Putting it in Perspective: the State Budget, and the Future of UC and UCLA

Volunteer Development Orientation Program

Peter J. TaylorExecutive Vice President, Chief Financial Officer

University of California

October 15, 2011

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I. General Overview

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The University of California

“… Amherst has created a model for attracting talented low- and middle-income students that other colleges can copy. It borrows, in part, from the University of California, which is by far the most economically diverse top university system in the country.”

“[The transfer program] is one of the reasons the University of California campuses in Berkeley, Los Angeles and San Diego are so much more diverse than other top colleges.”

- David Leonhardt, “Top Colleges, Largely for the Elite” The New York Times, May 24, 2011

AFFORDABILITY

ACCESS

QUALITY

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The University of California includes 10 Campuses, 5 Academic Medical Centers and the Lawrence Berkeley National Laboratory

• Established in 1868 and Governed by a 26-member constitutionally autonomous Board of Regents

• Educated over 230,000 full-time equivalent students in FY09-10 and has conferred approximately 1.9 million degrees

• Pre-eminent faculty who have won 57 Nobel Prizes, more than any other U.S. public university

• 28 Nobel Prize winners currently on faculty

• Over 380 University researchers have been elected to the prestigious National Academy of Sciences

• Record number of undergraduate applications for Fall 2011

U N I V E R S I T Y O F C A L I F O R N I A

II. UC Student Profile – Maintaining Quality, Access and Affordability

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UC Received a Record Number of Undergraduate Applicants for Fall 2011

• Total applications rose from 134,029 to 142,235, a 6.1% increase

• Freshmen applications rose from 100,320 to 106,070, a 5.7% increase

• Transfer applications rose from 33,709 to 36,165, a 7.3% increase

• Legislature sees an opportunity!

Applications by Residency

Berke

ley

Davis

Irvin

e LA

Mer

ced

River

side

San D

iego

Santa

Bar

bara

Santa

Cru

z

Univer

sityw

ide*

-

50,000

100,000

150,000 Fall 2009 Fall 2010 Fall 2011

Total Applications by Campus & Universitywide *

* unduplicated count

Fall 2009 Fall 2010 Fall 2011 -

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

105,630 111,387 116,899

12,078 12,351 13,604 8,993 10,291 11,732

California Out-of-State International

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Undergraduate Access and Excellence at UC• California’s ongoing fiscal crisis has raised concerns that the University would be unable to

sustain a track record of access and excellence. Recent data suggest the opposite:

―UC enrolls more Pell Grant recipients than ever before, at every campus ($286 million in 2009-10)

―31% of California students admitted for Fall 2011 are from underrepresented ethnic groups -- up from 28% in 2010

―Average high-school GPA of Fall 2011 California freshmen admits is 3.83

―46% of first-year students are first-generation college students

• Despite recent fee increases, the UC’s strong financial aid program – including the Blue and Gold Opportunity Plan* – have kept UC financially accessible to students from every income level

• Once enrolled, students thrive: 93% persist to second year and 83% graduate in 6 years or less

Pell Grant Recipients (UC 2008-09, 2009-10, 2010-11 & Select Universities 2008-09)

0%

10%

20%

30%

40%

50%

60%

42%

42%

34%

32%

31%

30%

26%

25%

25% 3

1%

16%

15%

15%

15%

13%

12%

7%

47%

49%

40%

36%

34%

32%

31%

31%

30% 3

5%

54%

56%

44%

37%

36%

34%

35%

34%

36% 39%

2008-092009-102010-11

* Ensures system-wide fees for eligible students from families earning less than $80,000 are fully covered by grants and scholarships

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Quality, Access, and Affordability

• UC’s enrollment strategy is adaptable to state funding levels

– Priority is enrolling all state-funded CA residents

• UC will continue to enroll some California residents beyond funded level in the short term

• Campuses will increase non-resident enrollment, not to exceed systemwide cap of 10%

• Alternative enrollment strategies under consideration

– Self-supporting programs, online

U N I V E R S I T Y O F C A L I F O R N I A

III. State Budget

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Background

• In March 2011, the Legislature approved a $500 million reduction to the University’s budget for FY 2011-12, followed by another $150 million cut in June 2011

• The Regents approved an 8% increase in tuition and fees for FY 2011-12 to address the original UC budget plan (presented to the Regents) in November 2010, which called for significant increases in State support

‐ Tuition and fee increase addresses $115.8 million

• An additional 9.6% tuition and fee increase was approved by UC Regents in July 2011 to address the additional $150 million cut

January 2011

$500 million cut in

Governor’s budget

proposal

March 2011

Regents’ Item discussion on Governor’s

budget proposal

May 2011

Budget revision

December 2011

Determination of trigger

occurrence

June 2011

Approved and signed budget

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State Budget for UC

• On June 28, 2011 the Legislature adopted a second budget package for 2011-12 that includes additional targeted reductions for many State programs, including the University and CSU, and a trigger mechanism for more cuts mid-year if certain revenue targets are not realized

• Trigger mechanism included in the budget package means that if State revenues fall short of the $4 billion projection by more than $1 billion, the University will face an additional mid-year budget reduction of up to $100 million

• The University has begun to address the additional $100 million in potential cuts. Examples include:

‐ Using monies in our benefits reserve fund

‐ Additional investment in TRIP out of STIP

‐ One-time use of FFE payout

• State appropriations to the University now total $2.374 billion for FY 2011-12

• Estimated tuition revenues for FY 2011-12 is $2.9 billion

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UC Budget Pressures

• State funds have declined and remain volatile

• ARRA funds provided temporary relief in FY 2008-09

• Student tuition and fees have helped maintain total revenue levels

• UC General Funds – nonresident tuition and federal indirect cost recovery – have grown modestly

• Proposed revenue for FY 2011-12 is only 3.4% above 2007-08 levels

• Volatility makes planning difficult

• Growth in costs has exceeded revenue growth

Core funds include State General Funds, UC General Funds (nonresident tuition and a portion of indirect cost recovery), and student tuition and fees. Excludes return-to-aid funds.

Core Fund: Budget Pressures FY 2007-08 to FY 2011-12

• Temporary savings through furloughs and debt restructuring

• Cost avoidance through deferred faculty hiring, expansion of class sizes and alternative health benefit offerings

• Administrative efficiencies

• Layoffs

Cost Reductions

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The Long-Term Funding Problem

1990-91 1995-96 2000-01 2005-06 2011-12 Es-timated

$0

$5,000

$10,000

$15,000

$20,000

$16,720 $12,860

$15,020 $10,100

$6,770

$1,970

$1,880 $1,920

$2,140

$2,080

$2,680

$4,850 $3,920

$5,370 $8,540

State General Funds UC General Funds Student Tuition and Fees

* Average inflation-adjusted resources per general campus student in 2010-11 dollars; Includes graduate students; Excludes health science students

• Core expenses will continue to increase

• Pace of growth in mandatory costs is accelerated by post-employment benefit contributions

• UC needs steady and predictable revenue growth to address budget shortfalls and meet our future financial expenses

• Failure to bridge the gap threatens UC’s quality, access, and affordability

• State General Fund spending per student as drastically declined since FY 1990-91 while student tuition and fees has increased

Per-Student Average Expenditures for Education*

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UC’s Critical Need for a Multi-Year Budget Plan

• Stable, permanent and predictable revenue streams are critical to maintenance of quality

• Reduce significantly the volatility in revenue that prevents campus leadership from investing strategically in academic programs and tenured faculty

• Students – both current and future – need a firmer understanding of their costs of education and financial aid opportunities

• Partnership with the State to ensure student access, education quality, and a future highly skilled workforce

• Addressing the “fiscal rollercoaster” sends a positive message to existing and prospective students, faculty members, and supporters of advancing the quality of UC as a world class research university

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Working Smarter Initiative

• UC has created Working Smarter Initiative to save $500 million in administrative costs over five years

Human CapitalManagement System

Tiger Teams

San DiegoSuper Computing

and eventually more…

BusinessSoftwareExtramural Fund

Accounting System

E-Procurement

OrganizationalExcellence

OperationalExcellence

StreamlinedAdministration

FinancialSystems

ProcessSimplification

Organizational Improvement at

Individual Campuses

Existing Regional /

Collaborative Efforts

Future Regional /

Collaborative Efforts

RestructuringSteering Cmte.

Job ClassificationSystem

E-Procurement

FacilitiesMaintenance System

EfficienciesWorkgroup

USHIP / GSHIP1

and eventually more…

1 Undergraduate/Graduate Student Health Insurance Program

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UC Is Actively Pursuing Administrative Efficiencies & New Revenue Opportunities

Administrative Efficiencies

• Organizational improvement at individual campuses– Operational Excellence at

Berkeley– Process simplification at Irvine– Streamlined administration at

UCLA

• Existing regional/collaborative efforts– Human capital management

system– Undergraduate/graduate

student health insurance program

• Future regional/collaborative efforts– E-procurement– Facilities maintenance system

• Enhanced indirect cost recovery

• Increases in non-resident student fees

• New models of private philanthropy

• Establishing a partnership with the State to ensure steady, consistent growth in State revenues and tuition

• Development of new extension and self-supporting programs

New Revenue Development

U N I V E R S I T Y O F C A L I F O R N I A

IV. UCLA Budget

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Tuition Has Replaced State Funding

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 $-

$100

$200

$300

$400

$500

$600

$700

$800

State Funds Tuition

State Funding for UCLA Students Compared to Tuition Fees (Millions)

• Student tuition fees have increased by $500 million from FY 2000-01 to FY 2011-12 while State funding has decreased by $300 million over same period

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Three-Quarters of UCLA Revenue is Non-Core

State;

470.106; 9%

Tuition & Fees; 612.124; 12%

ICR; 161.097; 3%

Research; 1020.158; 19%

Medical Center; 1715.76; 33%

Sales & Services; 709.547; 14%

Auxiliaries; 284.372; 5%

Gift, En-dow, In-vest

; 269.077562; 5%

• UCLA Total Revenues are projected at $5.2 billion in FY11.

• Core revenues make up 24% of the total, or $1.24 billion.

• Non-core revenues make up 76% of the total.

• Sponsored research funding now exceeds $1 billion.

• Medical Center revenues make up one-third of the total.

• Sales and services revenues consist largely of outpatient clinical services.

• Auxiliary operations include housing, parking, intercollegiate athletics, and ASUCLA.

• Gifts include current gifts and pledge payments, but not new pledges, endowed gifts, or capital gifts.

• Investment income includes endowment payout, and short-term investments.

UCLA FY 2010-11 Total Revenue ($millions)

Core Revenues in Blue: $1.24 billion

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State Funds Now Make Up a Minority of Core Revenues

• Core revenues support the basic academic mission for academic departments and central administrative and facility functions.

• Core revenue include state funds, student tuition and fees, and research indirect cost recovery.

• State funds made up 38% of core revenues in FY11, and will fall to 28% in FY12.

• All forms of student tuition made up 49% of core revenues in FY11, and will increase to 58% in FY12.

• Mandatory Student Fees includes Tuition ($11,220 in FY12) and the Student Services Fee ($972 in FY12) totaling $12,192.

• Nonresident Supplemental Tuition is $22,878 for undergraduates, $15,102 for graduate academic, and $12,245 for graduate professional students.

• Self-supporting Degree Program fees vary by program, and must recover the full direct and indirect cost of the program.

• Indirect Cost Recovery is derived from federal, state, and private contracts and grants.

State Funds; 470; 38%

Tuition & Student Services Fee; 352.205; 28%

Non Res Tu-

ition; 83.074; 7%

Prof De-gree Tu-

ition; 72.783; 6%

Summer; 40.998; 3%

Self Supp De-

gree; 50.188; 4%

Other fees; 12.876; 1%

Ind Cost Rec; 161.097; 13%

UCLA FY 2010-11 Core Revenues ($millions)

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General Funds are Allocated Primarily in Support of the Academic Mission• 68% of General Funds support academic

departments in the college, general campus professional schools, and health sciences schools and programs.

• Another 9% goes to other academic units, such as the University Library and International Institute.

• Campus services, such as building maintenance, utilities, and the police department, make up 12%.

• Administrative functions, such as the Chancellor’s office, financial services, payroll, and admissions, receive 11% of General Funds.

The College; 219.187; 29%

Gen-eral Campus Pro-fes-

sional

Schools;

144.335; 19%

Health

Sci-ence

s Pro-fes-

sional

Schools and Pro-gram

s; 149.596; 20%

Other Academic; 70.554; 9%

Campus Services; 93.018; 12%

Other Administration; 79.008; 10%

Allocation of FY 2010-11 General Funds Budget ($millions)

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VI. UC’s Economic Impact on California

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The University of California’s Economic Contribution to the State of California

• UC recently commissioned a report that quantifies UC’s economic impact at the state and regional levels in California.

‐ This is the first UC economic impact report conducted on a systemwide level since 2003 and also the first to isolate the economic contributions of the UC health enterprise.

• The Report, conducted by Economic and Planning Systems, Inc. (EPS) contributes to an ongoing effort by the Office of the President (UCOP) to evaluate the primary impacts of the UC system on the California economy

‐ These impacts derive from spending by UC and its faculty, staff, students and retirees. This spending of goods and services in California create a ripple or multiplier effect

• EPS quantified UC’s primary impacts that considered direct, indirect and induced effects on employment, employment compensation and spending

‐ Direct impacts – expenditures made by UC, its employees, its retirees and students

‐ Indirect impacts – economic effects on the industries that supply UC with goods and services

‐ Induced impacts – economic effects that results from personal and household spending attributable to UC

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UC Contribution to Economic Activity

Key Findings

Report can be found at the following link:

http://www.universityofcalifornia.edu/regents/regmeet/sept11/f7.pdf

UC generates about $46.3 billion in economic activity in California and contributes $32.8 billion to the gross state product

‐ $25 billion in annual direct spending from the University creates successive rounds of economic activity through consumers and businesses

‐ Economic activity related to UC supports about 1.8 percent of the California’s gross state product

Every $1 the California taxpayer invests in UC, leveraged by other revenue sources, results in $13.80 in economic output

‐ California’s $3.35 billion in UC-related spending including general support, Cal Grants, contracts, health care payments, and special appropriations is matched by an additional $17 billion from non-state government sources

‐ Through the economic “multiplier effect” the $3.35 billion investment provides foundation for a total economic impact of $46.3 billion creating $13.80 in economic output for every $1 of state investment

‐ In terms of employment, UC creates 128 jobs per $1 million in state taxpayer funding or about $7.790 per job

Every $1 that is cut from the State’s support of UC would result in direct losses of about $2.10 in the state’s economic output, $1.30 in employee compensation, and $1.60 gross state product plus a potential for negative secondary impacts associated with a decline in the scale and quality of UC’s academic and research programs‐ This report evaluates the

primary economic impact of two hypothetical funding scenarios, one in which the state cuts UC employee compensation and another in which it cuts total UC operating expenditures.

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The University of California

AFFORDABILITY

ACCESS

QUALITY