SUBJECT:  2003-04 Budget

For your information, the following is the official news release from the Office of the President regarding the 2003-04 state budget.

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/.

If you have any questions concerning this notice, please contact Dawn Buttrell at extension 4-3482.

                                                Margaret F. Pryatel
                                                Assistant Vice Chancellor

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FOR IMMEDIATE RELEASE
Wednesday, July 30, 2003
Brad Hayward (510) 987-9091
Brad.Hayward@ucop.edu
Hanan Eisenman (510) 587-6194
Hanan.Eisenman@ucop.edu

LEGISLATURE ADOPTS 2003-04 BUDGET WITH DEEP CUTS TO UC

* All non-instructional programs take major cuts
* Additional 5 percent student fee increase to be implemented
* UC Merced will not enroll undergraduates until 2005
* Legislature says following year's budget will not fund enrollment growth

The 2003-04 state budget adopted by the California Legislature will lead to deep cuts in non-instructional programs at the University of California, a 30 percent student fee increase, the UC system's first instance of borrowing to cover regular operations since the early 1990s, and a one-year delay in the opening of UC Merced. The budget also provides no state funding for salary increases for faculty and staff.

In addition, facing a $38 billion state budget deficit, the Legislature adopted language indicating that the state will not provide funding the following year - the 2004-05 fiscal year - for any student enrollment growth, employee salary increases, or other inflationary cost increases at UC.

"This is an extremely difficult budget for the University," said UC President Richard C. Atkinson. "It is clear that the UC system will be taking major cuts that will greatly impact our ability to serve students and the state as a whole. We recognize that the challenges facing the Legislature were huge and that compromise was necessary in order to get a budget at all. But the state's budget situation now very clearly threatens the University of California's historic promise of access and quality."

The budget makes $410 million in state funding cuts to UC programs. All non-instructional programs are affected, including administration, libraries, research, student services, K-12 outreach, teacher professional development, Cooperative Extension, and many others. Elimination of employee positions, including layoffs, is being planned or implemented in most of these areas.

Cuts to the student instructional program also would have been required without an increase in student fees. Consistent with authority granted him by the Board of Regents, Atkinson said today (July 30) that he is implementing an additional 5 percent fee increase, on top of the 25 percent increase adopted by the Regents, in order to help cope with additional budget cuts made by the Legislature near the end of the budget process. For resident undergraduates, the total increase will be $1,150 per year, with financial aid mitigating the impact for many students.

The budget does provide new funding for 13,000 additional UC students in the 2003-04 year, as proposed in Gov. Gray Davis' January budget. That new money, however, will only fund the instruction of the additional UC students; it will not backfill other program cuts. In sum, the University's net state-funded budget in 2003-04 will be $2.9 billion - 8 percent ($248 million) less than last year's final budget of $3.15 billion, and 10 percent less than the $3.22 billion with which the UC system began the 2002-03 year, before mid-year cuts took effect.

Since 2001-02, the UC system's net state-funded budget has fallen 13.6 percent ($455 million). With the state still facing a structural budget deficit of $7.9 billion, state agencies including UC will likely be subject to further dramatic budget reductions next year.

Details of the budget cuts

The $410 million in program cuts to UC consists of $299 million in cuts proposed in the governor's January budget and $111 million in cuts added by the Legislature. (An alternate method of calculating the cuts - one that includes the 2002-03 mid-year cuts, which are included in many 2003-04 budget documents - shows $373 million in cuts in the governor's January budget and a total budget reduction of $484 million.)

The major budget cuts to UC include:

* Administration and libraries: A 2002-03 mid-year reduction of $20 million grows by $16.5 million to a total reduction of $36.5 million in 2003-04.

* Educational outreach: A reduction of $33.3 million in 2003-04. This is a 50 percent reduction in remaining state funding for UC outreach to K-12 schools and students. UC will seek ways of phasing in the cuts to help buffer the impact.

"This is a deeply distressing cut," Atkinson said. "These programs have been the heart and soul of the University's effort to help improve academic achievement and college preparation in California's public schools. They are the very programs the Regents sought to expand when race-conscious admissions policies were eliminated at UC. This cut essentially returns us to the level of funding we had before our expansion of outreach began five years ago."

* UC Merced: One-time operational funds for the start-up of UC's 10th campus will total $7.3 million, but this figure reflects a cut of $4 million from the Governor's Budget and a more than 50 percent cut from the $15 million requested by UC. Budget language adopted by the Legislature also states that the opening of the campus is to be delayed one year.

As a result, the campus will be unable to admit undergraduates for fall 2004, as planned. Construction will continue, and the University is committed to a 2005 opening. In the meantime, UC Merced will work to find placements for community college transfer students who have been expecting to enroll at the new campus in fall 2004.

* 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, further limiting UC research that has an impact on California's economy and quality of life.

* Cooperative Extension: 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. The most significant impact will be on UC Cooperative Extension, which will take a 20 percent budget reduction on top of a 5 percent reduction last year.

Cooperative Extension has farm, 4-H, natural resources, nutrition and consumer sciences advisers in all 58 California counties, in both rural and urban settings. Cuts to the program will restrict UC's ability to deliver the new technologies, cutting-edge research and practical information that growers, consumers and others rely on to keep California competitive in global markets, ensure a safe and secure food supply, and improve environmental quality.

* 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, such as student health services and counseling. Campuses will have flexibility in determining the implementation of the cut.

* 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 will leave the program with $5 million in state funds, supplemented by federal funds.

* K-12 Internet: A mid-year reduction of $1.1 million grows by $6.6 million to a total cut of $7.7 million in the 2003-04 fiscal year. This reduction affects the Digital California Project, which brings the next-generation Internet2 to California public schools.

* AP Online: A $4 million mid-year reduction grows by $400,000 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.

* Additional cuts/student fees/borrowing: The governor and Legislature proposed a series of additional cuts that UC will absorb through borrowing and student fee revenue. The governor proposed $179.1 million in cuts to instructional programs to be offset by student fee increases (of this amount, $19 million was replaced by a spring 2003 student fee increase). The Legislature added an $80.5 million one-time unallocated reduction, followed by an additional $18 million permanent unallocated reduction that was adopted near the end of the budget process, after the Board of Regents voted on student fee levels for 2003-04.

UC intends to absorb the additional $98.5 million in legislative cuts, and avoid impacts on the student instructional program, by (1) borrowing $47.5 million and repaying it over five years through an increase in nonresident tuition - the first such borrowing at UC to cover ongoing operating costs since the budget crisis of the early 1990s, and (2) setting the 2003-04 student fee increase at 30 percent (details below), which will provide $51 million in addition to the fee revenues assumed in the original Governor's Budget.

In addition, the budget includes an unallocated reduction of $34.8 million, which campuses will have flexibility in implementing, potentially including cuts to instruction.

* Salaries: The budget provides no new state funding for salary increases for UC faculty and staff in 2003-04. UC faculty salaries are expected to fall at least 9 percent behind those of comparable institutions, and UC has a similar challenge with respect to staff salaries.

Student fees

Student fees will be increased in 2003-04 to cope with unallocated budget cuts while minimizing the impact on the student instructional program.

On July 17, the Board of Regents adopted a 25 percent fee increase and gave Atkinson the authority to raise the figure to 30 percent if warranted by the state budget situation. Atkinson said the additional $18 million in unallocated budget cuts adopted by the Legislature after the Regents' action necessitated the move to the higher fee increase, as described above.

"This fee increase is deeply regrettable, but given the magnitude of the cuts we are taking, it is unavoidable if we are to protect the quality of the student instructional program," Atkinson said.

The fee hikes include:

* Systemwide fees: A 30 percent increase in mandatory systemwide student fees above the current level, which already reflects the $405 annualized increase that was adopted beginning with the spring 2003 term. Fees will increase by another $1,150 to $4,984 per year for resident undergraduates, and by $1,205 to $5,219 per year for resident graduate academic students. (Counting miscellaneous campus-based fees, the average total in student fees will be approximately $5,437 for resident undergraduates and approximately $6,546 for resident graduate academic students.)

* Professional fees: A 30 percent increase in fees for most professional school students, with increases ranging from $675 for nursing to $2,273 for law. These students also pay systemwide fees, which will increase by $1,260. Factoring in both increases and the campus-based fees, total average fees for resident professional students will range from approximately $9,684 for nursing to approximately $16,549 for law.

* Nonresident tuition: A 10 percent increase in nonresident tuition, or $1,250 for undergraduates and $1,113 for graduate students. Nonresidents also pay regular and campus-based fees; with the 30 percent hike, the average total will be approximately $19,647 for undergraduates and approximately $19,036 for graduate students.

* Financial aid: In general, financially needy undergraduates with family incomes of $60,000 or less will have the increase fully covered by a financial aid grant; for financially needy undergraduates with family incomes between $60,000 and $90,000, a grant will cover half the increase. More information about financial aid is at http://www.universityofcalifornia.edu/admissions/youcan/.

Before the spring 2003 increase, systemwide fees were last raised in 1994-95. In the late 1990s they fell 10 percent for resident undergraduates and 5 percent for resident graduate students.

Future caps on enrollment growth

With California still facing a structural budget problem of $7.9 billion next year, the final budget also contains intent language adopted by the Legislature specifying that the 2004-05 budget will provide no state funding for student enrollment growth, employee salary increases, or other inflationary cost increases at UC. This language is consistent with a letter from the state Department of Finance that such funding would be unavailable in 2004-05.

Recognizing the looming caps on enrollment growth, UC campuses will be urged to keep 2003-04 enrollments down as much as possible in order to lessen the impacts in 2004-05. The University also will have to consider freezing 2004-05 enrollments of new freshmen, transfer students, and graduate students at their 2003-04 levels, along with other proposals for limiting enrollments. This will be a topic at upcoming meetings of the Board of Regents.

"For the last 43 years under the Master Plan for Higher Education, the University of California has guaranteed a place to all students who meet UC eligibility requirements," Atkinson said. "Now, with state budget reductions cutting so deeply into the University - and with the Legislature explicitly stating that funding for enrollment growth will not be available - that promise is fading. We will do our utmost to maintain our commitments to California's students, but the lack of funding makes this an increasingly difficult challenge for the University."

The University's specific plans with respect to student enrollments will be discussed further at upcoming Regents' meetings in September, November and January.

More budget information is available online at http://www.ucop.edu/news/budget/.