1. UCLA Budget Outlook FY 2004-05 Presentation by Steven A. Olsen Vice Chancellor, Finance and Budget November 18, 2003

2. Purpose of Briefing 2003-04 Budget Cuts State Budget Outlook for 2004-05 Potential Impact on UC and UCLA

3. Deep Cuts in State Funding for UC in 2003-04 $484 million, including last year’s mid-year cuts –15% of UC’s state funds $230 million offset by increased student fees –Net reduction of $254 million –8% of UC’s state funds

4. UC Partnership Agreement Underfunded by $1.1 billion since 2000-01 –$424 million in budget cuts to existing programs –$230 million offset from increased student fees –$423 million in forgone funding for salaries and other inflation adjustments Current state funding 27 percent below Partnership levels Maintaining the partnership in 2004-05 would require: –Restoration of the historic shortfall; plus –$294 million normally requested for enrollment, inflation, and other costs –Not a chance!

5. State Funding Trends for UC Since 1985: –Educational spending per student has declined 12 percent in constant dollars –State subsidy has fallen from 82% to 63% –Student fee share has grown from 11% to 25% Since 1971: –UC’s share of the State General Fund has declined from 7% to 4% –State funding per student has generally been constant, but slipped in early 1990s and since 2000-01

6. Impact on UCLA in 2003-04 (including 2002-03 mid year cuts) Research –$4 million Student Services –$4.5 million Outreach Programs –$3.2 million Instruction, Academic & Institutional Support –$14.8 million

7. State Budget Outlook: The California Economy LAO believes that California and the nation have “turned the corner” economically –Sharp improvement in business investment spending –Strength in construction, exports, and consumer spending –Healthy business earnings reports –Higher state tax collections from withholding and estimated payments Personal income and employment expected to strengthen in 2004

8. State Budget Outlook: State Revenues LAO projects revenues from major state taxes will be up –$800 million in 2003-04 –$1.5 billion in 2004-05 Underlying revenue growth is healthy But revenues from tribal gaming and the planned sale of pension obligation bonds have fallen short of projections

9. State Fiscal Crisis: How Did It Arise?

10. State Budget Outlook: General Fund Condition LAO’s Baseline Forecast for 2004-05 –GF Revenues of $75.0 billion –GF Spending of $85.7 billion –Operating Deficit of $10.7 billion –Accumulated Debt of $10.2 billion Full restoration of VLF backfill would add $4.2 billion to deficit

11. Putting the $14.9 Billion Operating Deficit in Perspective As a percent of General Fund revenue: –20% As a percent of General Fund spending: –17% of total spending –45% of “discretionary” spending excludes Prop. 98, debt service, Medi-Cal, Cal-Works and VLF backfill

12. Major Fiscal Policy Issues Facing Governor Schwarzenegger The VLF Backfill Tax Issues Proposition 98 Borrowing and State Debt Reductions in Discretionary Spending

13. Outlook for Higher Education Higher Education is vulnerable to budget cuts –No constitutional protection, like K-14, debt service –No federal protection, like Medi-Cal, CalWorks –UC, CSU make up 16 percent of “discretionary” budget Legislature has already stated UC & CSU will receive no new funds for salaries or enrollment Mid-year cuts possible Expect additional cuts for 2004-05 to be announced in January

14. Possible Outcomes for UCLA Higher Student Fees Move toward self-supporting financial environment for some professional schools Loss of enrollment growth funding, leading to reduced admissions targets UC priority to protect instruction and academic support Further cuts in research, student services, outreach, teaching hospitals, institutional support