Under Gov. Schwarzenegger's worst-case budget revision, UC officials are estimating a 2009-10 funding shortfall of nearly $531 million — even with the student fee increase approved by the Board of Regents on May 7.

The shortfall is about $200 million worse than UC foresaw with the two-year budget plan crafted by Schwarzenegger and the Legislature in February. The new shortfall estimate includes $31 million that the governor proposes to take from UC's academic preparation programs.

According to UC, the $531 million shortfall assumes the state's voters reject the budget-related propositions on the May 19 ballot. If voters say yes, UC faces a $450 million shortfall — and would retain the $31 million in academic preparation money.

Within hours of seeing the governor’s May budget revise (two of them, actually), UC President Mark G. Yudof warned of serious consequences to the level and quality of service that UC provides to students and taxpayers.

“Additional budget cuts of this magnitude would have a devastating effect on the students, the faculty and the staff of the University of California, and ultimately on the service we provide to the state,” Yudof said.

“The severe reductions envisioned in these scenarios, especially if the ballot measures fail, threaten a dramatic change in the quality and accessibility of the university.

“If these cuts are implemented, we will have to look at a wide variety of unpleasant options to close our budget gap in the coming years — from enrollment and student fee levels to class sizes, academic program offerings, and availability of campus services for students, in addition to pay reductions or furloughs for our employees.”

UC stands to lose either way

The governor’s revised budgets reflect the continuing decline in the state’s financial situation in the months since he and the Legislature approved the 2008-10 budget.

The budget relies not only on the May 19 ballot measures (to extend tax increases, shift funds and borrow from the state lottery), but on tax revenue that has not met expectations.

So, even if voters approve the propositions, UC still stands to lose state funding, under Schwarzenegger’s proposed budget revisions —one that assumes voter approval of Propositions 1A through 1E, and the other that assumes voter rejection of the same.

Both scenarios call for a change in the allocation of state funds and federal stimulus money to UC for 2009-10 and the remainder of this fiscal year.

Under both proposals, the state would cut its funding to UC by $510 million for 2008-09 and instead give the university $640 million in federal stimulus money — with $510 million for use in 2008-09 and $130 million in 2009-10.

The bottom line for UC

Here is how Schwarzenegger sees the UC funding picture for 2009-10, depending on the outcome of the May 19 election:

• If voters say yes, the state would cut its funding to UC by $255 million, with $130 million to be replaced by federal stimulus money — for a net reduction of $125 million. This would be on top of $115 million in cuts that are included in the 2009-10 budget as approved. UC’s net loss: $240 million.

• If voters say no, Schwarzenegger proposes all of the above, plus additional cuts totaling $81 million, including $31 million for UC’s academic preparation programs. UC’s net loss: about $322 million, or about 10 percent of what the system would receive from the state under normal circumstances.

UC boosts its total shortfall by adding in the millions of dollars that the state is not paying for extra enrollment the last few years, and millions worth of unfunded mandatory costs for utilities, employee health benefits and other inflationary costs.

The bottom line: A $450 million shortfall if voters approve the propositions, a $551 million shortfall if voters reject the propositions.

Each figure takes into account the nearly $100 million in additional student fee revenue that UC expects to bring in with the 9.3 percent increase that takes effect with summer instruction. (Altogether, the fee increases will generate $152 million, with some $54.2 million of that going to financial aid.)

Yudof said: “The consequences of these budget proposals for academic preparation and student accessibility are daunting,” especially at a time when the Public Policy Institute of California is warning that the state’s work force will be short nearly 1 million college graduates by 2025, unless state leaders implement policy changes to enroll and graduate more students.

Steps taken and possible actions to come

UC already has taken a series of actions to deal with the shortfall in state funding. These include:

• Freezing senior managers’ salaries.

• Cutting bonuses and incentive pay.

• Curtailing travel.

• Downsizing and restructuring of the Office of the President, where more than $60 million in savings has been achieved.

• Undertaking a legal analysis to create a viable framework for implementation of salary reductions or furloughs for employees.

• Reducing 2009-10 freshman enrollment targets by 2,300 students.

• Raising student fees by 9.3 percent for the 2009-10 academic year.

• Achieving a range of budget cuts, reductions in hiring and faculty recruitment, and administrative efficiencies on campuses.

Already in recent years, the state’s contribution to the per-student cost of education at UC has fallen significantly in inflation-adjusted terms, and student fees have made up part of the gap.

Officials said additional budget cuts such as the ones contained in the governor’s budget scenarios would exacerbate UC's already difficult budget situation and force the university to consider a series of actions — either in 2009-10, the following year, or both — that could negatively impact the university's quality and accessibility.

While no decisions have been made, these actions could include:

• Further enrollment reductions, thereby increasing the difficulty of gaining admission to UC.

• Cuts in academic programs, reductions in course offerings and increases in class sizes.

• Cuts in student services ranging from academic and career counseling to student mental health services.

• Pay reductions or furloughs for UC employees.

• Higher student fees, which may become unavoidable as one part of a series of cuts and cost-saving measures to confront new potential cuts.

The governor’s May budget revisions.

More about the student fee increases.

UC Davis budget news.

In appearance before Berkeley's Academic Senate, Yudof discusses the budget, furloughs and-or pay cuts, UC Retirement Plan.