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Provost and Executive Vice Chancellor Enrique Lavernia last week issued 2009-10 budget reduction targets to deans and vice chancellors, to deal with a shortfall estimated at nearly $19 million.

The cuts will come on top of $33 million in permanent reductions in 2008-09.

The culprit is reduced funding from the state, which is suffering in a big way due to the economic meltdown nationally and globally.

In the last two years, the UC system already has taken a $450 million hit from the state, and this figure could go higher, depending on the outcome of several budget-related ballot measures going before the voters in mid-May, and updated revenue figures to be reflected in the governor’s May budget revision.

“As in past years,” Lavernia said in a budget planning letter dated March 20, “we cannot and should not wait for this uncertainty to resolve. Rather, campus budget planning must proceed with knowledge of the uncertainty inherent in the state budget and clarity that the challenges will not be resolved in a single year. This is at least a two-year financial challenge.”

The campus shortfall for 2009-10 is actually estimated at $38.85 million.

The campus figures it can offset part of the 2009-10 shortfall with the following:

$9 million in additional student fees, based on a proposal for an average increase of 9.3 percent. (Fee increases are expected to be on the Board of Regents’ May agenda.)

$5 million in student fees that are the result of overenrollment.

$5.5 million from a slowdown in faculty hiring.

$550,000 from canceling or deferring centrally funded activities, such as classroom renovations.

That leaves an estimated budget shortfall of $18.8 million, allocated by Lavernia in this way: $8 million to $10 million from academic units, and $9 million to $11 million from administrative and academic support units.

The provost issued the following exceptions to budget reductions:

• Graduate student support funds administered by the Office of Graduate Studies.

• Purchased utility budget (not utility operations).

• Student mental health programs funded by the recent categorical increases in the registration fee.

• Central benefits pool for core funds.

Further, the provost said the absence of state funding for enrollment growth will again prevent the campus from adding new faculty positions. And he advised, in regard to staff hiring, “You should continue to exercise extreme caution in all hiring decisions, regardless of funding sources.”

Lavernia also advised all units to assume, for planning purposes, the continuation of the 3 percent self-supporting assessment that the campus implemented this year — in effect, a levy on revenue that units generate from doing business with other campus units and with noncampus entities.

Departmental cutbacks

The provost’s budget directive adds a new element to campus planning, with his decision to differentiate the 2009-10 cutbacks among units — that is, he is not ordering an across-the-board percentage reduction.

“Across-the-board ignores other circumstances,” said Associate Vice Chancellor Kelly Ratliff, chief budget officer for the Davis campus. “Provost Lavernia wanted a broader financial picture of each unit.”

To do that, Ratliff and her staff conducted a detailed analysis, starting with academic units — looking at such factors as revenue sources (to determine the breakdown of state funds versus gift funds, for example) and unit size (as it relates to the ability to save money through economy of scale).

With this analysis in hand, Lavernia divided academic units into two groups:

Higher reductions — College of Agricultural and Environmental Sciences, College of Engineering, School of Education, Graduate School of Management, School of Law and School of Medicine.

Lower reductions — College of Biological Sciences; Math and Physical Sciences; Social Sciences; Humanities, Arts and Cultural Studies; and School of Veterinary Medicine.

Then, for each group, he set reduction targets based on two methodologies:

2007-08 total expenditures (excluding research funds) — 1.7 percent for the higher group, 0.87 percent for the lower.

2007-08 core resources (state funds, student fees) — 3.6 percent for the higher group, 1.8 percent for the lower.

For each methodology, the budget office computed the dollar reduction for each unit, then averaged them.

For example, the College of Agricultural and Environmental Sciences, under the first methodology, would be liable for a $1.96 million reduction, based on total expenditures of $112.7 million in 2007-08; and, under the second methodology, a $2.28 million reduction based on 2007-08 core resources.

Added together, the reductions come to $4.24 million — which averages to $2.12 million.

Then, Lavernia added one more bit of flexibility: going 10 percent less ($1.91 million) to 10 percent more ($2.33 million) — for a range of 20 percent.

“There’s no one right methodology,” Ratliff said, “which is why we blended two and came up with a range.”

Lavernia has asked the deans to outline the impacts at each end of the range, to help in deciding where to make cuts. Those reports are due by May 4.

“So, we’re not just looking at the numbers, but at the impacts,” Ratliff said.

Bottom line, each “higher reduction” unit is looking at an overall reduction of 2 percent to 3 percent from the unit’s average base (derived from the two methodologies), and each “lower reduction” unit is looking at an overall reduction of 1 percent.

Ratliff’s budget office has not yet completed a detailed financial analysis of administrative and academic support units, but, in the interest of keeping the budget process moving along, has spelled out preliminary ranges for budget reductions:

4 percent to 5 percent — Student Affairs.

5 percent to 6 percent — Office of Administration, Information and Educational Technology, Offices of the Chancellor and Provost, Office of Research and University Relations.

5 percent to 7 percent — Library.

6 percent to 7 percent — Office of Graduate Studies.

For each of these units, the budget office figured reductions based on two methodologies: general fund base budget and modified total expenditures (total expenses less self-supporting and extramural).

Budget office staff then averaged the two figures, and came up with a reduction target ranging from 10 percent lower to 10 percent higher.

Retirement, furloughs and pay cuts

Contributing to �ٺ���Ƶ’ 2009-10 budget shortfall is an allocation of $3.65 million for the university’s share of retirement contributions. After a contribution “holiday” of nearly 20 years, the Board of Regents has decided to restart contributions — from employer and employees — on April 15, 2010.

The state considered giving $20 million to UC for its share of retirement contributions, for the period from April 15 through June 30, 2010, the end of the fiscal year, but the allocation did not make it through budget negotiations.

As a result, �ٺ���Ƶ is budgeting to pay the employer’s share for campus employees.

Two years ago, when the state withheld money for retirement contributions, UC called off its plan to start collecting again from employees. But, there has been no indication the regents will do the same this time.

Likewise, the regents have not acted on employee furloughs or pay cuts, though the Office of the President says both are possibilities during this budget crisis.

In the absence of regental action, �ٺ���Ƶ budget planners are not factoring in furloughs or pay cuts.

If the Office of the President mandates these actions, Ratliff said, the Davis campus would not necessarily have more money to work with. The reason, she said, is the budget uncertainty that still awaits — in terms of the ballot measures that the governor and Legislature are relying on to balance the 2008-09 and 2009-10 state budget, and the May budget revision.

In fact, the Legislature’s nonpartisan fiscal analyst has already predicted that state revenues will be $8 billion less than expected in the next fiscal year.

Further, Mac Taylor, the legislative analyst, is quoted as saying in The Sacramento Bee’s March 14 edition that the $8 billion hole would worsen by $6 billion if voters reject the May 19 ballot measures that would shift special funds and borrow against future California Lottery profits.

More budget news, including the provost’s budget planning letter: budgetnews.ucdavis.edu.