The University of California at Berkeley, the nation’s most prestigious public university, is facing a “substantial and growing” budget deficit and is preparing to take measures that its leader warned will be “painful” as it repositions itself financially.
University Chancellor Nicholas Dirks announced Wednesday that Berkeley needs to review almost every aspect of the school’s finances — including its academic and administrative structure, how it generates revenue and philanthropy, and what it spends on athletics and buildings. Berkeley officials say the school’s expenses are projected to exceed revenues this year by about $150 million, or 6 percent of its operating budget.
Dirks made clear that spending cuts are on the table as Berkeley confronts the toll of years of tuition freezes in an era of sharp limits in funding from the California legislature. While there have been modest state funding increases lately, just about 13 percent of Berkeley’s operating revenue came from state appropriations in 2014-2015, down from roughly 50 percent in the 1980s.
“Even as some of the investments we make will be greeted enthusiastically, we also know that some of the changes we will undergo will be painful,” Dirks wrote in a message to the campus community. “Throughout the process, however, it is crucial that everyone work together to ensure both that we make the right decisions and that we make them in the right ways. Every aspect of Berkeley’s operations and organizational structure will be under consideration.” But he told reporters in a conference call that he did not plan any faculty layoffs or elimination of athletic teams.
With about 37,000 students, Berkeley perennially ranks as the top public university in the country and is the jewel of the world-renowned UC system. Fiscal troubles at the Golden State’s flagship underscore perils facing public higher education nationwide.
“It’s a dramatic example of the financial pressures facing even world-class universities as a result of state disinvestment in higher education,” said Terry Hartle, a senior vice president of the American Council on Education. Serious financial issues are inevitable when revenue is constrained and expenses grow, he said. “These places that are among the wonders of the modern world need money to run on.”
George Pernsteiner, president of the State Higher Education Executive Officers group, said state funding for public colleges plummeted after the 2008 economic recession but has risen modestly in recent years.
“Things are getting stronger,” he said. “But they’re not back to where they were.” Berkeley’s plight shows that the long-term financial position of flagship universities “is still not as positive as it may have been 20 or 30 years ago,” he said.
In-state tuition for UC students, frozen since 2011 at about $11,200, is scheduled to rise in 2017 at a rate roughly tied to inflation. That figure doesn’t include various fees.
Like many public universities, Berkeley has relied increasingly on out-of-state students in recent years to boost its finances. Non-Californians pay a big premium to attend the school; their tuition and fees — $38,139 a year — are nearly triple what state residents pay.
The share of Berkeley freshmen from California has fallen sharply. Federal data show that 90 percent of the school’s freshmen were in-state students in 2004. By 2014, the share had fallen to 69 percent. That was one of the biggest drops in the country among the nation’s flagships. In the coming year, the school and others in the UC system plan to grow the number of students admitted from California.
Political pressures in California have led to years of in-state tuition freezes, and Berkeley does not operate a medical center, which is a common revenue source for many state universities. The school’s pension and health care costs are rising, and the school also faces unique capital costs for seismic safety because of its location in an earthquake-prone region and its aging infrastructure.
Dirks, chancellor since 2013, said the university must adjust to a “new normal” financial situation. State funding as a share of the school operating budget might rise or fall a bit from one year to the next, he told reporters, but the current level of financial support seems more or less “here to stay.” Dirks said the school seeks more “self-reliance.”
“This endeavor must not be interpreted as an abandonment of our commitment to a public mission nor to our efforts to advocate for increased public funding for higher education,” he wrote.
Dirks did not specify how the university will cut spending. He pledged to consult with faculty, UC President Janet Napolitano and other stakeholders, including staff, students and alumni. Napolitano, who oversees the system, said Berkeley’s fiscal situation is unlike what the other nine UC campuses face.
“The budget challenge they are addressing resulted from a variety of factors, some being well-intentioned campus choices made over time, and others being the financial pressures faced by many universities nationally,” Napolitano said in a statement. “While other UC campuses are not facing the budget challenge that UC-Berkeley is confronting, I trust that the strategic framework process and the lessons learned from it will be useful to all of the University of California.”
Among the steps Dirks outlined were:
- Evaluating the university workforce and staffing levels, seeking to reduce administrative overlap
- Improving support for teaching and research
- Expanding fundraising capacity and alumni outreach
- Raising revenue through use of the Berkeley “brand,” land and other assets
- Working with the Academic Senate and others to redesign academic units, with the possibility that some could be strengthened, some narrowed to a special focus and others merged or rearranged
- Expanding online offerings and extension courses, as well as professional and other master’s degree programs that earn revenue
- Scrutinizing the widening gap between athletics revenue and expenses. Dirks said the school is pursuing “major opportunities to increase revenues and donor support for scholarships” and looking to cut expenses.