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UC Investigates Long-Term Funding Strategies

September 16, 2011

SAN FRANCISCO — The University of California Board of Regents, in a far-ranging discussion about how to best create the long-term financial stability that the university needs to preserve quality, agreed to explore a variety of options for raising new revenue and elevating public awareness about the importance of higher education.

Sparked by presentation of a plan for stabilizing university funding levels over the next four years, regents agreed that students and their families need more predictability in their educational costs, and they agreed that UC itself needs that same stability to make decisions about enrollment levels, academic programs and its long-range plans.

The university's top budget officers proposed a framework in which UC would seek state funding guarantees through 2015-16 for its core educational costs. Student tuition also would be set at pre-determined levels, and would increase only if state support fell short of the agreed upon levels.

Regents, while agreeing with the concept of a multi-year funding plan, asked UC administrators to come back with a variety of options that could help minimize the prospect of additional student tuition increases.

“It's incredibility important for parents and students to know what the future looks like,” board chair Sherry Lansing said. “But I think I speak for all the regents when I say this not what we want. What kind of tactics can we think of to change the dynamic?”

Regents proposed a variety of ideas, from ramping up corporate giving for private scholarships, to joining forces with other segments of public education to raise awareness with lawmakers and the public about the importance of investing in education.

Lansing called on each of the regents to get actively involved in developing one or more ideas for solving UC's budget troubles and to report back to her within 10 days.

Private Giving Helps, But Won't Solve Problems

President Mark G. Yudof noted that UC already has concerted efforts underway for more private giving.

But private giving alone cannot solve UC's budget problems, Yudof said. UC needs long-term assurances about revenue to be able to hire and retain top-tier faculty, build new research facilities and plan for enrollment growth, he said.

“This is a framework that says to the state, ‘If you give us a way forward out of the fog, we can keep prices down for this great university,'” Yudof said.

He noted that a significant portion of UC's budget pressures would be resolved if the state would meet its financial obligations to UC's retirement program. Currently, the state of California pays the employer's share of pension costs for employees within the California State University and the community college system, but excludes the University of California.

UC administrators developed the multi-year framework in response to the erratic, year-to-year shifts in state funding that have characterized budget negotiations since the onset of the state's fiscal crisis in 2008-09.

Budget Gap Grows

In addition to declining and uncertain state support, UC anticipates that its budget woes will be compounded over the next few years by significant cost increases for health care, retiree benefits, building maintenance and student enrollment. By 2015-16, the budget hole is projected to be $2.5 billion.

Systemwide efficiencies and increased revenue are estimated to make up $1 billion of that shortfall. Another $1.5 billion is needed from a combination of state funds and student tuition and fees.

The multi-year funding plan presented today would have closed the remaining gap through a combination of reliable state support and tuition increases.

“It provides a level of predictability and stability to people's lives that we haven't had in seven or eight years,” Nathan Brostrom, executive vice president of business operations, told the board. “We're trying to provide a framework for stability.”

Brostrom noted that state support for education on a per-student basis has decreased by 60 percent in inflation-adjusted dollars over the past 20 years, while the amount students pay toward these costs has tripled.

The university envisions that any kind of multi-year funding plan would include revenue generating strategies, administrative efficiencies and a state commitment to reinvest in public higher education. Strategies for generating new revenue sources are aimed at increasing funds available for financial aid, including for middle-class students who have been especially hard hit by recent tuition increases.