Chancellor Carol Christ, Executive Vice Chancellor and Provost Benjamin Hermalin and Vice Chancellor for Finance and Chief Financial Officer Rosemarie Rae Balla sent the following message to the campus community on Wednesday:
We are writing today to provide the campus community with an update about our campus’s financial health, the status of our budget, and the plans and processes we have in place to address both short- and long-term challenges.
Financial Overview: The Big Picture
Over the past decade, UC Berkeley has faced and surmounted a series of financial challenges. In 2018, after years of difficult austerity, we managed to overcome and resolve what had been a $150 million structural budget deficit. And it is only recently that we have begun to recover from the COVID-19 pandemic’s impacts, which included a complex mixture of reduced revenues and increased costs. Unsurprisingly, the campus rose to meet these challenges and emerged a more resilient and resourceful institution in the process.
Yet, our financial foundations remain fragile as our two primary sources of operating revenue — tuition and state funding — have not kept pace with increases in the costs of goods, services and labor. Today, UC Berkeley spends more than $33,000 per undergraduate student on instructional costs, yet we receive, on average, only $25,000 in tuition and state support for each student we enroll. This untenable and unsustainable gap is one of the reasons we have launched the Financial Sustainability Initiative, which will help guide and accelerate our ongoing transition from an institution with an overreliance on two revenue streams over which we have no control — tuition and state funding — to an institution with a strong, diverse, reliable and resilient mixture of funding sources. You will be hearing more about this as the initiative progresses, but in the meantime, we invite you to review the initiative’s website.
Financial Overview: The Short Term
Next fiscal year, Berkeley and the entire UC system will be confronting the financial challenges arising from the increasing cost of compensation for our faculty, staff and graduate students. This will include an approximately $108 million mandated increase in faculty and staff salaries and, starting in fiscal year 2023-24, an additional $20 million for graduate student instructors.
While the state budget has not been finalized, the campus is projecting an increase in state general funding of $23 million and a $12 million increase in tuition revenues. While we appreciate and are grateful for the anticipated increases, they are clearly insufficient to meet the compensation increases we must pay for, not to mention the rising costs of goods, services and utilities. Consequently, we must identify and rely on other sources of funding if we are to avoid the return of campuswide budget deficits.
Given these circumstances, we will implement a conservative budget process for fiscal year 2023-24 that reflects the reality of cost increases continuing to outpace growth in tuition and state support (core) funding and takes into account the need for campus divisions to bear a large share of the increased expenses. To that end, the following parameters have been established for the budget process:
Because we recognize that covering cost increases next year will be very difficult for the divisions, there will be no reinstatement of a cost recovery assessment or budget cuts/targets, which have been used in the past to address financial challenges.
The center will cover the 4.6% salary and benefits increases for state-funded Senate faculty, consistent with prior years.
The divisions will cover the 4.6% salary and benefits increase for non-represented staff, as well as contractually mandated increases for represented staff.
The center will pay for all additional costs projected for this year ($1 million) for graduate student instructors (GSIs) and other instructional staff covered by the new UAW agreements. We will also increase the Temporary Academic Support (TAS) budget — through which the center supports GSIs, lecturers, readers and tutors — by almost $12 million next year, which represents a 20% increase in TAS funding over the current year.
Colleges, schools and individual principal investigators (PIs) will be expected to cover the increased cost of the compensation for graduate student researchers (GSRs) and other research staff covered by the contracts. However, we will create a $5 million emergency relief fund to cover these costs for schools and colleges that do not have the resources for them.
The center will increase the permanent general allocation to campus divisions sufficient to cover a 3% salary and benefits increase for staff paid with core funds. The divisions will have discretion as to whether these funds — versus other divisional funding sources — are used to pay for the mandated staff salary and benefits increase.
The allocation for EVCP TAS funding will be increased from $61.5 million to $73.4 million to assist academic units in covering their instructional budgets.
A $10 million Critical Priorities Fund will be established for the allocation of one-time resources during the budget process to address compelling needs for which there is no other funding source.
The center’s contribution to these funding needs will place significant pressure on the central ledger, which is in a concerning state of decline. Making the financial commitments outlined above and maintaining a positive balance in the central ledger next year will require a cash infusion currently estimated to be $82 million, the likely source of which will be the realization of investment gains. Given the volatility in the stock market right now, this strategy comes with some risk. Another risk we are closely monitoring is the recent spike in our utilities costs, which are currently estimated to be $25 million higher than planned for this year. Since these costs are borne by the center, any unanticipated increase next year will again place added pressure on the central ledger.
We look forward to talking more about these issues, and to answering your questions, this Friday at 4 p.m. during the next “Campus Conversations” event, which will be dedicated to Berkeley’s budget and finances.