For the second consecutive year, Gov. Gray Davis' budget proposal has fallen short of his Partnership Agreement with the University of California. His plan includes millions of dollars of cuts in targeted areas such as outreach, Internet2 and cost-of-living increases for staff and faculty for 2002-03.

Under the governor's proposal, which must be approved by the Legislature, UC would receive $3.4 billion, about $250 million less than the regents requested.

The $3.4 billion is about the same amount Davis budgeted for 2001-02 before he proposed $86 million in mid-year cuts. Those cuts include: $25 million of the $75 million the state provided to UC this year to cover increased energy costs; $6 million of the $57 million provided for the UC-led California Professional Development Institutes for K-12 teachers; $4.8 million of the $32 million to help expand K-12 schools' access to Internet2; and $5 million in one-time funds for clinical teaching support for UC hospitals, neuropsychiatric institutes and dental clinics.

The state currently has a $12.5-billion budget shortfall brought on by its economic woes, and the cuts to UC are part of a $5-billion reduction in state spending for 2001-02 and 2002-03.

There was, however, some good news: Davis' proposed budget still funds an expected 7,100 new students, keeps student fees level and accelerates several building projects to spur economic growth. But, unlike previous years, his budget does not compensate UC for the loss of the additional student fee revenue.

Several regents on the board, which met at UCLA Jan. 16 and 17, expressed concern over cuts to increases for staff and faculty. The budget provides for a 1.5% merit increase, no cost-of-living adjustment and less money to pay for increased health benefit costs.

"We're going to be attacked right and left with these very low salaries," said Chairman S. Sue Johnson, adding that raising student fees might be required to help compensate.

UC President Richard C. Atkinson, who called staff and faculty "the heart of the university's enterprise," said UC is working hard to restore what he called "the biggest disappointment in the budget."

Larry Hershman, UC vice president for budget, said salaries are the university's "highest priority." If UC can obtain compensation from the state to keep student fees level, then those funds could be put toward salaries, Hershman proposed.

Many have criticized the governor's budget, which assumes California will receive more than $1 billion in additional federal funding and includes loans, accelerations and strategies such as borrowing $2.4 billion from the state's settlement with tobacco manufacturers.

"The problem with all of this, of course, is that he's pushing some of these cuts ... into the future, hoping that revenue picks up significantly," Hershman said. "One of the things the regents need to focus on is: What does that mean for future budgets?"

On the other hand, Hershman added, if the governor's budget strategy fails, the alternative may be larger cuts to UC's budget. If the governor's budget does fall through, asked Regent William T. Bagley, "Do we have a contingency plan? I just don't see it coming together like this. What do we do when $100 million of this falls apart?"

Said Steve Olsen, UCLA's vice chancellor of finance and budget: "The governor's budget is as good an outcome as the university might have hoped for, given the circumstances. The real issue here is not what is in the governor's budget, but whether or not it's sustainable under the current financial situation."

At UCLA, deferred maintenance, electrical system upgrades, compensation for increased electrical costs and Internet2 funding are some areas that could be affected by Davis' budget.

In addition, Chancellor Albert Carnesale will be meeting with deans and vice chancellors to decide how to deal with further cuts.