2002 2003 Budget for Current Operations UNIVERSITY OF CALIFORNIA Office of the President November 2001 The President’s Message Just one year ago, California enjoyed near-record prosperity and an optimistic view of its future. Today the state faces a major economic slowdown and the unresolved menace of international terrorism. The world has suddenly become a much less certain place for individuals and institutions alike. Yet if there is one thing the current climate of uncertainty and risk makes dramatically clear, it is that research universities are indispensable to solving the nation’s most pressing problems, especially the threats of the new world in which we find ourselves. University of California engineers are already at work on technology that will make future high-rise buildings less vulnerable to terrorist attacks. Experts in bioterrorism are exploring ways to detect toxic substances and remove them from our air and water. Specialists in cybersecurity are investigating threats to communications networks that might develop in the next five to ten years and countermeasures to defend those networks. This is in addition to the daily discoveries and innovations that help make California, in the words of Federal Reserve Chairman Alan Greenspan, “preeminent in transforming knowledge into economic value.” And this does not take into account the outstanding education we give our students across the UC System and the remarkable variety of public service we offer California’s citizens. Given the reality of the State’s fiscal situation, we will have difficult choices to make in the year ahead. But most economists believe that the major fiscal problems of the State are short-term in nature, a perspective that should guide our decision-making as we weigh priorities. The last three decades began with economic slowdowns of varying degrees that were followed by years of economic growth and prosperity. In the early 1990s, we endured the worst budget cuts in our history; by the end of the decade, we benefited from some of the largest budget increases of recent times. We have no guarantees that this pattern will continue, but there are reasons for optimism about the resilience of the state and national economies and the nation’s ability to weather the current terrorist threat. We should ensure that choices made in the near term are consistent with the goals we have set for the long term. The most important of those goals is to maintain the quality and vitality of the University. Preserving access, of course, is a critical companion to preserving quality, especially as we face the challenge of unprecedented enrollment growth through 2010. But if we guarantee access at the expense of quality, we make a bad bargain for our students and our state. It is the i University’s academic quality that attracts so many students to our doors in the first place. Two major budget priorities are fundamental to maintaining the quality of the University: Funding for the Partnership The University and the Governor negotiated a Partnership Agreement in 1999-2000 that has served the interests of both UC and the State. It includes funding principles that provide the University with a foundation on which to plan for the future. These funding principles represent the minimum necessary to accommodate enrollment growth over this decade and sustain the excellence of the University. This minimum includes sustaining competitive salaries, accepting all eligible students who wish to attend, and maintaining the resources necessary for offering a high-quality education. The Partnership also includes accountability principles that historically have been important to the State and the University and that help gauge the University’s performance in achieving its goal of excellence in teaching, research, and public service. Through 2000-01, the University and the State exceeded their commitments under the Partnership. On the funding side, the State has provided support for avoiding fee increases for seven consecutive years (in fact, systemwide fees today are 10% lower than they were in 1994-95). The State has also provided over $200 million of funding above the Partnership for research and public service initiatives of importance to the State and the University, including funding for K-12 teacher professional development programs, outreach, and Internet2 access for public schools. The University also received significant increases to help address salary lags for staff, and one-time funding was provided to help address funding needs for our teaching hospitals as well as cumulative budgetary shortfalls in deferred maintenance, equipment, and library resources. During the latter part of the decade, the University’s budget prospered along with the State’s economy. Unfortunately, the State’s deteriorating fiscal situation led to a very different budget for the current year. Partnership funds for the University’s 2001-02 budget were reduced in the Governor’s May Revision. Instead of a 4% increase for the basic budget to fund compensation and other cost increases plus 1% for core needs critical to maintaining quality, the University received ii only 2% under the Partnership. This action reduced the funds available for salary raises and eliminated increases for several programs, including improving undergraduate instruction and funding for core needs. This makes achieving our goals under the Partnership more difficult, even though the University’s track record to date has been impressive. We have often exceeded our commitments under the Partnership. The University has accommodated all eligible students wishing to attend and exceeded our budgeted enrollments each year; improved opportunities for eligibility and admission by implementing a new path to eligibility (the top 4% of students in every high school in the state are now UC-eligible); maintained agreed-upon faculty teaching loads; improved graduation rates; and continued planning for opening UC Merced in 2004, one year ahead of schedule. We have also admitted more “transfer-ready” community college students; increased outreach and other K-12 improvement programs, doubled the number of education credential students we train; and increased enrollment of engineering and computer science students by 50% to help meet the state’s workforce needs. We have fostered research initiatives that help fuel the state’s economy (including development of four California Institutes for Science and Innovation) and raised more private and federal funds than ever before. Good teaching, important research, and expanded service to all the people of California—not just those attending classes on our campuses— are the legacy of the Partnership to date. We will do our best to maintain momentum, but budgetary shortfalls this year and next constitute a formidable challenge. The Governor has asked all State-funded programs to develop options for budget reductions of up to 15%. Cuts at that level would be devastating to the University’s budget, which has still not fully recovered from the $433 million in cuts during the early 1990s. Given the State’s financial difficulties, the University’s budget request for 2002-03 is limited to seeking funding of the Partnership Agreement, consistent with past budget requests; we will not seek funding above the Partnership for special initiatives. However, when the State’s fiscal situation improves, we will ask for restoration of the Partnership funding that was eliminated from the 2001-02 budget. We intend to consult widely with The Regents, Chancellors, faculty, staff, and students in considering options for budget reductions. Discussion with The iii Regents began at the October meeting of the Board and will continue at each meeting throughout the budget process. State Capital Outlay Bond Future funding for capital outlay is another major issue. Projected growth over the next decade presents significant challenges. Even if there were no enrollment growth with which to contend, however, the University has significant capital needs for seismic and life-safety requirements, modernization of out-of-date facilities, and renewal of infrastructure and other facility systems that cannot accommodate even present needs. The University will require approximately $600 million per year over the next decade to address its most pressing facilities needs for core academic and support space traditionally supported by the State. In addition, there are other urgent needs in areas traditionally not supported by the State, such as student and faculty housing, parking, and other facilities that serve public as well as University needs. The University is re-examining its plans for all facilities needs, both State-funded and non-State-funded. A general obligation bond measure is critical. The University is working with the Governor’s Office and the Legislature on such a measure. Legislation to place an education bond measure on the 2002 ballot was nearly passed during the last days of the 2001 legislative session, but the bill was not finally adopted and thus further action must await the 2002 session. Based on discussions to date, the bond measure will probably include about $330 million per year for UC to address capital needs for enrollment growth, seismic, infrastructure, and modernization projects at existing campuses with a separate increment for planning and construction on the Merced campus. Other funding may be separately available for off-campus and “joint use” projects—that is, facilities that would serve needs of more than one segment of higher education. Funding for the California Institutes for Science and Innovation will be provided from General Funds or State lease revenue bonds. Adequate funding for facilities is as critical to the University’s ability to accommodate expected enrollment growth as full funding of the Partnership. Facilities house the students and faculty who carry out the basic missions of the University and make it possible for us to meet our commitments under the Partnership. iv The University of California has often faced hard times during its 133-year history. It has steadily grown in distinction by making wise use of the support it receives in good years to help weather the bad ones.