Current issues in budgeting
In early May 2009, Berkeley was planning for a budget shortfall of $67 million, with the possibility that this could grow to about $90 million. Unfortunately, just three weeks later the state financial outlook worsened dramatically, in part due to the failure of the governor's state budget initiatives, but also because of substantially decreased state revenue projections. Almost overnight, Berkeley's projected budget shortfall had more than doubled to $148 million, or about 30 percent of our normal state general-fund allocation.
The 2009-10 $148 million overall funding shortfall consists of $117 million of externally imposed budget reductions and the need to pay for approximately $31 million of expenditures for which we received insufficient state funding. Facing this challenge, the Chancellor, with broad consultation, devised a plan to address this magnitude of a funding gap. Clearly, cuts would not be assigned across-the-board and needed to be based upon strategic campus priorities. Ultimately, guided by the set of budget principles, the budget strategy consists of $83.9 million of budget cuts averaging 19 percent to campus units, $32.3 million of revenue enhancements including increased student fees and a tax on external sales and service funds, and $31 million in cost reductions including faculty and staff furloughs.
University of California Office of the President
The UC Office of the President performs many valuable functions for the overall system. It coordinates high-priority system initiatives, provides one voice for negotiating with the state Legislature on behalf of the entire system, and offers common treasury and debt functions that yield maximum access to capital markets. However, the current funding model for the University is not sufficiently transparent. Many of the funds generated by the campuses flow through UCOP before returning at decreased levels, and the taxation and redistribution model is not sufficiently clear. UCOP staff are currently working with a team of campus representatives to clarify and streamline the budget redistribution model.
With just over one-quarter of our operating budget coming from state coffers, Berkeley's annual budget is directly influenced by the health of the California economy. State finances have traditionally been highly variable, and because of this the operating budget for the institution is equally unstable. As we cannot easily release students once they are admitted, it is difficult to operate an institution like the University with unstable funding sources. To try to temper this, the University has negotiated multi-year budget targets, known as "compacts," with the governor. However, due to recent turmoil in the state economy, the governor has been unable to effectively honor these arrangements.
Since 1990, the state's expenditure for the cost of educating each UC student has fallen by more than 50 percent, adjusted for inflation. UC lost 20 percent of our total state-funded operating budget in 2009-10 alone. The current state budget situation has been a dramatic challenge for the entire University of California.
The national and global economy also influences the Berkeley budget. The federal government now provides one-fifth of our funding. Though from one year to the next the actual amount of federal support does fluctuate, over the last 40 years the amount of federal funding for research received at Berkeley has grown on average by 5 percent annually. Still, changes in Washington can result in significant fluctuations in federal support or policy-based realignments of funding from one area of research to another, as we have seen with the recent allocations of American Recovery and Reinvestment Act of 2009 (ARRA) funding to Berkeley as a means to promote economic stimulus for the nation.