Subject: Message to the UC Berkeley Community on the Current Economic
Situation
Date: Mon, 15 Dec 2008 15:52:38 -0800
From: Robert J. Birgeneau, Chancellor
December 15, 2008
Dear Colleagues:
Over the last several weeks, we have all read reports that the State,
national, and global economies are in recession and that the financial
markets remain in turmoil. We are writing to update you on the
university's response to these developments and on our broader
financial strategy for the time ahead.
The economic environment has worsened significantly in the past few
months and, while we do not know the future severity or length of this
recession, we must plan for the possibility that this will be the
longest and most severe recession in the post-World War II era. As
you would expect, the UC Berkeley leadership team is spending
significant time understanding the situation, analyzing the impact,
and developing concrete actions and contingency plans to prepare for
the times ahead.
As of today, we are already seeing that the leading private
universities have experienced significant drops in the value of their
endowments and are engaging in severe budget cuts. Leading public
universities are facing the same uncertainties we do regarding the
level of State support that can be expected in the near-term and
longer-term future. In addition to state and private funding impacts,
we are also hearing concern among all of our peer universities about
possible reductions in grants and contracts from federal agencies and
foundations.
Given this environment, the campus leadership is working to
anticipate our financial challenges, prepare for reduced funds, and
develop contingency plans and scenarios so that we can continue to
maintain the excellence of UC Berkeley as we fulfill our public
mission of educating the State of California's students.
While the current financial picture presents all of us with many
unknowns about our financial future, we want you to know that we are
making every provision to protect and preserve the excellence of our
institution while dealing with a very constrained budget situation.
We will communicate with you regularly, both to solicit your ideas and
to update you on the financial situation and our plans to address it.
This message is designed to update you on the context at this juncture.
How severe is the situation?
The State of California is in a very serious budget crisis.
California's economy is suffering dramatically, resulting in a
downturn in employment, personal income, and retail sales, which, in
turn, translates into lower income, capital gains, property and sales
tax revenue to the State. As a result, the State is operating with a
fiscal deficit projected at a total of $28-$40 billion over the next
two years.
Given these conditions, the State will be hard-pressed to maintain
current fiscal spending and is currently looking to find funds from
any and all sources to reduce the shortfall and jump-start a recovery.
It is also true that the endowment for UC Berkeley, which was valued
at roughly $3.0 billion in June 2008, has declined and therefore will
yield a lower payout to the university than had been anticipated. The
endowment has a payout formula that acts to smooth what otherwise
might be large changes in payout next year to more graduated
reductions over a number of years. Consequently, the full impact of
this reduction will not be felt until two to three years from now
We are currently planning for our permanent State funding to be
reduced by $30-$40 million, effective July 1, 2009, recognizing that
permanent funding may decline even more if the state economy remains
moribund well into next year. As noted above we also face ongoing
reduced levels of payout from the endowment.
At the same time, our costs will continue to grow. For example, last
year's PG&E bill came to $8 million, which was not funded by the
State, but which we covered from the now-largely-depleted Chancellor's
discretionary reserves. This year, we expect that bill to rise to $11
million. This is just one example of some of the challenges we face.
Have any decisions already been made?
We are not waiting for our fate to be determined by the State. In
consultation with the Academic Senate, campus leadership has made
several decisions that will position us to address the most pressing
issues now as we plan and anticipate the next wave of financial
challenges. The following are highlights and a sample of our overall
philosophy and approach to ready us for the challenging times ahead.
1. We will give top priority to maintaining the quality and breadth of
our undergraduate teaching curriculum.
We have informed the Council of Deans that their central allocations
for next year's Temporary Academic Staffing (lecturers, graduate
student instructors, visiting instructors) will be at least as high as
they are this year. We are working with the deans to specify how much
additional funding will be required to provide a curriculum that will
accommodate undergraduate demand for gateway courses, service courses,
and graduation requirements. This does not mean that all will be
perfect and that impacts will not be felt, but we are committed to
putting undergraduate education in a priority position.
2. We have substantially slowed the pace of new faculty hiring
Given the outstanding success in faculty recruiting during the past
four years, we have reduced the number of new searches conducted
during the current academic year and plan to continue that slowed pace
(~25 searches, campus-wide) next year. Decisions about the allocation
of these positions among campus units are made in close consultation
with the Academic Senate's Budget Committee.
3. We remain deeply committed to our high-achieving faculty.
Our reputation as a world class university rests in no small measure
upon the excellence of our top faculty and, as a result, the
individuals they attract to Berkeley. We will continue to have as a
high priority the support and retention of our highest achieving
faculty.
4. We intend to avoid the practice of making cuts by simply allocating
an across-the-board budget reduction of "x" percent to all vice
chancellors, deans, and directors.
In the end, we may be forced to allocate a reduced percentage of the
reductions in that way, but right now we are seeking solutions that
entail making difficult choices rather than imposing across-the-board
cuts.
5. We are progressively moving all endowed chairs toward a model of
payout that increases funds for graduate student support, faculty
salary support and "common goods."
This approach will create more financial predictability within
academic units. In addition, because this model is more stable, it
will sustain us longer into the future against uncertain budget funding.
6. Workforce reductions will likely be necessary.
We are exploring ways to preserve staff positions where possible and
to create positive working environments. Voluntary options such as
reduced work weeks, flex time and job sharing are under discussion.
In addition, staff have again been offered the opportunity to reduce
temporarily their percentage time without loss of service credits
through the voluntary START program. Finally, we hope to achieve
workforce reductions primarily through normal attrition but this will
depend sensitively on the nature and distribution of such staff
departures.
7. We have no plans to initiate the lengthy process of disestablishing
academic departments, schools, or colleges.
UC Berkeley's comparative advantage lies in the breadth and depth of
its academic excellence.
8. We will look for every opportunity to cluster or reconfigure the
administrative functions of some academic departments, schools, and
Organized Research Units (research centers and institutes). There
will be a parallel effort in the administrative units as well.
9. We are designing a Berkeley-specific early retirement incentive
plan for faculty, which we expect to announce early in the New Year.
Since the Regents consider it imperative that monthly pension
contributions resume in July 2009 (after a very long hiatus of almost
twenty years), many faculty and staff may find it to be in their
financial interest to transit to the pension fund, where they do not
make monthly payments and currently receive an annual two percent cost-
of-living adjustment.
Our faculty retirement incentive planning will presume a resumption of
pension payments and will offer additional incentives. If many
faculty choose retirement, we may find ourselves in a position to
accelerate the rate of faculty hiring. If that is not possible, we
will increase TAS expenditures to compensate for faculty retirements,
as needed to maintain the undergraduate curriculum.
We are also exploring options for a retirement incentive program for
staff.
What other options are being considered?
The above decisions reflect our search for both revenue generation and
cost savings in the near term. To guide our longer-term efforts to
align our income and expenses in this new economic environment, the
Chancellor's Cabinet (vice chancellors and vice provosts), the Council
of Deans, and leadership across the campus have brainstormed to create
an ever-expanding list of possibilities.
Vice Chancellors are in discussions with their units to expand the
list further. We are also seeking advice from campus groups on how to
relieve the workload on many of our staff, by revising or suspending
certain practices that may no longer be desirable and that are not
required by law or university policy. In subsequent communications,
we will update you on the precise content of measures we are
considering along the following six tracks:
1. Near-term cost savings
2. Near-term enhanced revenue-generation
3. Long-term cost savings
4. Long-term enhanced revenue-generation
5. Reduction of reporting workload on staff.
6. Reconsideration of the scale and pace of planned capital projects.
Silver linings
Although the situation is very serious, there are silver linings. The
decline in housing prices and the existence of our faculty home-loan
program (MOP) improve the prospect that our new faculty will be able
to finance a home purchase in the East Bay. The high stress on our
peer competitors' budgets holds out the hope that the number of
faculty retention cases will decline.
Also due to the recession, bids for work on our capital projects are
coming in rather lower than anticipated, which means that they will
likely cost less than originally planned.
In addition, we have enormous private fund-raising potential, which we
are hopeful will not be seriously diminished by the recession. As a
measure of their commitment to UC Berkeley, the 22 members of the
Chancellor's Cabinet, this year and last, have contributed or pledged,
in total, nearly $400,000 in personal funds to the university,
primarily for financial aid for undergraduate and graduate students.
This does not include the one member of the Cabinet, Frank Yeary, who
is annually donating his entire salary back to the University.
Our commitment to you
We appreciate all that you and your colleagues have been doing to
prepare for and understand our changed financial landscape as we chart
a course for the future. We remain as confident as ever that the
unique strengths that have made UC Berkeley a beacon of access and
excellence will serve us well in the times ahead.
We will keep you up-dated regularly as we meet the difficult situation
that faces all universities in this time of economic stress.
Together, we can, as we have in the past, face these challenges
successfully.
Robert J. Birgeneau
Chancellor
George W. Breslauer
Executive Vice Chancellor and Provost
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