FY2017-18 Budget Process
Divisions have been informed of their FY2017-18 budget improvement targets and each division will now consider how to implement their targets within their respective division.
An iterative budget process has been underway since December 2016. At a retreat in February, the Deans and Chairs discussed the budget process, opportunities, and challenges. Since then, the Office of the Chief Financial Officer (OCFO) has discussed budget issues regularly with the Council of Deans, deans in small groups, Vice Chancellors, Chief Administrative Officers, Divisional Finance Leaders, the Board of Visitors, the Berkeley Foundation, Academic Senate leadership, and student and staff committees. We have tried to conduct our work with transparency and the greatest degree of participation possible.
The goal of this year’s budget process was to learn and better understand the needs and objectives of each division so we could complete the hard work of meeting our deficit reduction target of $54 million in a thoughtful, strategic, and collaborative manner. We should note that the budgetary targets within the multi-year plan were established in concert with the Office of the President; the targets within the plan are non-negotiable.
The OCFO established a Target Setting Working Group composed of nine Divisional Finance Leaders (from seven academic divisions, Intercollegiate Athletics, and Real Estate) to recommend a methodology for budget target-setting. We tasked the working group with providing exclusions and establishing a baseline from which to set budget improvement targets. Exclusions represent the campus’ highest priorities and were exempted from the budget target calculations. The budget improvement target is the amount by which a division must improve its net operating budget between FY2016-17 and FY2017-18.
After constructive debate and discussion, the working group delivered recommendations that guided the exclusions to the base (FY2016-17 operating expense budget). Here are the items we agreed to exclude:
- Contracts & Grants: all expenses included under the fund category “Contracts & Grants” which includes federal, state, and private funding for things like research, training, and fellowships
- Academic Salaries & Benefits, including teaching activity: includes Ladder Faculty (fully and partially funded), as well as Other Academic positions and temporary academic support (TAS); does not include summer salaries
- Scholarships & Fellowships: all expenses included in the account category “Scholarships and Fellowships,” which includes fee remission and financial aid
- Activities funded with Student Services Fees: charged to all registered students and funds services that are necessary to students, but that are not part of the university’s programs of instruction, research, or public service
- Faculty Research on non-Contracts & Grants dollars: all faculty-managed funds including start-up, retention, and BEAR Grants
- Purchased Utilities
- Student Health Insurance Program funding: financial obligations of claims paid on behalf of student premiums
- Sexual Harassment Prevention Program
We shared the target methodology with the Council of Deans, Academic Senate leadership, CAPRA, Vice Chancellors, Chief Administrative Officers, and Divisional Finance Leaders in full transparency. Divisions were advised that they could meet their targets with either incremental net revenue or cost savings, and adjustments to targets were made after individual meetings with divisional leadership. The adjustments reflect academic priorities such as managing the impact of enrollment growth, anomalies in target methodology such as School of Optometry clinical operations, operational needs such as uninterrupted facility services, and investments in philanthropy. A full listing of division budget decisions will be posted on cfo.berkeley.edu.
The targets that divisions have been assigned are highly differentiated because of the way in which we have calculated the base (as described above) to which the targets were applied. Budget improvement targets for instructional divisions are about 1% of FY2016-17 budgeted total expenses; those for administrative, research, and service divisions are between 4% and 6%. We should note that many instructional divisions are meeting their targets almost entirely from increased revenues, while non-academic divisions are meeting their targets primarily through staffing and service-level adjustments.
The budget process concluded on Friday, June 23 with allocation letters being distributed by the Chancellor-designate with all final decisions on performance targets and annual allocations. The OCFO prepared the letters on her behalf and they were sent out to divisions (Deans of Schools and Colleges, Vice Chancellors, Vice Provosts, Head Librarian, etc.). Campus-level budget decisions are now final. Each division will communicate directly with their faculty and staff to explain how these decisions will be distributed throughout the division and how strategic plans will be implemented. As divisional decisions are made, we plan to have a coordinated communication plan about any adjustments to service levels that will impact faculty, staff, or students across campus.
The annual budget target for FY2017-18 is part of a larger five-year plan. Our reduction target for FY2016-17 was $40 million, which was primarily achieved through cost reductions. We will be able to make more progress against our deficit in FY2017-18 because of a concerted effort toward revenue generation programs; the reduction target for FY2017-18 is $54 million and will be achieved through an equal balance of revenue generation (52%) and budget reductions.
We had hoped to meet a significant amount of this year’s deficit reduction budget improvement target with increased revenues and we exceeded our initial goal. Based on the budgets submitted by the divisions, 52% of the targeted $54 million in deficit reduction will come from increased revenues including private gifts. This is excellent news because it means that every dollar we make in revenue generation is one less dollar we’ll have to reduce in expenses. We will continue to seek ways to increase revenues to offset the need to make cuts. In addition to over $8 million in private gifts, FY2017-18 revenue plans include new or expanded academic programming in University Extension, Summer Sessions, Concurrent Enrollment, Self Supporting Graduate Professional Degree Programs, and via Professional Degree Supplemental Tuition.
Divisional leadership will be accountable for their budgetary performance throughout the fiscal year so any needed strategic and corrective actions can be taken in a timely and effective manner. To achieve that goal, we distributed quarterly financial reports in FY2016-17 to help ready the campus for this new environment. We will continue to use our quarterly review process to assess and manage every division’s financial performance against the established targets and expectations. The quarterly review process helps campus leadership accurately assess if we're on track to meet our financial goals. These quarterly reports enable leadership to identify performance opportunities and challenges and make any needed material modifications to existing plans.
In addition to financial performance monitoring, we will track the specific performance of each revenue generation program. To support the campus in these new activities, a new department - New Academic Ventures at Berkeley (NAV-B) - is being established to vet agreements, develop and maintain an inventory of best practices, review and execute requests for consulting and other services, and develop analysts who can quickly construct data-driven market/demand assessments.
Will there still be merit and market increases for staff this year? Will senior leadership also be getting raises?
As in years past, merit, internal equity, and market-based adjustments will continue for non-represented staff or in accordance with represented staff collective bargaining agreements. Also, with the approval of the Office of the President, the senior leadership of the campus has agreed to forgo any salary increases. The categories of seniorstaff who will not be eligible for compensation increases this year include: Senior Management Group members, Vice Provosts, Deans, and employees classified at the Manager 4 level.
In addition, this year rather than having a separate 1% equity program and 2% merit program, we will have a simpler-to-manage 3% salary program pool that will be based on merit, equity, and market factors:
Merit: a pay for performance approach based on the employee’s performance rating
Internal equity: the employee’s salary relative to the campus-wide average salary for the employee’s job title
External market: the employee’s salary relative to the midpoint of the salary range for their grade (which is based on market data)
Division leadership will provide further information regarding their division’s procedures for administering this year’s salary program. The guidelines provide additional information, including eligibility criteria for salary increases, as well as important deadlines. In the meantime, FAQs are available online. Additional questions may be sent to firstname.lastname@example.org or handled by your HR Partner.
If budget reductions were limited in areas related to our instructional mission, revenue generating activities, and facilities maintenance, then where were reductions centered?
We are anticipating campus service adjustments and there will be further, detailed communications once divisions have decided which services will be impacted and how. A common focus in planning across non-academic units was to prioritize services or systems that support life safety, enable teaching and research, or are required to operate the university.
For example, facility maintenance will ensure that fire alarm and sprinkler systems are operational, that fume hoods and building HVAC function properly, and that electrical systems and basic building systems are working. IST will prioritize campus network services, protect network and data security, maintain campus systems such as the financial and payroll systems, and provide campus email service. CSS priorities are fundamental HR, payroll and research administration services. For students, there may be an increase in response and/or wait time for a variety of student services.
Faculty recruitment and retention remains one of the campus’ highest priorities and we will continue to invest in this.
The letter from Chancellor-Designate Christ refers to painful reductions; does that mean a new round of layoffs is pending?
Berkeley will continue to reshape our workforce in a way that best aligns with our needs, values, and available resources. To the extent that divisions are not able to meet budget targets for coming years, one way to lower costs is headcount reduction through attrition or, when necessary, through layoffs. Workforce decisions are made by divisional leadership.
Following the recent release of the State Audit of the Office of the President, the Governor has withheld $50 million of funding appropriated to the university in the 2017-18 Budget Act. This funding will be released to the university once it meets certain specified conditions. At this point, it is unclear how, if at all, the Governor’s decision will impact the Berkeley campus budget. The Office of the President is making every effort to meet the conditions set by the Governor to release the funding. It is also not clear how the Office of the President would decide to allocate the $50 million to Berkeley and the other UC campuses should the Governor decide that the university has not met all of its conditions.
There has been talk of rolling back the recently approved tuition increase. How does the campus plan for significant shifts in external funding?
Berkeley maintains a scenario-based financial model to anticipate changing political conditions. As each condition changes, the model is updated for decision making. Our current projections indicate that we can reach a balanced budget by FY2019-20. We have assumed that in-state tuition will grow at 2.5% each year and that nonresident supplemental tuition will grow at up to 5.0%. State support is projected to increase by 4.0% in FY2017-18 and FY2018-19 and 3.0% to 3.5% thereafter. We have also assumed that nonresident enrollment will remain capped at 24%. Salaries are assumed to grow at 2.0% and gradually increases over time to reflect enrollment growth projections. The model also assumes interest expense increases in 2021 as capital loans repayments start and debt deferral ends.
How are divisions in deficit, such as Athletics, accounted for in the aggregated campus budget and what actions are being taken to improve financial performance?
Our budget is comprehensive and includes academic, administrative, auxiliary operations (such as student housing and Cal Performances), and intercollegiate athletics programs, including all divisions reporting deficits. For FY2017-18, divisions were able to meet their budget targets either through revenue generating programs or cost saving activities. For example, Athletics was directed to improve its financial performance by $4.6 million over FY2016-17. We will continue to partner with divisions in deficit positions to make improvements to their net operating results throughout FY2017-18 and beyond.
Each division has a different capacity to generate revenues. Some revenues, like those generated by Self Supporting Graduate Professional Degree Programs, accrue directly to divisions. Others, like undergraduate and graduate tuition, accrue to the center and are divided among the many competing needs of the university. All divisions contribute to the generation of revenues either directly or indirectly. For example, while there is less of a market for Arts and Humanities Self Supporting Graduate Professional Programs, they - and Social Sciences - are among the largest contributors of teaching across campus and generate a significant share of the campus’ tuition revenues.