Dear UCR Colleagues,

On March 15, we wrote to you about knowns and unknowns regarding the FY25 budget. Now that Governor Newsom has signed the Budget Act of 2024, we have more information to guide our plans for UCR’s FY25 budget. 

SALARY AND BENEFITS INCREASES AT UCR

As we noted in our March 15 letter, most of our fixed cost increases are for salaries and benefits. Effective July 1, all represented staff will receive increases per their negotiated contracts, and all non-represented staff will receive increases of 4.2%. Effective October 1, faculty will receive a 4.2% increase to their salary scales, plus a 3% increase on any off-scale component, and distinguished faculty who are above scale will receive a 3% increase. Faculty who are below 5% of the projected median for their discipline, rank, and step will also receive increases to bring them to that level, per our biennial faculty salary equity program.

THE STATE BUDGET OUTLOOK

The FY25 state budget allocates $134.8M in new ongoing funding to the University of California, composed of:

•    5% increase ($227.8M) to the base state budget.

•    $125M cut to the base state budget.

•    $31M to replace nonresident undergraduates with California undergraduates, available only to Berkeley, Los Angeles, and San Diego.

•    Funding for UC Merced Medical School building and adjustments to graduate medical education funding.

The amount that will be allocated to UCR depends on our California undergraduate enrollment for FY25, which was down in headcount for FY24 (26,426) as compared to FY23 (26,809) and may be down even further for FY25. Thanks to concerted efforts to increase student credit loads, we have been able to mitigate the effect of decreased headcount (by increasing our Full Time Equivalent (FTE) counts, which is the basis for state funding), but we need both (more students and more credits per student) to ensure that our share of the state budget allocation is not decreased.

The California state legislature has proposed the following plans for funding UC over the next several years, but the current legislature cannot mandate spending in future years, so these plans may or may not be what is approved in the legislative session next year and the year after. The status of the state economy next spring, and our campus undergraduate enrollment for Fall 2025, will significantly impact near term state funding for UCR.

FY26:

•    Restoration of the $125M reduced in FY25.

•    7.9% cut (estimated at $376M).

FY27:

•    5% increase to the base budget (estimated at $253M).

•    $31M to replace nonresident undergraduates with California undergraduates, available only to Berkeley, Los Angeles, and San Diego.

•    A one-time repayment for a portion of the 5% base budget increase that was skipped in FY26.

FY28:

•    5% increase to the base budget.

•    $31M to replace nonresident undergraduates with California undergraduates, available only to Berkeley, Los Angeles, and San Diego.

Here is a table representation for FY25-FY27:

BUDGET PLANNING AT UCR

While the outlook for FY25 is not as dire as predicted in March, the outlook for the following year is very concerning. Therefore, we are planning now to be able to weather the significant cut likely to come in FY26.

Units save money every year on salaries and benefits through open positions that result from retirements, separations, and delayed hiring. These savings have contributed to a more than doubling of core funds carryforward in the past four years (from $114.4M in FY21 to $256.8M in FY24). The Campus Finance Committee has recommended that we use the mechanism of “salary savings” to meet our fixed cost increases for FY25 and FY26. “Salary savings” refers to a budget cut only to the salary component of a unit’s core budget. For the schools and colleges, the salary savings cut will be 4.5%; for all other units, the salary savings cut will be 6%. Since the cuts are applied only to the salary component, the effective total core budget cut ranges from 2.6-3.4% for academic units and 2.0-4.1% for support units. Unit heads are encouraged to share the specifics for their organization with their staff and faculty.

Given the large, and growing, carryforward accounts across campus, unit heads are encouraged to use these carryforward funds to fill the gaps in their budgets. There will be no freeze on hiring; all hiring plans can proceed as planned.

The revenue from core salary savings amounts to about $16M. Combined with our portion of the new state revenue (we have not yet been told the exact amount) and other smaller sources of revenue (e.g., investment income, returns from the composite benefit rate pool, new nonresident tuition), we expect to be able to meet our fixed cost increases of $31M for FY25. This includes central funding for the salary and benefits increases described earlier in this letter. When we know the final amounts, we will detail them in our annual fall budget letter to the campus community. We also believe this action will best position us to be able to address FY26 and FY27 core budgets without additional reductions, depending, of course, on the outlook for the state economy next spring and our student enrollment/FTE status at that time. While the state suggests it will support the UC budget going forward, that support ultimately depends on the state’s economic recovery. We are encouraged by the legislative proposal to provide one-time funding in FY27 and FY28 to cover the deferred 5% increase from FY26. 

FINAL THOUGHT: THE IMPORTANCE OF ENROLLMENT

As noted above, our state allocation depends on enrollment — specifically, California undergraduate enrollment. The “compact” with the Governor, which provides for annual budget increases, is focused on growing this enrollment. To ensure that we do not receive a disproportionately larger cut in FY26, we must endeavor to increase enrollment of new California undergraduates in Fall 2025 to meet the targets set by the colleges and schools. Other opportunities to increase our revenues include enrolling more non-resident undergraduates and more master’s students. These fund sources help to mitigate the effects of state budget reductions and allow us to continue our operations as planned.

Thank you for your understanding and your cooperation as we strive to achieve financial stability, resiliency, and sustainability, as prioritized in the first goal of UCR 2030.