COVID-19 Update: Addressing Budget Impacts

July 17, 2020

Dear Members of Our Campus Community,

Last month, we wrote to you about our path forward and our extensive planning efforts to prepare for a measured and phased increase in our on-campus research and teaching in accordance with government and public health guidelines, and in consultation with our campus colleagues, health experts, and students.

The unknowns our campus is facing make this process extremely challenging, and we are deeply grateful for everyone’s hard work, creativity, and most importantly, patience as we plan for our path forward — one that allows us to fulfill and enhance our university’s mission of teaching, research, and service while at the same time protecting the health and well-being of every member of our campus community. Private fundraising and federal stimulus support such as the CARES Act have allowed us to provide our undergraduate and graduate students with continuing financial support and services.

COVID-19 Budget Impact
The COVID-19 crisis and its accompanying uncertainties have profoundly impacted the financial health of universities across the country, and our campus is no exception. Our state government has also shared projections of declining tax revenues, and as a public institution we can expect to experience a reduction of our state funding.

State Budget Appropriations Impact
California Governor Gavin Newsom announced on June 22 a revised State budget for fiscal year 2020-2021. In addition to withdrawing a proposed 5 percent increase for the UC system, the revised budget includes a possible 8 percent reduction for the UC of approximately $300 million, effective July 1, 2020. This represents a permanent reduction of $36 million for our campus. The budget includes a provision to eliminate or minimize the reduction if federal stimulus funds are available. The state budget process is ongoing and we may not know what our state support will be for the next fiscal year until October.

Campus Financial Losses
At present, we estimate the financial impact of this pandemic on our campus is $60 million in lost revenue and additional expenses as of June 30, 2020. Including the 8.1 percent reduction in state support, we estimate that our budget impact, including mostly temporary losses, could be in the range of $160 million to $210 million as of June 30, 2021. The combination of additional unanticipated expenses and the loss of revenue from campus housing and dining operations, parking, student health services, Arts & Lectures, athletics, and summer conference activities will have a significant impact on our campus budget.  

Cost Reduction and Mitigation Strategies
In order to preserve our campus’s fiscal health, we are taking steps to reduce costs and expenses. In April, we announced hiring controls for administrative staff positions and our plan to manage upcoming vacancies to help mitigate personnel costs, which account for almost 80 percent of our campus’s operating expenses. With regards to non-salary costs, we are reviewing all discretionary expenses.  

President Napolitano has already announced a number of systemwide steps to help address the expected budget impact:  

  • a systemwide freeze on salaries for policy-covered staff employees;
  • a systemwide freeze on salary scales for policy-covered, non-student academic appointees. To ensure a stable faculty pipeline and to maintain our teaching and research enterprise, we will continue the regular academic peer-review merit advancement program;
  • a voluntary pay cut of 10 percent for current Chancellors and the President.

The financial outlook for the coming year is serious, and depends largely on factors we cannot predict at this time. We are developing a range of financial scenarios to protect our academic core. We will need to be agile in our fiscal management to protect the excellence and diversity of our campus’s mission. We will also engage in a consultation process as we develop financial scenarios to address our budget impacts. In addition to consultation through our COVID-19 Response Working Group and our Planning Group for Research and the Fall Quarter, we have engaged the Chancellor’s Coordinating Committee on Budget Strategy to review and propose our planning principles and priorities to advise and guide our budget management.

We remain hopeful that the federal government will pass additional stimulus legislation that provides more funding for COVID-19 research and capital and infrastructure projects, and potentially other support for higher education. In the meantime, our campus is pursuing reimbursement from the Federal Emergency Management Agency (FEMA) as part of our response to the COVID-19 emergency.

Our campus has faced budget challenges in the past, and we are confident that together our community will overcome the difficulties that lie ahead. We are deeply grateful for the efforts and sacrifices each of you has made on behalf of our campus and the broader community. Your commitment and dedication are the lifeblood of our three-pronged mission of teaching, research, and public service while striving for excellence and diversity — a mission more important now than ever before.

We will continue to keep you updated with the latest information and our planning efforts as we further assess the situation. As always, please take good care of yourselves and each other.

Sincerely,

Henry T. Yang
Chancellor