This message was sent to campus faculty and staff on April 11, 2016:
As we continue our work on the long-term strategic planning and review process that we announced in February, we write to provide an update on the specific near-term steps we are taking to address the campus’s structural deficit. Our ultimate goal is to achieve a balanced budget by 2019-20. As of today, we estimate that the cumulative effect of our present efforts, along with the assistance we are receiving from the Office of the President on restructuring our debt, will reduce our deficit by approximately $85 million by June 2017, the end of the next fiscal year.
That $85 million in savings will come from the following sources:
Annual budget process: As part of the annual budgeting cycle, all campus divisions have been asked to plan for and implement new cost-saving and/or revenue-generating steps that will account for a structural deficit reduction of approximately $20 million. We are seeing good progress in this work and are on track to meet our goals. Moreover, we are committed to sustaining these savings in order to reduce future deficits.
Campus-wide savings and efficiencies: The administration is also pursuing campus-wideactions, such as improved student health insurance premium costs and tighter budgetary controls, e.g., on discretionary travel, off-cycle funding commitments, and the like.
Increased revenue from philanthropy: In addition, the UC Berkeley Foundation has instituted a change in the formula for philanthropic allocations, moving it from 2.5% to 5%, a number more in keeping with the norm at other universities. At the same time we are increasing the endowment cost recovery fee by 25 basis points. Together these changes, along with the campus-wide measures described above, will allow us to make new investments in our philanthropic efforts, while yielding approximately $50 million in additional deficit reduction in fiscal year 2016-17.
Financial assistance from UCOP: In terms of debt restructuring, assistance from UCOP will enable us to obtain lower interest rates and lengthen the payback period on loans incurred for recent campus construction projects. This, alone, will reduce our deficit by $16.5 million in 2016-17 and by slightly more than $27 million per year in the period spanning 2017-20.
So, while these actions represent an $85 million move in the right direction, we will obviously need to continue our drive toward additional and thoughtful permanent changes.
As should be clear, we have not yet eliminated our deficit, and there are hard decisions ahead of us that we need to make as a community – but we are making significant progress. The short-term actions described above are helping to provide us with the time necessary to be thoughtful and strategic in terms of other measures we will take, including efforts to reduce operating expenses in the areas of academic programming, non-academic staffing, and athletic activities; increase philanthropy; and expand revenue-generating academic programs, including University extension and executive education.
As part of our larger administrative restructuring process, we envision a reduction in our overall administrative staffing levels by roughly 500 positions over the course of the next two years, including through using normal attrition and position control. The resulting staffing levels would be consistent with those we had in the fairly recent past; hence, we are confident that these represent a feasible target. Although the exact amount of savings this will yield is yet to be determined, a reasonable estimate of salary and benefits per employee indicates that we can eventually expect approximately $50 million more in annual savings from this moderate reduction of 6% of our staff workforce. In the coming months there will be additional, detailed communications about how we will continue to restructure our workforce for the future in the context of our administrative restructuring initiatives.
It is important to remember that the academic realignment assessment we are undertaking is a crucial part of our longer-term strategic planning. As we have conveyed in several recent messages, this assessment is now being undertaken by the deans, who have been asked to work with chairs and faculty to broaden the conversation and extend the deliberations across the campus. Our aim is to ensure that Berkeley will have an academic footprint and financial foundation that are fully aligned and capable of delivering the levels of support that our academic mission needs and deserves. For that to happen, our spending, investment and revenue-producing decisions must be driven by a detailed vision for who we want and need to be as a University ten, twenty, even thirty years from now.
Collaboration and Communication
The design and implementation of the reforms required to achieve financial sustainability while preserving and enhancing excellence are necessarily collaborative efforts. We have and will continue to set up working groups representing various perspectives, work with the relevant committees of the Academic Senate and other campus participants, and to otherwise facilitate input and dialogue.
We want to thank you for your ongoing partnership and collaboration as we work together to meet our financial challenges. As noted, we will provide regular updates and opportunities for participation and engagement as we continue to chart our path across the full range of our strategic initiatives.
Nicholas Dirks, Chancellor
Claude Steele, Executive Vice Chancellor and Provost