(Dec. 14 update:
With state revenues falling short of earlier projections, Governor Brown as expected has announced an additional $100 million reduction to the University of California system for the 2011-12 fiscal year.
UC officials said they would absorb the loss rather than directly passing along the cuts to individual campuses. As a result, there is no direct impact on UCLA’s state funding in 2011-12, and no additional adjustments are planned at this time, said Vice Chancellor and Chief Financial Officer Steve Olsen.
However, Olsen emphasized that the outlook for 2012-13 is highly uncertain, noting that the governor’s announcement gave no indication of whether the additional $100 million reduction is one-time or permanent. The governor is due to announce his budget plan for 2012-13 on Jan. 10.)
While an additional reduction of $100 million in state funds is likely to hit UC in January 2012, UCLA is in a good position to absorb its share without asking academic or administrative departments to make additional cuts, according to UCLA’s chief financial officer.
Vice Chancellor and Chief Financial Officer Steve Olsen said prudent planning will allow the central administration to cover in its entirety the anticipated $18 million budget cut — UCLA’s share of the $100 million reduction. In addition, Chancellor Gene Block has decided to cover the cost of faculty merit increases from central reserves rather than asking departments to shoulder the burden, he noted.
The $100 million cut "is almost certain to occur," Olsen said, "because the revenue forecasts the state used to put the budget together last summer were based more on faith than on data." Revenues are well below projections made when the state budget was approved.
With $100 million cut, the state will have reduced funding to UCLA by 47 percent over the past four years. To help make up for lost revenue, the Board of Regents has increased tuition several times while the UC Office of the President has slashed administrative costs, increased efficiencies and, in 2009-10, put staff and faculty on furlough. UC officials have said they are not contemplating additional tuition hikes this year.
As have other UC campuses, UCLA has launched a long-term effort through its Restructuring Steering Committee to save money by streamlining academic and administrative programs and increasing efficiencies. The campus, for example, has consolidated IT services and reduced energy costs by replacing inefficient heating and cooling units, among other money-saving strategies.
UCLA, along with other UC campuses, has also increased the enrollment of out-of-state and international students who pay higher tuition than California residents, while holding steady the enrollment of California residents. So while state funds have now fallen to 28 percent of UCLA’s $1.2 billion annual core budget, revenue from tuition — especially from the enrollment of more nonresident and international students — has become key to bridging the funding gap.
Revenue from tuition now exceeds state support among unrestricted revenues used to support classroom instruction and the academic mission, a significant milestone, Olsen noted.
So far, UCLA has managed through sound financial stewardship to cushion much of the impact of the loss of state funds. For example, the campus has been cautious in the way it has managed its resources, building reserves both centrally and in individual departments. When the state restored $305 million that was originally cut from the 2009-10 UC budget, UCLA held its share, $55 million, in reserve as a financial cushion for the coming fiscal year.
"Actually, we are doing better than can be expected," Olsen said, especially in an economic slump.
The Ronald Reagan UCLA Medical Center earned $284 million in 2010-11. Sponsored research brought in $951 million. UCLA’s revenues from housing remain strong as well, Olsen said. These revenues, however, are dedicated for use in the areas where they are generated and cannot be used to fill the gap when the state cuts unrestricted revenue used to support the academic mission.
This year, the administration was able to allocate $16 million to support undergraduate education, a vital enhancement especially since UCLA’s freshman class this fall grew by approximately 1,000 students, compared to last fall.
The budget outlook for 2012-13 includes plenty of challenges, Olsen said.
Along with poor prospects for additional state funds and the threat of even more budget cuts, UCLA also faces significant unfunded increases in contributions to the pension plan and retiree health benefits. Employer contributions to the retirement plan will go up in 2012-13 and will likely follow a rising trajectory over the next several decades. Actuarial estimates now show that the retirement plan will not become fully funded for several decades, even with the increased contributions and a new tier of benefits for employees hired after 2013.
Faculty hiring will continue, but perhaps not at the rate needed to replace all those who retire or leave. "We want to continue to recruit high-quality faculty, both at the junior and senior levels, but we will not reach the same overall numbers we have in the past," Olsen said.
This fiscal year, because of a change in the way resources are allocated to UC campuses by the Office of the President, UCLA will receive $52 million in new funds. But this will be more than offset by a $66 million tax levied on each campus to support OP and systemwide programs, resulting in a net loss of $14 million.
While UCLA plans to absorb that cost centrally this fiscal year, it will be allocated to operating units, beginning in 2012-13. Olsen’s staff will begin this fiscal year to lay out the process and the methodology by which this tax is fairly allocated. UCLA is also actively lobbying OP to reduce the tax rate.
Still, by all measures, Olsen said he remains optimistic about the future. "If you were a rating agency and had to evaluate UCLA as an independent economic entity, you would conclude this is a healthy, thriving and growing organization," he said.