Administration, Regents Discuss Strategies for Weathering Financial Storm

Carolyn McMillan | May 23, 2011

With the state budget still uncertain, the University of California Board of Regents today (May 18) discussed short- and long-term options for how UC will cope if state financial support for public higher education continues to wane.

Since January, the university has been developing strategies to absorb a $500 million cut in state funding for the fiscal year that begins July 1. Those cuts come on top of the exhaustive cost-saving measures the university has enacted over the last few years to cope with dwindling state support.

President Mark G. Yudof told the board that he and other senior administrative leaders are trying to develop a five-year plan to return fiscal stability to the university, and he walked through a set of values and goals that he said would inform the process.

First and foremost, the university must preserve excellence in instruction, research and public service, he said, which it cannot do without continuing to attract and retain top-flight faculty.

"We have to maintain this world-class faculty," Yudof said. "We have to keep them here and recruit others of the same quality."

UC also must work to keep its doors open to all qualified California students, including finding ways to extend financial aid to middle-income families, if fees continue to rise, he said.

"It's very hard to keep the university on an even keel when the financial stability isn't there," Yudof said. "We need to make long-term commitments to our students, our faculty, our staff. And we need to do all we can to keep our doors wide open to the students of California."

Patrick Lenz, vice president of budget and capital resources, told regents that there is still a great deal of uncertainty about the final state budget and how UC will be affected. The university has crafted a plan for enduring the proposed $500 million cut that does not raise fees or reduce enrollment.

If the final state budget includes a cut larger than the currently proposed $500 million, Lenz said, the university may need to consider increasing student fees to protect academic quality.

"Campuses are doing all they can to deal with the first $500 million. We just don't have any more options available to us," Lenz said, noting that UC's central office is planning to cut $80 million from its budget to help minimize budget impacts on the campuses.

Nathan Brostrom, executive vice president for business operations, discussed UC's long-term fiscal outlook, recapping the measures that UC already has enacted to cope with diminishing resources.

In the last three years, the university has resorted to furloughs, layoffs, student fee increases and program reductions, and also launched an aggressive effort to find operational efficiencies. The Working Smarter initiative expects to reduce UC costs by $500 million over the next five years.

But even with all those measures, UC's operational expenses are projected to outstrip revenues in the coming years, Brostrom said. UC has plans to ratchet up philanthropic giving and enact other revenue-enhancing measures, but still will face a $1.5 billion deficit by 2015-16 unless a stable source of revenue is found.

A return to reliable state funding could be one solution; the other levers that could affect UC's financial outlook are tuition and fees; enrollment levels; and changes to UC's staffing, programs and services, he said.

Brostrom presented four hypothetical examples for how varying levels of future state support could affect tuition and enrollment levels if UC receives the $2.5 billion 2011-12 funding currently proposed by Gov. Brown.

Under the most optimistic scenario, if the state increases funding by 8 percent in fiscal year 2012-13, UC would need tuition increases of 8 percent each year through 2015-16 to cover UC's rising costs and support projected enrollment growth of 1 percent per year.

At the opposite end of the spectrum, if California cut funding by 2 percent a year beginning in 2012-13, it would require capping enrollment at current levels and increasing tuition annually by 20 percent to cover all of UC's projected costs.

In short, for every additional dollar the state cuts UC, it would take the rough equivalent of a dollar in student fees to make up the loss, he said.

Judy Sakaki, vice president for student affairs, told regents that as UC contemplated the possibility of future fee increases, it was developing ways to ensure that UC remained affordable to both low- and middle-income families.

UC financial aid programs currently cover all tuition and fees for eligible students with family incomes below $80,000. Under new proposals, that ceiling would be raised to $90,000, while half of all tuition and fees would be covered for students whose family incomes are between $90,000 and $120,000.

"We must send a clear message that tuition should not be a barrier to low- and middle-income families," Sakaki said.

Regents did not act on the financial aid proposal, but will be presented a formal plan at a later meeting, possibly in the fall. The regents also are expected to take action on the UC budget for fiscal 2011-12 at the meeting in mid-July.