The following letter, dated today (Aug. 28), is a budget update from Chancellor Linda Katehi and Provost and Executive Vice Chancellor Enrique J. Lavernia to the Council of Deans and Vice Chancellors.
We are writing to provide new information about the campus budget. As we have discussed previously, the estimated budget shortfall for 2009-10 is over $113 million or about 20 percent of the campus’s general fund budget of $563.4 million. The shortfall is composed of State budget reductions totaling over $96 million plus approximately $17 million for fixed cost increases such as health benefits, faculty merits and the restart of contributions to the UC Retirement System (see footnote).
As was noted in the budget update letter of June 17, 2009, the magnitude of the shortfall increased substantially in late May following the special election. The 2009-10 shortfall of over $113 million comes on top of the $39 million shortfall that we addressed permanently in 2008-09. And, in a press conference last week, President Yudof confirmed our planning assumptions for the future when he noted that the 2010-11 budget will likely bring larger challenges.
We acknowledge the hardships campus constituents have already faced and the sacrifices already made to address our difficult budget situation. Students will pay higher fees. Faculty and staff will be furloughed (see footnote). Budgets of campus departments and administrative units have been reduced. Faculty recruitment will focus on a select, reduced number of high priority searches. The campus has cancelled and deferred a number of projects. We are grateful for the creative thinking that has led to development of new strategies–new sources of revenue and opportunities to reduce costs—to mitigate the shortfall. The budget subcommittee reports provide many additional suggestions for cost and workload reductions that we will pursue. The Office of the President is restructuring debt to provide short-term cash.
In total, these measures and sacrifices offset almost $85 million of the shortfall. But, a sizable gap—$29 million—remains. Additional information about how we will address the remaining gap and initial planning information for 2010-11 are provided below.
UC Pay Reduction/Furlough Program (see footnote)
The pay reduction/furlough program approved by the Regents is effective for one year starting Sept. 1, 2009. The campus will continue to provide additional details about the pay reduction/furlough program in separate communications. Selected information most relevant to the overall campus budget plan is provided below.
Campus Closure: As noted above, the consequences of the budget reductions are widespread and severe. It is simply not possible to continue business as usual. Therefore, we will close the campus eleven days this year in recognition of reductions in time and work force. We also expect to save $7,000 to $10,000 per day ($50,000 to $70,000 per week) in purchased utility costs.
UC Davis Closure Days
• Friday, Dec. 18, through Sunday, Jan. 3 (7 business days)
• Wednesday, March 24, and Thursday, March 25
• Monday, June 14, and Tuesday, June 15
Each dean, vice chancellor and vice provost will have the flexibility to arrange for alternate work schedules for individuals who must work on campus closure days for business reasons (similar to the approach you might already take to provide minimum staffing for select functions on weekends or holidays).
Campus authority for alternative plans: The plan approved by the Regents exempts student employees, foreign national employees pursuant to H-type visas, and academic and staff employees funded 100 percent from federal, state, other government or private research funds. It is also the intent of the campus and the University to proportionately exempt employees that are partially paid from research funds.
In addition, the Regents and President Yudof have specified that medical center employees, some closely related clinical titles and public safety (police and fire) will be differentially affected. In these cases, individual employees may not be subject to the pay reduction/furlough, but the units will have to generate an equivalent amount of cost savings through another mechanism.
We have received a number of requests to exempt certain faculty and staff from participating in the furlough/pay reduction program. To avoid disparities across the campus community we do not anticipate approving exemptions to the pay reduction/furlough program in addition to those specified by the Regents and President Yudof. Furloughs present difficult operational consequences in every unit. Therefore, it is very difficult to ensure fairness and reasonably administer this program if we approve further exceptions.
Use of savings from the pay reduction/furlough program (Attachment 1). The savings from the pay reduction/furlough program—$25 million in general funds and $9.1 million from other funds—are a critical component of campus efforts to achieve a balanced budget this year. The furlough savings targets for your unit are provided in Attachment 2 and reflect the following:
General funds, 100 percent applied to the campus budget shortfall, total savings Sept. 1 to Aug. 31: $25.2 million
Student fees, 80 percent applied to the campus budget shortfall, total savings Sept. 1 to Aug. 31: $1.6 million
Self-supporting or auxiliary, 80 percent applied to the campus budget shortfall, total savings Sept. 1 to Aug. 31: $3.2 million
Indirect Cost Recovery, 80 percent applied to the campus budget shortfall, total savings Sept. 1 to Aug. 31: $0.3 million
Clinical revenue, 80 percent applied to the campus budget shortfall, total savings Sept. 1 to Aug. 31: $4.0 million
(Note: Clinical revenue savings are net of exemptions approved by the Office of the President related to the alternative plan for medical centers.)
Savings from other funds that are subject to the furlough program such as endowments, gifts, gift fees, and recharge activities that support federal research will be retained by those activities.
The targets assigned to you in Attachment 1 must be met in addition to programmatic changes you are undertaking in response to the budget reductions. The furlough/pay reduction savings for ladder faculty and nonrepresented staff will begin accruing effective Sept. 1. The savings from faculty and staff represented by collective bargaining will accrue through negotiated agreements with each union or through layoffs.
Additional guidance about the pay reduction/furlough program will continue to be provided in the coming weeks. The most current information is available on the Office of the President Budget News Web page and the campus Human Resources Website.
2009-10 Budget Reductions
In March, budget reductions were assigned to deans, vice chancellors and vice provosts. For planning purposes, these targets included a lower target and a higher target. In June, we implemented these targets at the higher amounts, effective immediately. Despite these earlier budget reductions, furloughs, fee increases and other measures, a significant campus budget gap remains. In order to fill this remaining budget gap, we are assigning additional cuts as described below and specified in Attachments 2 and 3. Given the magnitude and persistence of the financial challenge that the campus faces, the total 2009-10 budget reductions are assigned permanently effective July 1, 2009.
• School, college and division budgets will be reduced by an additional $4.8 million for a total of $14.9 million in reductions for 2009-10. These reductions are equivalent to about 5 percent of state general funds or about 1.5 percent of all expenditures excluding extramural research (an average reduction of about 2.5 percent as shown in Attachment 2).
The approach for assigning these cuts is similar to the approach described in the March 20, 2009, budget planning letter with one important difference. In March, differential targets were assigned using a 2-to-1 differential (units in the higher reduction group generally received reductions twice as large as units in the lower reduction group). The new budget reductions are assigned using a smaller differential of 1.5-to-1.
• Administrative and academic support unit budgets will be reduced by an additional $5.5 million for a total of $16 million in reductions for 2009-10. These reductions are equivalent to about 12 percent of state general funds or about 7.5 percent of all expenditures excluding extramural research (an average reduction of about 8.9 percent as shown in Attachment 3). The methodology for assigning the reductions is the same as what was used to assign the reductions in March.
• The University Library was initially assigned budget reduction targets consistent with all other administrative and administrative support budgets. However, the programmatic consequences of the reductions were judged to be too severe. Therefore, the 2009-10 reduction targets for the University Library were reduced by 50% to ensure that the most critical services are preserved and to enable the library to focus its efforts on its longer-term restructuring plan.
2010-11 Budget Reductions
As you know, the University’s general fund budget gap presents a multiyear challenge. The university is anticipating ending the furlough program next August, creating a new budget shortfall in 2010-11 and requiring additional programmatic reductions.
Formal planning information will be provided early in the fall quarter that will describe the total, permanent budget reduction that you must address over the two-year planning horizon that includes 2009-10 and 2010-11. Some early planning information follows to facilitate an acceleration of the strategic and budget planning already in progress.
Reductions to administrative units are expected to total 20 percent over two years. For academic units, you should assume that we will assign faculty FTE reduction targets to each dean that average 7 percent to 15 percent of the budgeted instruction and research (I&R) FTE. Academic support, research and service funding will be also be reduced by a total of 15 percent (reductions will continue to vary by unit). These FTE reduction targets serve as benchmarks needed to generate necessary budget savings, but we will work closely with the deans to provide some flexibility to achieve the budget savings using an approach that best aligns with the school, college or division academic and financial plans.
The budget subcommittee reports include a wide range of suggestions that provide both short and long term opportunities to rethink how we conduct our business. We will work with you and members of the campus community over the coming weeks and months to implement the most promising ideas and recommendations. A few immediate steps are already being taken as described below, to implement recommendations.
• Administration—The Offices of Administration and Resource Management and Planning are making good progress on their planning for a consolidation to create a single administrative division for all the municipal-like campus services that support the campus’s academic and research mission. A consolidated organizational model will formally be announced in September.
Also in September, we will announce an initiative aimed at improving the efficiency and effectiveness of our central administrative processes and organizations. This initiative will organize and oversee the comprehensive administrative organization reviews recommended in the Administration subcommittee report and consider other opportunities. For example, earlier this week, Provost and Executive Vice Chancellor Lavernia formally charged a task force chaired by Associate Vice Chancellor Hull to develop a shared services model for the campus human resources functions, including recommendations about structure, scope, staffing, governance and possible implementation strategies. An implementation plan for shared human resources services is anticipated by Jan. 31, 2010.
• Instruction and Research—As recommended by the subcommittee, faculty salaries paid for summer instruction will be capped, consistent with the teaching stipend for faculty recalled for post-retirement teaching defined in Table 9 of the University of California Academic Salary Scales. This change, effective summer 2010, is expected to generate annual savings of about $250,000.
• Student Services—The subcommittee recommended that student service departments consider some limitations in their service hours that would also establish a consistent schedule of operating hours for student consumers. In addition to aligning user expectations with operational effectiveness, this action would also help mitigate the impact of resource constraints and workload issues. Student Affairs is currently working with its departments and others to implement such an approach during the upcoming fall quarter.
• Capital and Space Planning—The subcommittee recommended that the administration pursue strategies to reconfigure space assignments where possible to reduce expenses for off-campus leased facilities. Space planning staff in the Office of Resource Management and Planning have developed a multiyear plan along these lines that is expected to save over $1 million during the next two to three years.
• Self-Supporting Activities—Consistent with subcommittee recommendations, the Office of Resource Management and Planning continues to make progress on streamlining the rate process to strike a more appropriate balance between local and central oversight. Concepts have been presented to the Rate Committee and the expectation is that formal changes and improvements will be implemented this fall.
Preparing for the Future—A Focus on Excellence
Earlier this year, we made a very deliberate decision to slow, but not freeze, faculty hiring. Instead, each dean was asked to develop and implement an approach to faculty recruitment that best balances the success they had with recent hires, the longer-term goals of the college, division or school, and the current financial realities that they are managing. This decision was motivated by our desire to maintain momentum and excellence, despite the financial hardships involved.
We are pleased to announce that we are also working on an initiative to ensure that the campus can pursue opportunities to hire outstanding senior faculty who will enhance the excellence of UC Davis. We will utilize the central campus share of the indirect cost recovery funds from new federal stimulus research awards to provide a seed fund for this purpose. Provost Lavernia will work with the deans and Davis Divisional Chair Powell to articulate the principles, goals, selection process and resource criteria that we will use to implement the program (the campus Target of Opportunity for Excellence program provides a good starting point). Additional details will be communicated in the fall quarter.
These are challenging times. But we cannot emphasize enough our belief that UC Davis will address these challenges in a way that honors the excellence of the past and ensures our readiness for the future. Thank you for all that you do to ensure our success.
Enrique J. Lavernia
Provost and Executive Vice Chancellor
Footnote: The terms of the retirement system contribution, furlough program and employee compensation are subject to collective bargaining for any academic or staff employees represented by a union.