the cuts we are planning to make. If the State's
economy continues to improve, we hope the Legislature and the
Governor will provide us the funds to do both. When I make my
presentation, we will urge them to do so.

  In the meantime, however, we have an obligation to inform
members of the University community and prospective students of
our tentative plan so they can proceed with their own planning--
for next year specifically, but also, in more general terms, for
the entire four years of the Governor's compact.

  We have a very welcome opportunity to allow students, faculty,
and staff to undertake multi-year planning with somewhat more
certainty than has been possible in recent years.

  We need to inform students and their parents of what the
student fee increases are likely to be, particularly for next
year. We also need to provide some estimates concerning the
financial aid they can anticipate.

  We need to inform faculty and staff of what their salary
increases are likely to be--again, for next year in particular
on the assumption funds will be available.

  We also need to let faculty know of our expectation that they
will continue to teach more and help students to graduate in
four years or less. Faculty and students need to be aware,
also, of our intent to improve coordination and cooperation
among the segments of higher education.

  We need to let campuses know what they might expect with
regard to funding for enrollment growth, inflation, operation
and maintenance of new space, debt service, and capital outlay--
as well as temporary budget cuts.

  And we need to inform campuses of what their share of the
total $40 million of efficiencies is likely to be. Let me
emphasize the agreement with the governor--that we find $10
million in efficiences in each of the next four years. In fact,
we have already begun working with the campuses to develop a plan
for achieving further savings and reprogramming the funds for
high-priority uses, as agreed to in our compact with the
Governor.

  My intention, therefore, is to advise campus administrators,
students, faculty, and staff to make their plans based on the
budget plan that we presented to the Board in January--with the
understanding that the plan may change once we have a clear
picture from the Governor and Legislature.

  Thus, for next year, students will be advised to plan on a 10%
general fee increase with financial aid packaged accordingly;
faculty will be advised to plan on cost-of-living adjustments and
equity adjustments averaging 3% plus merit salary increases;
staff and other academics will be advised to plan on cost-of-
living adjustments averaging 1.5% plus merits; and campuses will
be advised to plan on 120 new faculty FTE for general campus
programs, a 2% increase to help offset the impact of inflation on
the nonsalary budget, $8 million to operate and maintain new
space, assignment of a $10 million savings target to be achieved
through new efficiencies, and a temporary budget cut of about $13
million. Salary increases, of course, are subject to collective
bargaining for employees in bargaining units.

  As we get closer to final decisions by the Legislature and
Governor do not affect the University's budget, I will return to
the board--I don't know the precise date--to seek approval of
the plan we presented last month. Of course, if final decisions
do affect our budget, we may need to present a different
proposal.

  The one exception to my proposal that we defer action on next
year's budget plan concerns the Fee for Selected Professional
School Students. Both The Regents and the Legislature have
already agreed to a general fee policy based on several
considerations. One is the benefit to the individual of a
professional education; another is the practice of comparable
universities across the nation; and finally, given the
continuing scarcity of new State funds, the professional schools
must look to fees as one way to help maintain quality. The
policy on professional school fees approved by The Regents last
year includes the concept that fees will increase on a phased
basis to reach approximately the average of fees charged for
that program by comparable high-quality institutions across the
nation. The remaining issue, therefore, is simply one of
phasing in the fee increases for each school.

  We are proposing fee increases ranging from $1,000 to $2,000
for entering students in the professional schools next year,
over and above the general fee increase. As the policy issue
has already been decided by The Regents, and given the size of
the fee increases but also their comparatively minor impact on
the budget as a whole, we plan to bring the 1995-96 professional
fee increases to The Regents for a vote next month.