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Following is the complete text of Chancellor Larry Vanderhoef's State of the Campus address before the Academic Senate on Feb. 26:

It's no accident that my annual "State of the Campus" address falls at this time each year; it's just weeks after the governor's yearly "State of the State" address.

Our fortunes are inextricably linked, and when the governor's outlook is rosy, so is ours. But when the governor's prediction is for tough times ahead, we know we're headed for a rough patch.

And so we are now. Our boom-and-bust California economy has taken a tumble. Our elected leaders must deal with what's now estimated to be a $16 billion structural deficit. They've made some progress in the emergency legislative session called by the governor, but the deficit is very severe. It likely won't be resolved in a single year.

'How you deal with adversity'

But we've weathered enough of California's financial storms to know that they do pass, and that the UC not only perseveres but prospers. And I know we'll do it again.

You may recall that it wasn't too long after we managed our painful Phase III budget cuts of the 1990s that we achieved our highest campus recognition — an invitation to join the Association of American Universities. The AAU consists of the 62 research universities widely regarded as the best in all of the United States and Canada. That invitation was convincing evidence that good things can follow bad and that how you deal with adversity is a valid criterion of greatness.

That's not to say we don't have daunting challenges ahead as a campus and as a system. We do, and we likely will for a few years.

I'm a member of the UC-wide budget task force that is advising UC Provost Rory Hume and Vice President Katie Lapp on the several alternatives the regents will consider to help bridge a $417 million budget gap. That $417 million is the difference between the budget the regents had earlier approved for the 2008-09 academic year and the funding that the governor has proposed for UC. It is a significant gap, but it could have been worse. The governor did not require that we take a mid-year cut, as he is demanding of many other state agencies. And he honored the state's compact with the university by proposing a funding increase for UC, but then, to that higher base, he applied the 10 percent reduction required of all state agencies.

Four hundred and seventeen million dollars is a big number, and it is forcing the regents to consider several options, all of them very painful. They range from restricting enrollment growth to increasing student fees higher than initially planned, eliminating most increases in salaries and health benefit costs, halting plans to rebuild the competitiveness of faculty salaries, stopping improvements in graduate student support, and eliminating funding for inflationary cost hikes. Each one — painful.

The regents will evaluate these and perhaps other possibilities to help close this $417 million gap at their March meeting.

I hope that our state leaders, as they deliberate over the next several months, will put taxes, not just cuts, on the table. We recognize the magnitude of the budget challenge the state faces, and we know that the university must be part of the solution. But we, the UC, will do our best to demonstrate that we offer a sure return on the state's investment. We produce new industries, new jobs, educated workers and new tax revenue for the state; we provide opportunity and social mobility for tens of thousands of California students; and our research and public service benefit people's health and quality of life. Long story short: We have a positive impact on every Californian. That's a message that we'll certainly be delivering at UC's March 4 advocacy day at the Capitol.

It will be some time before we know UC's final budget for next year. And it will be some time before we know how the regents and the Office of the President will respond to that budget. But there is one thing that we know for certain — we must plan for cuts.

Campus providing feedback

So how are we preparing?

Within a day of the governor's spending plan announcement, Provost Barbara Horwitz appointed an 11-person budget task force to advise her on the campus's budget and academic planning processes. Three Senate members serve on that task force — Senate Chair Linda Bisson, Vice Chair Bob Powell and Senate Planning and Budget Committee Chair Ann Orel.

Their work must, as well, consider the additional need to resolve a structural deficit of our own, a dilemma shared by many other universities due to rapidly rising energy costs. We have a deficit of about $10 million in our purchased utilities budget. This deficit began during the state's energy crisis in the year 2000 when prices for gas and electricity increased sharply. And the deficit has persisted because of inadequate state support for new facilities and because the cost of natural gas continues to increase.

We will, of course, continue our aggressive steps to conserve energy, build environmentally sensitive facilities, and to reduce what we spend on utilities, but we must include resolving this deficit in our budget planning.

The Budget Planning Task Force has met three times, most recently just this morning. It advises that we make strategic budget cuts, and that we protect instruction to the maximum extent possible. It recommends that we recognize the fundamental contributions of both faculty and staff to our academic mission, that we communicate frequently and well and consult broadly, that we streamline processes, and that we seek new resources.

With the task force's help, Barbara finalized today a letter that is being sent this afternoon to the deans, vice chancellors, vice provosts and the university librarian. It will call for budget reduction plans by mid-April. The letter will be posted on the ºÙºÙÊÓƵ Budget News Web site, along with a budget Q&A.

The letter assigns an average 2.6 percent reduction in general fund budgets to academic units, effective July 1. And it assigns a 7 percent reduction to academic support and other administrative units, also effective July 1. Just three general fund and reg fee budgets will be exempt from cuts. They are: graduate student support managed by the Office of Graduate Studies, student mental health programs that are being expanded in response to the UC-wide Student Mental Health Committee Report, and the budget that pays for our externally purchased utilities.

Barbara will also work with the task force, the Council of Deans and Vice Chancellors and the broader campus community to identify and evaluate campuswide options to increase revenue and reduce expenses.

We will plan for an overall enrollment increase next year of less than 1 percent, this despite a record high number of students graduating from California high schools this June. At the same time, we anticipate about a 5 percent increase in graduate student enrollments.

We will defer allocation of growth faculty positions, using those salary savings to mitigate the consequences of budget reductions during the upcoming year. But active recruitments will continue until they are successfully completed. However, going forward, authority for ladder-faculty searches will rest with the provost.

Staff hiring will not be frozen but we'll watch it more carefully. Recruitment for all staff positions will now require approval at the dean or vice chancellor level.

And we will offer special help to staff facing layoff: that is to say, we will maximize opportunities to hire internal candidates across both the Davis and Sacramento campuses, and we will provide funds to supplement training and professional development to make them competitive for new job opportunities.

The provost has also asked the deans, vice chancellors, vice provosts and university librarian to take immediate steps to reduce operating budget expenditures where possible — for example, by limiting travel or deferring major purchases.

Budget plans will be shared for review and comment in May, with preliminary decisions made in late June or early July. Final budget decisions for the 2008-09 academic year would be made after the state budget is signed and the Office of the President finalizes the campus's allocation.

Controlling campus costs

In the meantime, we continue to work hard to reduce administrative costs, to be more efficient, and to conserve energy. Of course, every expense we can trim in these areas saves funds for our academic programs.

I'd like to tell you about some of these cost-saving measures. For example:

• We sped up — by four years — the replacement of two Davis campus chillers. That won us a $1.25 million rebate check from PG&E. That's the equivalent of about a dollar for every therm of gas the university will not be using in a given year, thanks to this improved cooling system.
• Also, a new, very sophisticated computerized landscape irrigation system will save about 900 hours of labor and 49 million gallons of water each year — that's almost a third of our total annual utility water use.
• Another example…The California Lighting Technology Center is testing a prototype exterior lighting system at the Mondavi Center. This energy- and cost-saving system of "smart lights" has the potential to be used in parking lots and garages and on building exteriors elsewhere.
• Information and Educational Tech-nology is pursuing a broadly collaborative IT Administrative Roadmap Initiative. This initiative will help to ensure that our administrative systems — 73 at last count, many of which are incompatible — are effective and well integrated. With this new process, we will improve our services, reduce duplication and complexity, and cut costs.
• Final example: Two vice chancellors (Stan Nosek and John Meyer) saw the opportunity to leverage resources by shifting the Facilities Management and Architects & Engineers units from Stan's shop to John's. The effect is that they've made sure that the staff who plan, build and maintain the campus are all at the same table, thereby able to make the most informed and cost-effective choices.

So you see, just as was true during the recession of the 1990s, the more we can partner, the more creative and resourceful we can be — and, consequently, the greater our positive momentum.

There's no doubt we've seen many signs of that positive momentum this past year.

Student enrollment

For example, our popularity with students continues to grow — owing first and foremost, of course, to the quality of your academic programs. Again this year, we had the largest percentage gain in freshman applications of all the UC campuses. And with that gain came increased diversity and quality.

Survey research conducted this year for a new marketing initiative also shows that we are seen as a comprehensive and solutions "powerhouse" whose innovations — faculty-driven, of course — have impact around the world.

So it shouldn't be terribly surprising to see that ºÙºÙÊÓƵ is ranked 5th among all U.S. universities in hosting international scholars. Fifth — that's a figure about which we can all be proud. We're just behind Harvard, Stanford, Berkeley and Columbia. We are a highly respected campus of choice for many potential global partners who are on sabbatical, are post-docs, Humphrey Fellows or Fulbright Scholars.

Also, for the third year in a row, your research grants and contracts exceeded half a billion dollars. That's a remarkable achievement at a time of diminishing federal funding. And it's a level that has led to ºÙºÙÊÓƵ' ranking of 10th in research expenditures among the nation's public universities.

Fundraising highlights

As well, new philanthropic partners this year made record-setting investments in what they see as our unique strengths and extraordinary potential and commitment. First, the Gordon and Betty Moore Foundation committed $100 million to launch the Betty Irene Moore School of Nursing. It is the largest philanthropic grant we've ever received, and one of the largest in the history of the UC. And it was won in the face of very stiff competition.

More recently, alumnus Maury Gallagher pledged $10 million to support the Graduate School of Management's new building, going up as we speak, and to establish an endowment to further the school's entrepreneurial spirit, an area in which GSM has done very well. Maury's gift was the largest ever made to the campus by a ºÙºÙÊÓƵ graduate.

Another fundraising first was a $1 million bequest for student support from alumnus Pete Gadberry to the Department of Art. That gift is the largest ever for the Division of Humanities, Arts and Cultural Studies. And that division is planning to announce another seven-figure gift in just a few weeks.

These kinds of investments are now more important than ever. They have moved us closer to achieving the goal of the quiet leadership phase of our first comprehensive campaign. And they ensure that margin of excellence for our programs beyond the state's foundational support.

It's your scholarship, your programs, your teaching and your patient care that attract gifts.

With your help, our comprehensive campaign will generate enhanced funding for very real campus needs — for example, for endowed professorships, for student support, for research and patient care, for facilities and interdisciplinary centers of excellence — and for those really big, transformational projects that will inspire multi-million-dollar gifts…gifts just like the Moore Foundation's $100 million for our new school of nursing. We were ready, and we were proactive in seeing an opportunity to match our vision with that of the Moore Foundation. Similarly, our proposed School of Public Health, and other projects, as well, are ready for just such a visionary investor.

Also with your help, and with Vice Provost Pat Turner's overall guidance, we will meet the March 1 deadline to submit our interim report to WASC, the Western Association of Schools and Colleges. I want to particularly thank the Senate's General Education Task Force and its GE Committee for their extensive work and consultation in drafting a new GE proposal that will come before this full body this spring. I understand from Pat that the task force's proposal for a revised GE program is thorough and thoughtful and that it reflects a faculty consensus about the critical thinking and communication skills we want all of our graduates to gain from their ºÙºÙÊÓƵ studies.

'Tough budgetary times'

In closing, I return to where I began. We have some tough budgetary times ahead, but it's nothing that we have not faced before and I know we'll figure it out. We'll figure it out with the same generous spirit and intellectual imagination that have, over the decades, built our strengths and generated our unique ethos. And I have that confidence because ºÙºÙÊÓƵ is truly a community.

Just look how far we've come using just one measure — our physical plant. We have a revitalized veterinary medicine complex, the soon-to-be-opened Robert Mondavi Institute for Wine and Food Science, a transformed and transformational health system complex on our Sacramento campus, the soon-to-be-constructed Graduate School of Management building and hotel/conference center, the magnificent Robert and Margrit Mondavi Center for the Performing Arts, the much-needed Giedt Hall classroom building and Sciences Laboratory Building…and I've barely scratched the surface.

These things don't happen by accident. Rather, they spring from the impressive work that you all do, day in and out. That's what gives me confidence, in good times and in bad.

We tend not to stand alone, to work alone, to fret on our own when times are tough. We have the same difficult challenges as other campuses, but somehow we seem to be better able to work our way through them by working our way together. And I know that's what we'll do — once again — in the difficult times ahead.