UCSF Prepares for State Budget Cuts for FY 2008-2009

The impact of California's fiscal crisis on UCSF will not be clear until Sacramento lawmakers finalize the state budget, but UCSF -- along with other UC campuses and the UC Office of the President (UCOP) -- is preparing for a cut in state general funds from its 2008-2009 budget. These cuts could be as much as 7 percent, or $14 million, in UCSF state general funds, but no final decisions have been made about how UCSF would impose these budget reductions. A final budget decision may not be made clear to the UCSF campus community until after the UC Board of Regents considers the issue at its meeting on July 15, 16 and 17 at UC Santa Barbara, according to Steve Barclay, senior vice chancellor of Administration and Finance. "In addition to our anticipated state funding cuts, the domestic budget for research is shrinking, clinical reimbursements from Medicare and Medicaid are slowing, and while we've had marked success, internal and external competition for philanthropic funds is increasing," Barclay said. In response to these challenges, UCSF retained a firm, Huron Consulting Group, which specializes in higher education budgeting best practices, and is exploring how UCSF can best position itself to realize the UCSF Strategic Plan and simultaneously fund current operations, the capital program and associated costs. Importantly, UCSF remains a financially strong institution, ranking among the nation's top universities receiving federal government support for research and training. UCSF was the third largest recipient of National Institutes of Health (NIH) research support in 2007. UCSF received about $439 million from research and training grants, fellowships and other awards. Read story [here](http://pub.ucsf.edu/newsservices/releases/200804185/). And UCSF Medical Center's financial performance has shown steady improvement in recent years with net income of $110.8 million in fiscal year ending in 2007, up from $95.6 million in net income in fiscal year 2005-2006. See medical center annual report data [here](http://budget.ucsf.edu/stories/ucsf-medical-center-annual-report-2007/) and [story](http://budget.ucsf.edu/stories/ucsf-medical-center-finances-show-steady-improvement/). UCSF is also aggressively pursuing and receiving private support to build upon its leadership in life sciences research and education. Notably, fiscal year 2007-2008 was the fifth consecutive year in which UCSF has received more money in private support than it has received in state general funds. See UCSF private support chart [here](http://budget.ucsf.edu/stories/ucsf-private-support/). Still, about 9 percent, or about $220 million, of UCSF's total $2.5 billion operating budget is funded by state general funds. Additionally, UCSF is still feeling the effect of having implemented state-mandated budget cuts in 14 out of the past 18 years, says Associate Vice Chancellor of Finance Eric Vermillion.

A "Critical" 9 Percent

"State general funds represent a critical 9 percent of the UCSF budget," Vermillion says. These state general funds pay for: * UCSF's instruction mission, including academic salaries and support costs ($91 million); * Facilities operations, maintenance and utility costs (about $33 million); * Institutional support services ($57 million), including campus police, information technology, accounting and student services; and * Academic support services ($39 million), such as the Graduate Division, library, classroom support, and contracts and grants administration, among other things. On May 14, Governor Arnold Schwarzenegger presented his budget revisions. He restored $98.5 million in previously proposed cuts to the UC system, which returns state funding for the system to its current 2007-2008 level. UC President Robert C. Dynes, PhD, welcomed the May Revision, but warned it "still does not meet all of the University's needs for the upcoming year." This means that despite the restoration, UC would still have to cut the budget to fund items such as health benefit increases, faculty merit salary increases and cost-of-living adjustment increases. For its part, UCOP trimmed $28 million from the budget by restructuring its workforce and implementing other cost-cutting reforms. Student fee revenue, up from a 7.4 percent fee increase and enrollment growth, is expected to garner $90.8 million this coming fiscal year. The UC system also may save money from salaries if employees sign up for the new Staff and Academic Reduction in Time (START) Program, which gives staff the option of reducing their hours a minimum of 10 percent to a maximum of 50 percent. The program is a tool that departments may make available, at their discretion, to employees during the period July 1, 2008, through June 30, 2010. See story [here](http://budget.ucsf.edu/stories/uc-proposes-new-staff-and-academic-reduction-in-time-start-program/). The final state budget signed by the governor, as well as actions by the Regents to implement the budget, including salary increases, will dictate the actual cuts UC and UCSF must make. Given what is currently known about the 2008-2009 costs, a budget reduction of between 3 percent and 7 percent is probable. This would mean a cut of $6 million to $14 million at UCSF.

Preparing for Cuts

To prepare for state budget cuts, Chancellor J. Michael Bishop, MD, in February asked campus leaders to provide FY 2008-2009 budgets that include cuts in state funds ranging from 3 percent to 7 percent, from the UC General Fund permanent base budget. The anticipated loss in state general funds comes at a time when UCSF is pursuing plans to make the University increasingly competitive, financially self-sufficient and supportive of its workforce, as recommended in the UCSF Strategic Plan. That plan, which identifies seven strategic directions to build on UCSF's strengths in teaching, research, patient care and public service, underpins what the University hopes to accomplish and articulates the investments it must make -- in people, infrastructure, facilities, and partnerships and work environment -- to achieve its mission and vision. With regard to UCSF's finances, the strategic plan specifically calls for establishing a regular and transparent campuswide process for planning, budgeting and allocating resources. "The strategic plan will help guide resource allocation and decisions with long-term goals and needs," says Eugene Washington, MD, executive vice chancellor and provost. "We need to draw on the collective wisdom of the community as we sit down to make funding decisions." The steady erosion of state support means that UCSF must look to alternative sources to help support its visionary efforts, says Vermillion. "We've been attempting to aggressively fundraise and build for the future with our facilities at Mission Bay, improve our technological infrastructure and implement our strategic plan," he says. "UCSF is poised to move forward on all fronts, but the constant state cutbacks mean we have to become more self-sufficient to realize our vision." Each school has assessed how proposed budget cuts will affect them. The Graduate Division and the schools of dentistry, nursing and pharmacy are expected to be hardest hit because state funds comprise a greater proportion of their budgets. Read story [here](http://budget.ucsf.edu/stories/proposed-reductions-in-state-funds-to-affect-schools-differently/).

Making Decisions

How proposed reductions will be distributed across UCSF's schools and departments has not been decided. At this point in the budget process, Chancellor Bishop has received all of the budget proposals and is now consulting with the leaders of all control points, which are the major UCSF units. These control points are the Office of the Executive Vice Chancellor, medical center, each school, Administration and Finance, and University Advancement and Planning. These consultations will help determine the feasibility and impact of each scenario. The ultimate decision about how to realize these cuts at UCSF will be made by the chancellor, who will consider the recommendations of the UCSF Executive Budget Committee (EBC) and the Academic Planning and Budget Committee (AP&B). The EBC is co-chaired by Barclay and Washington. The full membership list is posted on the chancellor's [website](http://chancellor.ucsf.edu/committees/executive/budget.htm). The AP&B has members that represent each school, mission area and campus location. Working with Washington and Barclay, Chancellor Bishop will analyze and compare all requests to make a decision. UCSF leaders have outlined principles and guidelines to govern budget reductions. The first principle on the list states that "the cause and case for budget reductions will be communicated clearly and systematically." This entire list is posted [here](http://budget.ucsf.edu/stories/principles-and-guidelines-to-govern-ucsf-budget-reductions/).