SUBJECT:  2003-04 Proposed Budget Cuts

In an ongoing effort to keep you apprised of budget developments, attached below is a news release from the Office of the President regarding the 2003-04 state budget proposal that Governor Davis released on Friday.

Please keep in mind that this is a proposal by the Governor and it must undergo a thorough review by the legislature before it will be finalized and approved this summer. As the Governor's proposal wends its way through the legislature, we will participate in systemwide and local discussions about how to absorb the cuts that will be assigned to our campus.

Some things are already clear, however. The Governor faces a $34.6 billion deficit, and state funding to UC will be cut to help solve that problem. The size of the ultimate cut to UCSD, and how we will absorb it, are unknown at this time. I assure you, however, that we will reach such decisions through broad campus consultation, and in concert with the UCSD budget committee, which is comprised of faculty, staff and students.

We will post updates, as we receive them, to the campus budget website: http://www-avcrm.ucsd.edu/cbo/home.htm . The Office of the President also maintains a budget website at http://www.ucop.edu/news/budget/.

In its brief history, this campus has faced and weathered several severe financial periods. Now, we will do so again, through a consultative process and adherence to UCSD's core values.

                                                Robert C. Dynes
                                                Chancellor

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FOR IMMEDIATE RELEASE
Friday, January 10, 2003
Brad Hayward (510) 987-9091
Brad.Hayward@ucop.edu

GOVERNOR PROPOSES 2003-04 BUDGET CUTS

* Newly proposed cuts bring UC's overall budget shortfall to nearly $1 billion
* Governor's plan assumes student fee increase for fall 2003 to prevent deeper cuts
* Increased financial aid would mitigate impact on lower-income students

Gov. Gray Davis proposed nearly $300 million in new state funding cuts at the University of California today (Jan. 10) as part of his 2003-04 state budget proposal.

With these proposals, the UC system's state-funded budget falls nearly $1 billion below the level the university had expected under its Partnership Agreement with the governor, an agreement that outlines the university's basic funding requirements. Since the beginning of the 2001-02 year, UC has taken $533.3 million in state funding cuts and has forgone an additional $423.5 million in expected Partnership funding for faculty and staff salaries and other cost increases, for a total shortfall of $956.8 million. UC's proposed state-funded budget is thus approximately $3 billion at a point when, under the Partnership, it was expected to be roughly $4 billion.

The governor's cuts for 2003-04 are part of a series of state budget cuts intended to address a state budget deficit estimated by the Department of Finance at an unprecedented $34.6 billion. The UC cuts include spending reductions in areas including administration, libraries, research, educational outreach, teacher professional development, student services, and Cooperative Extension and other public service programs.

The proposal does, however, provide funding for enrollment growth, allowing the university to continue providing a place for all eligible students seeking a UC education.

"The source of these devastating cuts lies in the state's overwhelming deficit, and in that context they are understandable," said UC President Richard C. Atkinson. "However, the cuts will spread great pain across the UC community and come at a time when we are working to accommodate major growth in California's college-age population."

As part of the cuts, the governor is proposing a reduction in state funding for the university's instructional budget, which he assumes would be offset by a student fee increase. Already, mandatory systemwide student fees at UC have been increased $135 per quarter, or $405 per year, beginning with the spring 2003 term, along with additional increases for professional school students. Under the governor's budget proposal, mandatory systemwide fees would increase by another $795 in the 2003-04 year for resident undergraduates, $855 for resident graduate academic students, and more for some professional school students.

Financial aid would be increased to shield low-income students from the systemwide fee increase, substantially reducing the "sticker price" for many students. Generally, students receiving Cal Grants or UC financial aid grants would not be affected.

The fee increases this year and next would net $179.1 million, representing less than 20 percent of the solution to the university's $956.8 million shortfall. More than 80 percent of the solution would come through cuts to university programs and through lagging salaries for faculty and staff, including the lower-than-expected salary increases they have seen for the last two years.

The UC Board of Regents will not set 2003-04 student fee levels until later this spring, however.

"I expect that the Board of Regents will have a thorough discussion of student fees and all of the governor's proposals for budget cuts," Atkinson said. "A fee increase is always difficult, and the current economic climate makes this a particularly bad time for families to absorb a further increase. At the same time, the governor's budget reflects the staggering magnitude of the state's budget crisis and acknowledges the need for a balanced package of solutions if we are to preserve access and quality in the student instructional program, which is our highest priority."

The governor's budget proposal includes no funding for salary increases for UC faculty and staff in 2003-04. "The lack of funding for salaries is another unfortunate element of the situation we are facing," Atkinson said. "Competitive compensation is key to quality, and a merit program must continue to be a high priority for the university. We will be looking closely at our options as the budget process moves forward, and we remain hopeful that a recovering economy will begin to provide some fiscal relief later this spring."

Proposed cuts in state funding

The $299 million in proposed UC budget cuts for next year are in many of the same areas that were targeted for $74 million in mid-year cuts this year. None of the proposed cuts is final until a state budget is approved by both the governor and Legislature, an event that traditionally occurs sometime during the summer. Specifically, the governor proposed the following:

* Administration and libraries: A mid-year reduction of $20 million grows by $16.5 million to a total reduction of $36.5 million in 2003-04. Each campus and the Office of the President would have discretion to achieve its portion of the cut in locally determined ways.

* Educational outreach: A $3.3 million mid-year cut grows by $30 million to a total reduction of $33.3 million in 2003-04. This figure represents a 50 percent reduction in remaining state funding for UC educational outreach. "This is a particularly difficult cut because the university has made a deep commitment to helping improve K-12 performance and expanding access to a college education," Atkinson said. "I expect this proposal will be debated at length in the Legislature, and we will be closely involved in the conversation."

* Research: An $18 million mid-year reduction in state-funded research programs grows by $10.8 million to a total reduction of $28.8 million in 2003-04. This amount reflects a reduction of 10 percent, on top of a 10 percent across-the-board cut already enacted in the 2002-03 budget. It is not specified how the new reduction would be achieved.

* Student services: A mid-year reduction of $6.3 million grows by $19 million to a total reduction of $25.3 million in 2003-04. This cut represents an approximately 20 percent reduction in Registration Fee-funded programs. Campuses would have local discretion in achieving this level of savings.

* Teacher professional development: A $15 million cut to the California Subject Matter Projects, which provide professional development for K-12 teachers in California. The cut would leave the program with $5 million. The governor proposes that the program use the remaining funding to offer science education programs eligible for federal matching funds.

* Public service: A $2.5 million mid-year cut for UC public service programs grows by $12.5 million to a total reduction of $15 million in 2003-04. Affected programs include Cooperative Extension, which has farm, 4-H, and nutrition, family and consumer sciences advisers throughout the state.

* AP Online: A $4 million mid-year reduction grows by $0.4 million to a total reduction of $4.4 million in 2003-04. This cut reflects a 50 percent reduction in funding for the UC College Preparatory Initiative, which provides online Advanced Placement coursework.

* K-12 Internet: A mid-year reduction of $1.1 million remains at $1.1 million for the 2003-04 fiscal year. This reduction affects the Digital California Project, which brings the next-generation Internet2 to California public schools.

* Instruction/student fees: A reduction in state funding of $179.1 million for instructional programs, which the governor assumes would be offset by student fee increases (details below). Of this amount, $19 million represents a mid-year cut in the 2002-03 budget that was filled by a student fee increase beginning in the spring 2003 academic term.

* Unallocated reduction: An unspecified 2003-04 budget reduction of $34.8 million. The university will be assessing options for allocating this cut in the event it is approved.

In addition to the above cuts, the governor did propose increases in UC funding for specific purposes in 2003-04, including:

* Enrollment growth: $117.2 million to fund enrollment growth of 8,000 students in 2003-04 and 5,000 current UC students who have not been funded by the state.

* UC Merced: $11.3 million in one-time start-up funds needed to open the new Merced campus by 2004. UC Merced is a critical part of the university's plan to accommodate major enrollment growth over the course of this decade.

Under the governor's proposal, UC's state-funded budget for 2003-04 would total $3.01 billion. That amount is 4.4 percent below the university's final budget for 2002-03 - after the latest mid-year budget cuts were taken - but 10.4 percent below UC's original $3.36 billion budget for 2001-02, before the state's falling revenues forced budget cutting to begin. Over the same two-year period, UC's student enrollment has grown by about 12 percent, or 20,000 students.

Student fees

The governor's budget proposes $179.1 million in cuts to the university's instructional budget over the 2002-03 and 2003-04 years but assumes these cuts will be offset by student fee increases. The budget assumes that mandatory systemwide fees and selected professional school fees will increase 35 percent over the two years 2002-03 and 2003-04.

Already, the Board of Regents has voted to increase UC mandatory systemwide student fees $135 per quarter, or $405 per year, beginning in the spring 2003 academic term in order to prevent deeper program cuts. This increase is equivalent to an annualized 11.8 percent increase for resident undergraduates and an 11.2 percent increase for resident graduate academic students. Therefore, the additional fee increase in 2003-04, according to the governor's budget, would be $795 for resident undergraduates and $855 for resident graduate academic students.

The Regents will have a thorough discussion of budget and fee issues at their March meeting and are not expected to take action on 2003-04 student fee levels until later in the spring.

One-third of the revenue raised by any fee increase will be sent directly to financial aid in order to mitigate the impact on lower-income students, and Cal Grants also will increase proportionally. Generally, students from families with annual incomes of $60,000 or less will not be impacted by a systemwide fee increase.

Under the governor's budget, mandatory systemwide student fees in 2003-04 would be $4,629 for resident undergraduates and $4,869 for resident graduate academic students. Campus-based miscellaneous fees add to the total paid by these students.

Before the spring 2003 increase, mandatory systemwide fees were last raised in 1994-95.

Students in many UC professional schools also are facing fee increases beginning with the spring 2003 term. In addition to the $135 quarterly increase, professional school fees have been raised between 19 percent and 26 percent for students in law, business, medicine, dentistry, veterinary medicine, pharmacy, optometry, nursing, and the UCLA theater/film/television program. Again, the governor's budget assumes a total increase of 35 percent over the two years 2002-03 and 2003-04, meaning further increases in the fall for students in these programs.

Under the governor's budget, professional fees in 2003-04 would be $5,400 in veterinary medicine, $6,750 in dentistry, $8,100 in business, $8,606 in law, $7,256 in medicine, $4,050 in optometry and pharmacy, $2,430 in nursing, and $2,700 in theater/film/television. Mandatory systemwide and campus-based miscellaneous fees add to the total for these students.

The Regents approved the spring professional school fee increases recognizing that fees for these programs at UC are today significantly lower than the average at comparable public universities. The differential ranges from $2,200 per year in nursing to $8,400 in medicine.

The governor's budget is available at
http://www.dof.ca.gov/HTML/BUD_DOCS/Bud_link.htm . A Q&A on student fees is at: http://www.ucop.edu/news/factsheets/2002/student_fees.pdf . Financial aid information:
http://www.universityofcalifornia.edu/admissions/financialaid.html .