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Forecast for campus promising

After three years of deep cuts in state support, the outlook for 2006-07 looks brighter for the university, thanks to the Higher Education Compact Agreement that has stabilized the state funding situation for now. But faculty and staff will still be feeling the effects of those cuts this year, said UCLA’s Vice Chancellor of Finance and Budget Steven Olsen . UCLA Today editor Cynthia Lee talked to him to get an overall assessment of campus’s financial health and of what may be on the horizon for faculty and staff.

How much has UCLA lost over the last three years?

It’s been a difficult period. Over the last three years, UCLA has lost $60 million in state support, nearly 10% of our General Funds operating budget. These figures do not include additional losses in state funds that were replaced by increased student fees, so it reflects the real impact on our departments. Every organization on campus experienced budget cuts.

What has been the impact of the cuts?

State funds now make up only 15% of UCLA’s operating revenue. Nonetheless, our core academic and administrative departments are highly dependent on state money. Some academic departments, especially those in the UCLA College, are offering fewer classes and employing fewer temporary faculty. We have not seen any evidence that large numbers of students are having difficulty finding the courses they need, but we will continue to monitor closely their progress toward their degrees. We have seen a limited number of staff layoffs in certain areas. Staff attrition, however, has affected operations throughout the campus. We are especially concerned about the impact of budget cuts on building maintenance.

Many of the budget cuts were absorbed at the departmental level by utilizing other non-state revenue sources, such as summer session funding and overhead funds from federal research grants. These flexible funds were previously available to the chairs to invest in department priorities, such as graduate fellowships or faculty support. Overall, the budget reduction has meant that academic administrators have less flexibility to meet a range of needs. It’s made our managers’ jobs more difficult.

Research has suffered cutbacks in state funds in the past. What’s in the future?

Over the past three years, the state reduced research funding by 20%, or roughly $4 million, at UCLA. These cuts were targeted at specific areas, affecting the ethnic studies centers, the Institute for Social Science Research, research in the humanities and research in the neurosciences. It’s been difficult for these programs and centers.

Research universities are becoming increasingly concerned about federal research support. Between 1997 and 2005, UCLA nearly doubled its total research support, from $410 million to $821 million in contracts and grants. Growth in research awards from the National Institutes of Health, the National Science Foundation, and the other large federal grantors has been central to UCLA’s recent success. We’re now bringing in more external research funding than we receive in state funds. But chronic deficits will almost certainly constrain federal research funding. UCLA will be well positioned to compete effectively for the available dollars, but funding growth will be slower.

Has there been an exodus of faculty?

Some of our academic leaders have expressed concern that UCLA’s fiscal uncertainty might increase the number of faculty separations, either through retirement or departures to other universities. Fortunately, we haven’t seen that trend develop. Throughout this difficult period, we’ve been very effective in retaining our immensely talented group of faculty. As with any workforce, we have to be prepared to recruit new faculty to replace those planning to retire over the next several years. UCLA competes with elite private universities for these faculty, and our competitors are often armed with resources not generally available to a public university like UCLA. Chancellor Carnesale has launched the Ensuring Academic Excellence initiative to help address this disparity in resources. This campaign has already raised more than $100 million for faculty chairs and graduate fellowships.

What is your prognosis for 2006-07?

The budget outlook today is more positive than it has been in the past three years. The Higher Education Compact Agreement with Gov. Arnold Schwarzenegger has stabilized state support for the University of California and serves as the basis for our planning for next year.

That agreement will provide UC with a 3% increase in state funding next year, and additional state support for continuing enrollment growth. The agreement also anticipates that undergraduate fees will increase 8% next year, and that graduate student fees will rise by 10%.

What will be the likely outcome for faculty and staff compensation?

The regents have approved a 3.5% salary package for faculty and staff this year — the first pay increase in three years for most employees. The compact agreement should provide sufficient funds for an increase of around 4% next year, if state funds are provided.

UC is currently examining the issue of total employee compensation. Recent studies have concluded that our overall compensation package is competitive within the current marketplace. Cash compensation, how-
ever, lags the market, while UC benefits are substantially more generous than those offered by most research universities.

What is the outlook for the UC retirement system?

The UC retirement system is one of the university’s most valuable assets, one that makes UC highly attractive to current and prospective employees. The system is currently fully funded, and neither UC nor its employees have been required to make contributions to the system since 1990. Actuarial studies have indicated, however, that new contributions will be required within the next several years to maintain the financial health of the system. The amount of the contribution has not been determined, but is likely to be phased in.

The possible resumption of employee contributions to the retirement system would place more pressure on UC to address the existing marketplace lag in cash compensation. If we are to remain competitive, we will need to close the gap on employee salaries over the next several years. UC will not receive sufficient new state funding to support that level of salary increase and will have to consider other sources of revenue, such as student fees and gifts, to address the shortfall.

How has the energy market affected the campus’s overall fiscal health?

On balance, UCLA is financially healthy. But the cost of utilities remains a serious concern. Last year, our shortfall in this area was $4.8 million. I expect the shortfall this year will be larger, driven up by rising natural gas prices. In the short run, we are at the mercy of the market, and we don’t have a permanent solution.

The winter break closure and the summer weekend shutdown have generated savings, but not nearly enough to cover this large shortfall. We have to continue to find ways to reduce energy consumption. We continue to look for new technologies. For example, we installed an underground thermal energy storage tank (on top of which La Kretz Hall was built). That allows us to produce chilled water at off-peak hours when energy is cheaper and to store it until we need it.

Do you expect that the student population at UCLA will continue to grow?

At the beginning of the decade, UCLA was asked to increase its general campus enrollment by the equivalent of 4,100 full-time students by 2010-11. That growth phase is now largely complete, five years ahead of the original schedule. We accommodated much of the growth by doubling enrollment in summer session. Students also helped by increasing their average course loads. Graduation rates are up, and the average time-to-degree has gone down. We’ve been able to increase the number of entering freshmen and transfer students, but the impact of this growth on the campus infrastructure has been minimized. It’s really been quite a remarkable achievement.

While our growth on the general campus is now complete, we are planning to expand graduate enrollments in the School of Nursing and to reestablish the undergraduate program in nursing. These efforts will result in an additional 300 students when fully implemented in 2008-09.