Word came last week that UC Davis is taking another big budget hit: an estimated $5 million, money that had been expected from the state. The problem is, the state does not have it to give.

Then, on Oct. 21, many employees received another dose of bad fiscal news: The UC Board of Regents approved the final budget for 2008-09 with no provision for systemwide salary increases. Some raises will come through: merit pay for faculty and raises for union-represented staff as the result of collective bargaining agreements. (See separate story on the regents meeting.)

To cover the new $5 million loss in state funds, UC Davis is implementing a 3 percent levy on nonfederal, self-supported activities -- which are units that bring in income (Student Housing, for example) and those that recharge for their services (Reprographics, for example). The levy applies to the Davis Campus and the School of Medicine in Sacramento, but not the health system.

This "self-supporting assessment," as it is called, will generate an estimated $7 million in 2008-09 -- enough to cover the new loss of state funds and provide for contingencies, including more cuts that may be in the offing, said Associate Vice Chancellor Kelly Ratliff, the campus's chief budget officer.

As for the units paying the assessment, they will need to adjust their operations to balance their own budgets. For recharge units, the solution may not be as simple as raising their rates -- because a freeze is in effect for all recharge rates except those that are charged primarily to federal contracts and grants.

Instead, units must cut expenses in other ways and become more efficient, Ratliff said.

Interim Provost and Executive Vice Chancellor Barbara Horwitz told The Davis Enterprise: "It will be difficult, but it is an opportunity to think about doing things differently."

The $5 million budget adjustment comes on top of nearly $17 million in base cuts that the campus already implemented for 2008-09. These cuts offset most of UC Davis' $28 million shortfall for 2008-09; the remainder came from a number of sources, including higher student fees, limited enrollment growth funding, and a slowdown in faculty hiring.

The crisis has its roots in the nation and state's economic downturn, which contributed to a California budget deficit in the billions of dollars.

UC had figured the beleaguered state budget, signed into law Sept. 23, allocated flat funding for UC: $3.0651 billion (not including lease-revenue payments and one-time funding for UC Merced).

The university system, though, still had to deal with the rising costs of doing business -- higher utility bills, higher costs for supplies, higher health care costs and the like, and continuation of salary increases that took effect in October 2007. This is what led to UC Davis' $28 million shortfall.

Now, just a month after it became law, the state budget is in shambles.

"We received word from the state that the governor was imposing midyear reductions totaling $190 million across all state agencies," President Mark Yudof advised the Board of Regents and the chancellors by letter on Oct. 14.

UC's share is $33.1 million. UC Davis' share of that is expected to be about $5 million, Ratliff said. And this may not be the end of it, Ratliff said, echoing Yudof's caution to brace for more.

In fact, Ratliff is already projecting a 2009-10 shortfall at least as large as this year's $33 million ($28 million in the original go-round, plus $5 million from the additional state cut).

This is not the university's first budget crisis and not the first time UC Davis has implemented a self-supporting assessment. Ratliff said the levy was 2.8 percent during the last budget crisis, in the early 1990s.

The new 3 percent levy will apply to an estimated $234 million in recharges and income, based on 2006-07 budget figures. Student Housing will shoulder by far the largest share of the burden: about $1.4 million, based on the unit's revenue and recharge totals for 2006-07.

Emily Galindo, director of Student Housing, said residents have signed contracts for 2008-09 -- so rates cannot be raised. They average about $10,000 per student.

"So, we will be looking at reserves, opportunities for making adjustments to planned maintenance, and our capital projects plan," Galindo said.

If the self-supporting assessment continues into next year or longer, "certainly there will be impacts," and fee increases may be considered.

"It's important for us to participate in what's difficult for the university," Galindo said. "We need to be part of the solution."

But, she cautioned, "We also have to think about how these kinds of decisions affect us in the long term," especially in regard to keeping rates affordable.

Besides the health system, the self-supporting assessment also exempts academic unit recharges, all activities with greater than 15 percent federal funding, and pass-through costs (for the purchase of goods and services that go directly to customers) in those instances where such expenses exceed 20 percent of all revenues.

On the Net

More about the UC system and UC Davis budgets: budget.ucdavis.edu.