UC Regents Examine Strategies to Grapple With Growing Budget Deficit

The University of California Board of Regents, in a daylong retreat on Sept. 12, looked at dozens of proposals for addressing the University's growing budget deficit, from academic strategies to changes in employee health and welfare benefits.

The retreat, called by board chair Sherry Lansing, was intended to give regents a deeper understanding of the hard choices they may be called on to make in November after voters decide the fate of Proposition 30.

The initiative, endorsed by the Regents, would raise new state revenue through temporary increases in the state sales tax and the personal income tax on those who earn $250,000 or more per year. It is sponsored by Gov. Jerry Brown and is part of the 2012-2013 budget approved by state lawmakers.

If it fails, UC's state revenue will fall by $375 million, a cut that comes on top of years of declining state revenue.

In the last four years, UC's state appropriation has fallen by $900 million — the equivalent of 27 percent — even as mandatory costs and student enrollment have grown. Costs for health benefits and other required items are projected to continue to rise; absent an infusion in new revenue, UC's budget deficit could reach $2.9 billion in five years.

Gathering Ideas

Among the proposals on the table were ideas from administrators, faculty and student leaders from all 10 campuses.

UC President Mark G. Yudof opened the meeting by urging board members to focus on decisions that would preserve UC's excellence in teaching, research and public service.

"For too long decisions about UC's quality have been passive — and the outcome has been a quiet but steady erosion of our academic quality at almost every level," Yudof said.

"At every meeting, people stand up in outrage over tuition, pensions and other similar concerns," he said. "But there is no outrage over the threats to UC's academic quality. And when these meetings are over, our chancellors, administrators, employees and faculty must return to their campuses, and do what needs to be done to absorb allocated reductions. They are simply left to contend with the budget realities on the ground."

Lansing told the audience that the retreat was intended to be exploratory in nature. Some of the ideas were controversial, she said, and might never be acted upon.

"No ideas are off the table. That includes enrollment, tuition and financial aid," Lansing said. "You will likely hear different points of view on how best to address our fiscal uncertainties. While we may have different approaches, I know that we all share the same desire to do what is best for UC, its students and the people of California."

The marathon session included ideas as diverse as raising parking fees to complex proposals to allow differential tuition, based on campus or major.

One area where UC is already working hard to contain costs is employee health benefits. Ideas being analyzed include moving to a self-insurance model, which could lower overall costs without a reduction in benefits, said Nathan Brostrom, executive vice president for business operations. 

Support for Efficiencies

One of the few suggestions that seemed to garner virtually unanimous support was the plan — already underway as part of "Working Smarter", UC's administrative efficiencies effort — to implement shared, systemwide purchasing agreements.

UC already is racking up savings big and small by leveraging the purchasing power of all 10 campuses, said UC Chief Financial Officer Peter Taylor. Insurance construction costs have fallen by $17 million, for example. There is much more that UC can do, he said, but departments at some locations have been resistant to the change.

UC potentially could save $100 million or more a year by leveraging campus purchasing power, according to estimates.

Several Regents wondered aloud whether they should pass a policy mandating compliance.

"If we as Regents don't put the policy in place, I don't think we're going to get that," said Regent William De La Peña.

Debate Over Non-Resident Admissions

There was much less agreement over the suggestion that UC raise the cap on out-of-state and international undergraduate students. It currently is set at 10 percent, although enrollment actually is below that level, at 8 percent.

One idea is to raise the cap to 15 percent to 20 percent, which still would be well below the average at most of the nation's other elite research universities. At the University of Michigan, for example, non-resident undergrads comprise 35 percent.

Brostrom told the board that for every 1,000 non-resident students admitted to UC, the University garners about $23 million that can go into the academic mission.

"That tuition revenue helps maintain quality, access and affordability," Brostrom said.

Regent Eddie Island said he was vehemently opposed to any increase in non-resident students, regardless.

"We are taking a California resource and selling it to the highest bidder," Island said.

Student Regent Jonathan Stein said he also would urge caution.

"Out-of-state students are considerably less diverse" than UC's in-state students, Stein said. "If we go down this path, we will become less diverse."

Other Regents thought the proposal sounded like a relatively benign way to boost the bottom line and preserve access for Californians.

Regent Norm Pattiz noted that UC has continued to grow enrollment of California students, even as state support has declined.

"The University of California is the finest public university in the world. It's already an international university. And we're doing an exemplary job of keeping California students," Pattiz said. "If we need to broaden our scope to keep the university viable, then we need to do it."

Carolyn McMillan is the manager of content strategy in UC's Office of the President. For more news, visit UC Newsroom or follow UC on Twitter.