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UC DAVIS: OFFICE OF THE CHANCELLOR October 31, 2001 DEANS, DIRECTORS, DEPARTMENT CHAIRS AND CAMPUS/UCDMC ADMINISTRATIVE OFFICERS Members of the Campus Community: SUBJECT: University's Budget Challenges I write to provide you with the information we have received to date about likely financial challenges facing the University of California. As you know, California's strong economic expansion of the late 1990s has ended - an expansion that had enabled the state to enhance existing programs and to permanently fund many new programs. K-12 and higher education were major beneficiaries of this revenue growth. As you also know, the stock market and the state's income tax receipts have now decreased considerably. Add to this the events of September 11 that accelerated the decline in many industry sectors, plus the fact that the state adopted its current budget by reducing its reserves, and it's clear that we have a need for significant reductions in spending. It's estimated that California may be facing a budget shortfall of between $8 billion and $14 billion in the 2002-03 fiscal year. The Governor's October 23 Executive Orders require state agencies to freeze hiring and prepare for an additional 2001-2002 spending reduction of $150 million (a cut of less than 1 percent). As well, and more importantly, state agencies are asked to prepare for significantly greater budget reductions for 2002-2003. The two orders request cooperation with this effort by the UC system, but they also state that UC cuts should not "interfere with meeting [our] educational mission." We have always cooperated with the state when it has faced a budget downturn, and we certainly expect to do so again. The UC Office of the President continues to work closely with the State Department of Finance regarding the size of the University's mid-year reduction. In the meantime, President Atkinson has asked all of the UC chancellors to be cautious about permanent hiring and other financial commitments, and to exercise wise discretion over exceptions to the freeze in hiring for state-funded positions. Thus, it behooves us now to do whatever we can to slow spending. Spending now to avoid having to contribute from 2001-2002 budget allocations is not recommended, since shortfalls will be taken off the top of 2002-2003 allocations. As we await word on the specific budget adjustment required of our campus, we are developing principles against which we can measure different tactics to generate savings or budget reductions. You will, over the next few weeks, be hearing more about these approaches as they are developed by The Regents, the Office of the President and our campus. During the state's last economic downturn of a decade ago, we committed to a process of open communication and ongoing dialogue with the campus community, and so it will be again. As was true then, we will be strategic in determining the best way to achieve savings, and we will always remain focused on our long-term objective of continued and enhanced excellence in teaching, research and public service. Just as the 1970s, '80s and '90s each began with economic problems of varying degree and soon improved, so too can we expect the state's current budget situation to eventually recover. Our current actions must take that into account. Look to Dateline and to the campus's Web page for updates as further information becomes available. And stay in contact with your deans, vice chancellors, vice provosts and directors. I know that we will get through this because we will approach this challenge as a community. We'll listen more than we talk and we will keep UC Davis great in the process. Larry N. Vanderhoef Chancellor 01-162
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