SUBJECT:  Budget Update from President Atkinson

For your information, an update from President Atkinson regarding the 2003/04 State budget is available at
http://www.ucop.edu/news/budget/issue9.html.

Questions concerning this notice may be sent directly to the Office of the President via budgetquestions@ucop.edu or you may call Dawn Buttrell at extension 4-3482.

Margaret F. Pryatel Assistant Vice Chancellor

Our University:

A BUDGET UPDATE FROM THE UNIVERSITY OF CALIFORNIA PRESIDENT FOR UC FACULTY AND STAFF

Issue 9 - August 2003 This newsletter is available on the web at
http://www.ucop.edu/news/budget/issue9.html.

Dear UC Colleague:

After a month's delay, the Legislature has passed a 2003-04 state budget, and the governor signed it on August 2nd. We can all be happy that the stalemate was broken and compromise was reached. Unfortunately, however, the final product is an extremely difficult budget for the University of California.

It is a budget that cuts deeply into programs across the University, delays the opening of UC Merced, provides no state funding for employee salary increases, and forces us to both borrow money for operational purposes and raise student fees substantially. It also means that many UC programs will have to reduce their budgets, including some employee positions.

In addition, the budget includes legislative intent language stating that UC can expect no funding for student enrollment growth in 2004-05 - meaning that we face the prospect of turning away UC-eligible students for the first time in memory. The state's budget situation now very clearly threatens the University of California's historic promise of access and quality.

UC representatives have worked tirelessly in Sacramento throughout the year on behalf of the University and its budget needs. The outcome certainly could have been worse; one legislative proposal would have made $300 million in further cuts to UC beyond the cuts we received. Many legislators in Sacramento told us how deeply they value public higher education and how painful it was to vote for cuts.

Still, the outcome is extremely disappointing. And with the state still facing a $7.9 billion structural budget deficit, next year is likely to be just as challenging.

To the faculty and staff, let me emphasize what I have said many times previously - that your impressive work, day in and day out, is the best case that can be made for state investment in the University of California. Your work makes a tremendous difference to the people of California, and it also demonstrates to decision-makers how valuable this institution is to the state and nation. Thank you for your contributions, your perseverance, and your optimistic spirit.

Fiat Lux,

Richard C. Atkinson President

2003-04 state budget makes deep cuts to UC system

The 2003-04 state budget makes $410 million in state funding cuts to UC programs - $299 million proposed by the governor and $111 million added by the Legislature. All non-instructional programs are affected, including administration, libraries, research, student services, teacher professional development, Cooperative Extension, and many others. UC's K-12 outreach program alone will see a 50 percent reduction in its remaining state funding.

Because of cuts to the budget proposal for UC Merced, the new campus will be unable to enroll undergraduates in 2004 as planned and will instead aim for a 2005 opening.

Also as a result of the budget cuts, UC student fees will be increased 30 percent in 2003-04 - or $1,150 for resident undergraduates - on top of a fee increase implemented in the spring 2003 term. In addition, UC expects to borrow $47.5 million to cover operational expenses this year, an amount that will be repaid over a five-year period through an increase in nonresident tuition.

The budget does provide new money for student enrollment growth in 2003-04 (though the budget includes legislative intent language indicating that no such funding will be provided in 2004-05). As a result, UC's net state-funded budget for 2003-04 will fall $248 million, or 8 percent, from the final 2002-03 plan. Since 2001-02, the UC system's net state-funded budget has fallen $455 million, or 13.6 percent.

Much more detail about the 2003-04 state budget and its impact on UC can be found in the University's press release, available here.

Budget resolution means 2003-04 salaries unaffected by minimum wage issue

With the passage of a state budget, UC employees do not need to worry about the issue of a minimum-wage salary scenario for state employees this year.

When the new fiscal year began July 1 without a state budget, the state controller announced that in late August or September, he would begin implementing a recent court decision requiring that state employees be paid no more than minimum wage when the state lacks a budget.

Since the controller included a reference to UC salaries, the University initiated a legal review to determine if, in fact, UC employees would or could be excluded from such a plan. However, the adoption of a state budget makes the issue moot for this year. If similar situations arise in the future, UC will determine appropriate action at that time.

Budget provides no state funding for employee salary increases

Despite our many conversations with state leaders about the need for competitive salaries, the state budget contains no state funding for salary increases for UC faculty and staff in the 2003-04 year. Still, we remain committed to looking for ways to financially recognize our faculty and staff, and we are continuing to search for options.

· Faculty Salaries: Because faculty and certain other academic personnel undergo extensive peer reviews every three years to determine merit and promotion status, a serious inequity would occur for the one-third of these individuals scheduled for review this year if their merit increases were not paid. In fact, the lack of payment of faculty merit increases was the subject of litigation that the University lost in the early 1990s. For these reasons, the one-third of eligible UC faculty and other academics scheduled for merit reviews this year will still receive merit increases. In lieu of state salary funding, the University will now have to use money intended for other faculty purposes, such as filling vacant faculty positions.

· Staff Salaries: The University recognizes that staff salaries lag the market in some areas and that the lack of cost-of-living increases poses a challenge for families facing many other economic pressures. Despite the lack of state money for staff salary increases, the University is intensively exploring options to help staff members financially, with a special emphasis on assistance for the lower-paid staff. For example, as we did last year we are looking for ways to absorb for employees some of the rising costs of health care insurance, which would reduce the net financial impact of rising premiums. UC has not yet completed negotiations with health-care plans for next year, but more information about how our faculty and staff will be affected will be provided as it becomes available.

Questions and Answers

Q. Why aren't all campuses or departments using START to help with budget cuts? A. The START (Staff and Academic Reduction in Time) program is one tool that campuses or departments might use to cope with temporary budget issues, depending on how the budget situation is impacting them. As we are seeing, budget cuts are hitting campuses and individual departments in many different ways, and START may not help, or be appropriate for, every situation. For example, if a department is facing permanent cuts, START may not be of any use since it provides only temporary assistance. This is why participation in START was left to the discretion of individual departments. If your area is not offering START and you'd like more information as to why, see your department manager or Human Resources department.

Q. UC has said that at least one of the reasons it is not offering a VERIP right now is because of "the significant student growth we continue to experience." If the state budget does not fund increased student growth, has the University's position changed on a VERIP offering? A. No. Having enough faculty and staff to support our expected growth is one, very important factor when considering a VERIP (Voluntary Early Retirement Incentive Program). But there are other important factors to consider as well, such as whether or not the UC Retirement Plan can afford one; or the fact that leveraging UCRP assets might result in other undesirable consequences, such as the need for employee contributions. We have been fortunate that our UCRP investments have done well enough to not only avoid the need for employee contributions for the past decade, but also support several CAPs. But this doesn't mean UCRP can be tapped whenever we like. Our first obligation as a fiduciary and employer is to make sure the Plan can pay retirement benefits to UC retirees, and we must be extremely careful about burdening UCRP with additional, long-term liabilities like VERIPs and CAPs. Using UCRP assets to fund a program like a VERIP would increase the possibility of needing to resume contributions, and we are concerned about that kind of impact on employees during these difficult times. Since we don't know exactly what the current budget situation means for our future growth, and because the economy and markets have yet to fully recover, we are not currently working on an early retirement program.

Got a budget question? Use this form to submit it. Due to the volume of submissions, we can't provide an individual answer to every question - but the feedback is important, and we will do our best to answer some frequently asked questions in our next edition.

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