UC Faces a Budget Hole of Not $500 Million But $700 Million

The University of California faces a more than $200 million deeper reduction than the $500 million proposed in Gov. Jerry Brown’s budget – in part because the state refuses to make a contribution to the 10-campus system’s retirement system.

UC says the state, as it has in the past, should pay a percentage of the employer payments the university makes to its retirement system based on the $3 billion general fund contribution the state makes to the system’s $6 billion instructional budget. Brown would reduce the $3 billion to $2.5 billion.

Since UC’s employer contributions resumed in April 2010 after a 20-year hiatus, the state has maintained that because the university’s retirement system is separate from the California Public Employees Retirement System, no contribution is required.

“The governor’s budget treats the UC pension issue in a manner consistent with prior budgets – it proposes no state contribution to its independent retirement system,” said H.D. Palmer, a spokesman for Brown’s Department of Finance.

Sparring between the state and the university has intensified as the state’s fiscal condition has worsened.

Although the budget for the fiscal year ending June 30, 2010 proposed giving UC $20 million to cover the state’s share of the employer payment for the final three months of the fiscal year, lawmakers removed the money from the final version of the spending plan.

The administration also inserted language in the budget to prevent the state from having to make any further payments into UC’s retirement system.

“This represented a real dilemma,” said Patrick Lenz, UC’s vice president for budget. “We were restarting everybody’s else’s contributions and yet the state didn’t.”

In the record-late budget approved in October, UC succeeded in repealing the prohibition and renewed its efforts to get the state to pay a percentage of the employer contributions.

Last year, the contribution level was 4 percent of revenue, representing a $96 million payment from the state.

This year, the contribution level is 7 percent, $171 million to the state.

For the 20 years, UC’s return on investments was sufficient to not require any contributors from either employees or employers, the state saved $2.5 billion, Lenz said.

Historically, the state has contributed to UC’s retirement system, which was created in 1961.

Then Gov. Ronald Reagan’s 1969 budget shows a contribution of $14.1 million to the fund from two years earlier.

Twice in the 1980s, the state has missed payments because of fiscal problems but agreed to repay what was owed over time.

The state’s contribution is calculated and included in the budget request sent to Sacramento by UC’s Board of Regents.

Lenz says that $171 million is part of some $350 million in mandatory costs that include a $23 million increase in employee health benefit costs, $5.5 million higher energy costs, $28 million in “academic merit increases” and $87 million in “potential employee salary increases.”

Those increases would go to employees who haven’t had a raise in three years and are now required to contribute 2 percent of their salary to the pension fund, climbing to 3.5 percent next year, Lenz said.

The combined $850 million hole is partly filled by $115 million – the net amount left from the fees hikes approved last year by the university. Total revenue from the 8 percent increase approved in November is $183 but one-third is devoted to financial aid.

There is no such dispute with the 23-campus California University System. Its retirement system is part of PERS and the Brown administration has proposed a $75.2 million increase in employer payment in the budget.

However, CSU is quick to point out the $500 million reduction proposed by the Democratic governor is an 18 percent cut that leaves its funding at the same level as 12 years ago, while attendance has increased by 70,000 students.

The Legislative Analyst, while not objecting to the state making a contribution, is concerned about safeguards.

“These retirement costs are in part — I emphasis in part — costs of UC fulfilling its public mission and generally the state has supported UC’s core mission with general fund revenue,” said Steve Boilard, director of Higher Education for the analyst’s office.

“There’s nothing inherently distinct about this particular cost with one exception:  UC makes its own decisions about these retirement benefits, which determines what the out-year costs will be.

“Our concern is we wouldn’t want the state to be obligated for whatever amount, even a percentage, UC decides it independently wants to provide for retirement benefits.”


Filed under: Budget and Economy


  1. These cuts to higher ed are a disgrace, especially coming from Brown, an alumni of UC Berkeley. Brown paid little or nothing for his own education – they didn\’t even have tuition when we went to Cal. Previously, when he attended Santa Clara Ben Swig, the late hotel magnate – a financial backer of his fathers – paid his tuition. Brown got a free-lunch education but thinks all future students ought to go in hock for life while he protects bloated prison guard wages and highway patrol overtime. Higher ed is an essential service the state provides, it\’s the engine that drives our economy – what we have to export, besides agriculture products, is knowledge, trained workers. These cuts to higher ed are just revolting.

    Comment by rich — 1.25.2011 @ 8:17 pm

  2. Higher education is so important, important enough to pay for it yourself. This state pays way too much to the UC system, sorry but students can get a job and work for their education. I did exactly that so I don’t see what the problem is. Since the Government has been funding colleges the cost have been rising faster that we the people can pay!

    Comment by Mitchell — 1.25.2011 @ 10:09 pm

  3. Perhaps the Regents could sell either of the two properties they own in Paris, France, or the one in Madrid, Spain. Or the office building in San Francisco’s financial district, or even the strip mall in the Bay Area that has a world-class strip joint. Heck, they could even cap salaries at $200k a year, too. Nah… They’ll just whine and beg for more revenue, raise tuition, and nickle and dime the schools maintenance.

    Comment by Tim — 1.26.2011 @ 6:24 am

  4. UC employees have only recently started contributing to their retirement, and other public employees, such as community colleges, contribute at more than twice the 2% rate UC employees are now, and they have been for many years. If anything, UC employees should pay more than the 5% contribution to catch up to what other public employees have contributed throughout their careers. That fairness should more than cover the subsidy UC is seeking from the state.

    Comment by Ken — 1.26.2011 @ 9:02 am

  5. This is a BS approach by UC (I’m a UCB alum & govt employee). They and their employees did not make ANY contributions to their retirment system for (dont fall off your chair) 20 FRIGGIN YEARS! Employees should contribute more (10% of salary) and the UC should take money away from other priorities to fund the retirment system or reduce/eliminate it – which they won’t. The State should give UC a set contribution and it is up to the Regents to divide it up between all the costs of running the system. There is too much waste, too many non-core programs/services, and salaries that are insultingly too high. Instead of gouging poor students with fee hikes & asking the State to just be a bottomless deep pocket, UC should learn how to prioritize and live within its budget – it’s long overdue.

    Comment by Reilleyfam — 1.26.2011 @ 11:52 am

  6. Why don’t we just shut it down. Sell off the UC Brand and assets. Sell off all the buildings, cover all the debt and walk away rich. Univ. of Pheonix will gladly fill the demand. Do they charge more? No matter, the for-profit higher education market will be happy for the added income and profits. And we won’t have to worry about what they pay their management or staff. Supply will meet demand.

    Best news yet, UC applications are up dramatically, even though with the raised tuition. So we know students are willing to pay more for less. Univ. of Pheonix already has a for-profit business model that proves works. The campuses will be worth billions. Except for the letters and sciences programs, they don’t bring in money.

    And those UC buildings in Paris, Spain, and SF provide operational income. They are diverse investments paying UC operating costs here in California where real estate isn’t soing so well. Lets sell those and distribute the one time cash to lower our taxes.

    Comment by Otis — 1.26.2011 @ 4:03 pm

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