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From Sacramento, good news, bad news for Berkeley budget
May revision restores $100 million for UC system, but still falls $240 million short of what regents wanted – and the campus is certain to feel the pinch

– There's no question that the massive budget shortfall facing the state of California — now projected to be anywhere from $15 billion to $17 billion for the fiscal year that begins on July 1 — will mean significant belt-tightening for the UC system. Questions do remain, however, about how the system will respond, and what individual campuses can and will do to cope with the inevitable cutbacks in their allocations from the Office of the President.

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This week and next, Chancellor Robert Birgeneau and Executive Vice Chancellor and Provost George Breslauer are expected to send allocation letters to vice chancellors, deans, and other campus leaders, the next crucial phase of the budget process at UC Berkeley.

To give the campus community a glimpse at the current thinking in California Hall — and an idea of what to expect as the process moves forward — Nathan Brostrom, Berkeley's vice chancellor for Administration, met recently with the Berkeleyan to discuss both the likely impacts of cuts from the state and what's being done to cope with reduced funding from Sacramento.

Q. There have been a number of budget-related developments since we spoke in late April. The May revision of the state budget was released, the regents voted to increase student fees, and we've seen cuts in language classes and instructors here on campus. Where do things stand today?
A. We're in better shape than we were two months ago. The May revise of the state budget was positive news for the UC system in that it restored nearly $100 million of funding for the University of California overall — but the budget process is by no means done. We're still advocating in Sacramento for fewer cuts to UC, for one thing. In addition, completion of the state budget still has a long way to go. In particular, the largest revenue piece is an initiative to privatize the state lottery, and that will need to go to the voters in November. If that doesn't pass, Gov. Schwarzenegger has proposed a temporary, three-year increase in the sales tax. I think that's prudent, but whether he can frame it in a way that will get the Republican votes needed to pass it remains to be seen.

Q. It's premature to start spending that $100 million, then.
A. Even if it is restored — and we're not banking on it — there isn't any new money that we can spend. The January budget proposed a $100 million net cut to the UC system, and this would simply cancel that out. Still, putting the money back in the budget is good news. Also, the regents voted recently to approve a 7 percent increase in education fees and a 10 percent increase in registration fees, as well as an increase in non-resident tuition. All told, this adds a net of over $80 million to the UC system.
So with the governor's budget proposal in January and this May revision, we still see a $240 million gap between the currently proposed state budget and what the regents had requested last November.

Q. And Berkeley's share of the shortfall?
A. Our hit could still range from $20 million to $30 million. The big pieces that remain to be decided, and presumably will be decided by the UC president in concert with the chancellors, are staff and faculty compensation increases.

Q. What's the outlook for staff and faculty salary increases?
A. The biggest area of the shortfall between what the state is giving us and what we had put into our budget is in compensation increases for faculty and staff. The November regents' budget assumed a 5 percent fund for salary and equity increases. The math is that every 1 percent salary increase costs the UC system $30 million, so 5 percent would represent $150 million of the projected $240 million shortfall. So we expect that the president, in consultation with the chancellors, will view that as the biggest opportunity to close the gap in funding. Do I think it will go down to zero? I wouldn't advise that, and I hope not. But it's probably going to be closer to zero than to 5.

The accelerated faculty plan, which aims to bring UC faculty salaries to market parity, is still in place. That accounts for about $20 million of the shortfall. One of the biggest areas that we have no discretion over is health benefits, which are going to be going up significantly in 2009.

Q. Aren't we also committed to enrollment growth?
A. We've decided as a system that we are going to accept additional students in the coming year, even though we're not going to get additional funding for it.

Q. So how do we cover these kinds of expenses?
A. To the extent that we need to spend money on this increase in enrollment, either we have to identify temporary resources or we have to cut funds elsewhere.

Q. In April you were still consulting with deans and vice chancellors about how to mitigate the impacts of potentially drastic allocation cuts. What's your assessment of how that went?
A. I think the process went quite well. Our goal had been to identify cuts and reallocations adding up to more than we would eventually need to make up, and that would give us the opportunity to, first, make these cuts more strategically, and second, provide for some "common goods" — primarily in purchased utilities, deferred maintenance, and temporary academic support — that have been running in chronic operating deficit for many years.

Q. What did you come up with?
A. All told, we've found between $20 million and $25 million in permanent cuts that the different units have identified. We're looking at sweeping the short-term investment earnings across the board into a central-campus pool, which gives us another $9 million. And we've made cuts to prior-year allocations, both multi-year commitments as well as the block grants that are given to each vice chancellor. So we've got more than $20 million in permanent cuts in mind and another $20 million in temporary resources that we can use once we see what the unallocated portion is from the Office of the President. This gives us a really good set of tools with which to address the shortfall, and also shore up some areas of under-investment on the campus.

Q. There was some surprise on campus, obviously, that language programs would be cut at this stage of the process.
A. That was a special case, and it had partly to do with the amount of notice that we're required to give to lecturers about whether their contracts will be renewed in the coming year. We had asked people to identify these different areas without specifying the size of the cuts they would have to absorb. At this point, we anticipate that we'll be going back to vice chancellors or the EVCP [executive vice chancellor and provost] and saying, This is your portion of the cut that you have to disburse among your units. Then each of those control units would have to decide how those cuts will be allocated.

Q. Are those decisions reviewed at a higher level before they're implemented?
A. Yes. Generally we do this around September, when we ask for the report-backs. This year we don't yet have a sense of when the actual budget will be enacted by the state. So we'll be making decisions, asking for some of these unallocated cuts, before we know what's happening in Sacramento.

The chancellor will be allocating both cuts and block grants to each vice chancellor, who will in turn respectively allocate these amounts to the various units and departments. This process gives a great deal of autonomy to each of the departments, both administrative and academic, as to how they achieve these cuts — with the caveat that some of the cuts are going to have to become permanent at some point. If they want to use temporary resources to mitigate the impacts, that's fine. But a lot of those key decisions are going to be made at the decanal level or lower.

Q. What are the best- and worst-case scenarios you envision?
A. The best case is that our funds will be exactly what they were last year, and we're left with a lot of expenses for which we aren't compensated. The worst case is that we will have less than we did last year, and we will need to take even deeper cuts. I think the prudent thing to do is to ask people to plan based on the more conservative projection. Then if we do have some unexpected windfall, we can strategically allocate those resources. This is in line with the direction toward longer-term planning that we began two years ago.

Q. Can you be more specific about how such a windfall might be used?
A. We have a huge set of unfunded mission-related needs, from faculty and graduate student support, to temporary academic salaries and staff support, to deferred maintenance and debt service for facilities. We've basically been using the chancellor's resources as a checking account to fund these things, and that's really been drawn down. So most likely we'd want to bolster that checking account.

Q. Are there agreed-upon criteria for making those cuts, or is it every control unit for itself?
A. We have developed a number of goals and principles to guide these decisions and minimize the pain. Once they're finalized they'll be distributed together with the chancellor's allocation letter, which should go out in mid-June. We're emphasizing activity-based rather than fund-sourced budgeting, for instance. And we really have to restore the chancellor's fund sources. Fungibility is going to be key to a lot of this — the ability to use any resources we have available to meet our most pressing priorities. Most of all, we intend to move closer to a sustainable budget for the campus by creating a multi-year, sustainable financial model. That's the overarching goal.

Q. So the people charged with actually making the cuts in their units are in sync with these campuswide goals.
A. Absolutely. We want them to consider all available funds, not simply work with the allocation they get from the chancellor. We're saying, Look at all the funds that you have available — carry-forwards, overhead from research, anything you have that you can use to address your needs. We're also asking them to look at all activities — some of this may be more relevant on the administrative side, but there are things we now do that we should be phasing out as we bring on new activities. And we're advising them to soften the cuts wherever possible through the use of temporary resources.

The fundamental principle is that we're going to protect Berkeley's excellence and maintain access for all Californians. We need to recognize that cuts of this magnitude will be painful, and they will have an impact on the students and staff. The quality of our services will not be diminished. But some units may have to reduce staffing, and access to courses, time to degree, and numbers of students in classes — those types of things may have to give. We're going to do everything we can to minimize those sorts of impacts. But there's no way around it. This will hurt.
                                       
Q. What else is being done to soften the blow?
A. One great example is the START program, which allows people to voluntarily choose to work less time without being penalized in terms of sick leave, vacation, or pension-service credits. We think that's a very positive way to address some of these cuts with temporary measures. We're implementing a number of human-resources initiatives, in fact, such as leveraging vacancies, keeping positions open a little while, looking at flexible work hours, and those types of activities.

Q. You've said there's not much fat left to trim in Berkeley's budget, given the state's finances for the past five or six years. Have you found any at all?
A. I wouldn't call it fat; let's say we're being more creative in streamlining some administrative processes. [Vice Chancellor for Research] Beth Burnside, for example, is consolidating a number of small research support areas into one — it's called Research Enterprise Services. What that means, basically, is that they'll be doing all of the contract and grant management and administration for some of our most central initiatives, including QB3, nanosciences, neuropsychology, and the Energy Biosciences Institute. All told there are about a half-dozen units being served that were previously providing this kind of research support piecemeal on their own. This old method was redundant and it cost too much; the new unit will be able to provide better service for grants, and ensure that they are compliant with funding-agency regulations, avoiding penalties that can range into millions of dollars. So now we're going to be providing a higher quality of service, with greater compliance, and doing it in aggregate more cheaply than we were doing it before.

Q. You've also talked about the need to supplement state funds with new sources of funding. Is there any good news on the revenue side?
A. Our efforts to generate revenues from other sources are going quite well. We now have a vehicle to invest our short-term assets in that could offer us 1.5 to 2 percent more in earnings than we're getting currently. We've already made the decision to move a significant portion of those assets into this new portfolio.

Q. Where does that money come from?
A. These are mostly restricted funds — required reserves for research grants and other multi-year activities for which money is set aside in one year, but not actually spent right away. And now the chancellor is going to be sweeping the investment earnings from these campus cash balances into a central pool — we call it "sweeping the STIP," or the short-term investment pool — to generate more income.

Q. So we're acting locally to the extent we can, and waiting for Oakland and Sacramento to fill in some of the blanks that remain in the budget picture.
A. That's right. When the chancellor's allocation letter goes out later this month, it will likely call for an overall $20 million permanent budget reduction, for example. But whether we need to cut $20 million or $30 million will depend on what we hear from OP, and that decision might not be made until well into the fall. We may not have a state budget until October, so there are going to be some unanswered questions until then. Meanwhile, though, we're doing everything we can do to protect the excellence and preeminence of UC Berkeley, and to minimize the impacts of budget cuts on our students, staff, and faculty.