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Q&A with Steve Olsen on budget issues

Like most public colleges and universities in California, UCLA is experiencing budget challenges of unprecedented proportions. Here, Steve Olsen, vice chancellor for budget, finance and capital programs, provides answers to some frequently asked questions.
 
 
How is UCLA funded?
 
UCLA receives funding from multiple sources. Some of the largest sources include fees paid by medical center patients, research grants, sales (such as tickets to athletic events) and state funds, plus student fees and private gifts. It’s important to remember that many of these sources are restricted. For example, private gifts can be spent only for the purpose for which the donor intended, and revenues generated by the medical center and athletics are not available for general campus purposes. Both UCLA and the University of California post useful budget briefing materials.
 
 
What makes the budget situation so severe?
 
State funding to the University of California system has been declining for years, even as student enrollment increased. The state provides about half as much funding per student as it did about 20 years ago. Because state funding most often cannot be replaced by other revenue sources, its loss is especially harmful. For fiscal 2009-10, the state reduced funding to the UC system by about 20 percent, translating to a $131 million reduction to UCLA. State funding is especially critical because it goes toward basic operations such as facilities and maintenance, police services, and staff and faculty salaries.
 
 
What’s the bottom-line budget shortfall at UCLA?
 
Between reductions in state funding and increases in unfunded costs such as utilities, health insurance premiums and retirement plan contributions, UCLA has a 2009-10 budget shortfall of more than $150 million. A student fee increase approved by the UC Board of Regents, effective fall quarter, will bring in about $14 million in new revenue, and faculty and staff furloughs will save an additional estimated $36 million. That leaves a shortfall of about $100 million — a shortfall that can be closed only with a long-term or permanent reduction in programs.
 
 
So how is UCLA planning to close that shortfall of $100 million?
 
Many steps have been taken. There are 65 fewer undergraduate courses this quarter, a 4 percent reduction from fall 2008; we are offering 1,570 courses this quarter. Even though there are fewer classes, the campus is providing more classroom seats in fall 2009 than it did last year, helping to ensure on-time graduation. Because there are fewer professors, lecturers and teaching assistants, the average average class size has increased 5.2 percent, to an average of 57 students per class. In addition, funding for student services has been reduced 10 percent. 
 
Sixty-seven lecturers received formal notice in June that that they would be laid off, effective in summer 2010, if additional funding cannot be secured. Faculty recruitment this year has been slashed to 25 searches to yield between 12 and 17 new hires, down from 75-100 hires in a typical year.
 
Consolidating IT services, expanding energy conservation and reducing central administrative costs will save an estimated $5 million to $10 million. Housing and parking services will contribute an additional $2 million to campus resources. The chancellor's commitments to various initiatives — including capital projects, community programs and fellowship support — have been cut by $5 million. Academic and other departments are examining a wide range of other potential savings and new sources of revenue.  
 
 
How many people have been laid off and where are the greatest impacts?
 
The campus workforce has been reduced by more than 570 positions since February, including 430 in the medical enterprise and 142 on the main campus.   
 
 
How will these reductions be felt across campus?
 
The effects will be widespread. For example, library hours are being reduced and some collections are being relocated. Greater faculty workload, coupled with fewer teaching assistants, means fewer opportunities for faculty-student interaction. It also means reduced scholarly research output by faculty. Reduced maintenance of campus grounds and facilities will also be noticeable. The effect on staff workload is likely to be significant because many vacant positions will be eliminated rather than filled or will remain vacant in order to generate salary savings.
 
 
Have any classes or majors have been eliminated or academic requirements changed?
 
All academic departments are in the midst of a top-to-bottom review of classes, majors and requirements, with an eye toward eliminating those in least demand. Campus leadership is consulting closely with the Academic Senate on all decisions regarding curriculum. The guiding principle for these decisions is maintenance of UCLA’s academic excellence. In short, UCLA’s academic programs must be smaller in the future. For more detail, see this memo from Executive Vice Chancellor and Provost Scott Waugh.
 
 
Will student fees be increasing again?
 
The UC Board of Regents increased systemwide student fees by $662 effective this quarter, to $7,788 annually for an undergraduate student from California. President Yudof has proposed additional increases of $558 effective in the winter quarter that begins in January, and an additional $1,344 in fall 2010. The UC Board of Regents is scheduled to act on those proposals at its November meeting. If approved, fees would be $10,302 annually for an undergraduate resident in fall 2010, about 44 percent more than two years ago. Historically, the Regents have approved fee increases only as a last resort. With the dramatic fall-off in state funding and another reduction expected in 2010-11, President Yudof views fee increases as necessary to ensure the continued academic excellence on UC campuses. To help ensure access, about one of every three dollars collected from new fees would go toward student financial aid programs to help ensure access.
 
 
Is UCLA planning to reduce overall enrollment?
 
Due to reduction in state support over the years even as campuses accepted more students, the UC system now enrolls nearly 14,000 more students for whom the state provides no funding, and UCLA is over-enrolled by approximately 1,750 students. At this time, UCLA is planning to reduce freshman enrollment by 300 students next fall, from 4,190 to 3,890.
 
 
Is UCLA considering accepting more out-of-state students as a way to raise money?
 
UCLA is currently planning to increase enrollment of non-resident freshmen by 150 students in each of the next four years. Non-resident students enrich the educational experience for all students. Even a moderate increase in the proportion of non-resident students would generate millions of dollars in new revenue to protect instructional programs for all UCLA students.
 
 
What about reserves? Doesn’t UCLA have money available for crises such as this?
 
UCLA is utilizing approximately $18 million in reserves to give the campus time to examine long-term restructuring of academic and administrative programs consistent with new funding realities. It’s one-time, temporary funding to minimize short-term impacts and ease the transition. Contrary to options advanced by some of the labor unions, the UC system and this campus do not have extensive reserves available for operations. Keeping certain reserves at certain levels is critical to maintaining credit-worthiness, and many reserves are by law off-limits for funding operations. For more information, see this detailed explanation by Peter Taylor, chief financial officer for the University of California. 
 
 
How do you justify spending $185 million to renovate Pauley Pavilion?
 
Pauley Pavilion hosts not only intercollegiate athletics, but also a wide variety of student recreation programs, commencement and student welcomes, as well as concerts and other events that generate revenues. It’s almost 45 years old, and serving the campus community in the future will require improvements to plumbing, ventilation, concourses and other infrastructure, including important safety features such as the fire alarm system and steep stairways lacking handrails. UCLA has an obligation to provide modern and safe facilities, and students deserve that. We have carefully developed a fiscally responsible plan for renovating Pauley Pavilion. None of the revenues being utilized for the project are available to address the budget crisis. They include private gifts donated specifically for the project that can’t be redirected, as well as student fees collected specifically for earthquake safety and student activities projects. Debt on bonds will be repaid by ticket revenues collected by UCLA Athletics. With construction costs and interest rates low, now is an ideal time to proceed; the longer we wait, the more expensive it will be. 
 
 
What’s the outlook for 2010-11?
 
Next fiscal year is likely to be as difficult, if not more difficult, than this year. That’s because, among other factors, state tax revenues are not expected to improve substantially, federal stimulus funding will no longer be available to cushion the blow on research programs and reserve funding will no longer be available to ease the transition for academic programs. In 2010-11, academic programs will be shrinking, and that will be a painful but necessary process for the campus. We must adjust our programs and operations to become less reliant on state support, and that can be done only through long-term, structural changes.
 
  
Will faculty and staff receive raises in 2009-10 and 2010-11?
 
The merit and promotion system for academic employees was retained for 2009-10 and 2010-11. However, no general salary increases were provided for faculty or staff in 2009-10 beyond what’s in labor contracts previously negotiated with the unions. Merit increases were suspended for managers and staff. Any salary increases in 2010-11 may require additional revenues, such as those from potential fee increases. President Yudof has expressed concern about the University’s ability to remain competitive with faculty and staff pay lagging well behind other comparable universities and the private sector. The UC Board of Regents is expected to discuss compensation issues in November when it considers the president’s budget proposals.
 
 
November is the month when faculty and staff have an opportunity to change health plans. Will employees have higher health care premiums?
 
The cost of providing health insurance to employees continues to increase at a substantial rate, and the state is providing no funding to absorb the increase. We anticipate the health care insurance premiums will need to increase.
 
 
How will the Regents’ plan for employee and university contributions to the UC Retirement Plan affect UCLA’s financial health?
 
The Regents have approved a plan for both the university and employees to begin contributing again to the UC Retirement Plan, effective April 2010. For the past two decades, there had been no need for the University or employees to make contributions, but they are now necessary to keep the plan healthy amid declining investment performance and increasing retirements. UCLA’s required contributions are among the new unfunded costs that increase our expenses and take money away from other potential uses. For UCLA employees supported by the general fund, the employer contribution will cost UCLA $20 million in 2010-11.  
 
 
What’s the status of the furlough program? When will it end?
 
The UC Board of Regents in July approved furloughs to help offset the unprecedented loss of state funding. The approved plan expires Aug. 31, 2010, and extending it would require action by the Regents.
 
From Sept. 1, 2009, through Aug. 31, 2010, participating faculty and staff have between 11 and 26 furlough days available during the year, equivalent to salary reductions of 4 to 10 percent,. The furlough days are spread across the year so that employees know how much pay to expect each month. To minimize the impact on those earning the lowest salaries, the number of furlough days is based on the salaries. Furloughs apply to more than 100,000 of the university system's 180,000 employees. Those in the medical enterprise and those whose salaries are funded entirely by external grants are not subject to furloughs. For approximately 70,000 union-represented employees across the UC system, implementation of furloughs is subject to individual contract agreements and collective bargaining. Those discussions are continuing. Thus far, the American Federation of Teachers (AFT), on behalf of librarians, has agreed to participate in the furlough plan.
 
While campuses were granted flexibility to implement furloughs in a way that made the most sense to their operations and to preserve patient care, a determination was made that faculty may not take furloughs on days of instruction. Faculty whose positions are funded by certain grants are eligible for reduced furloughs under the Furlough Exchange Program.