A. Funding Trends in Public Higher Education

In the 1990s, state funding for higher education increased significantly across the country, but in most states the share of the budget going to higher education declined, even as the amount of public funding increased. Between 1972 and 2001, the average share of state general funds in the U.S. going to public education fell by almost five percentage points from 39.9 percent in 1972 to 35 percent in 1993, and it recovered only to 36.1 percent for the balance of the decade. Between 1977 and 2001, the average share of that public education budget going to higher (post-secondary) education fell by six percentage points, from 22.6 percent to 16.4 percent.¹ In California, the percentage of general funds going to higher education declined from nearly 18 percent in 1978 to slightly more than 12 percent in 1998,² and from 1970-71 to 2004-05, the portion of California’s general fund going to UC shrank from 7 percent to 3.5 percent.³ From 2000 to 2004, while enrollment increased 16 percent, state funding for UC declined 16 percent.⁴ For 2004-05, after four consecutive years of drastic budget cuts, the final 2004-05 state budget resulted in an accumulated funding shortfall for UC of $1.5 billion per year.⁵

The structural shortfall in spending for higher education nationally is unlikely to be rectified soon, especially in California.⁶ While most states increased their appropriations for higher education in 2004-05, California reduced its spending for four-year institutions, including a 6-percent cut to the UC budget.⁷ This shortfall is even worse than the figures suggest because it continues a decline in real funding for the University of California that has grown dramatically worse since 2000, as shown in the following chart: ⁸

Every aspect of the university has suffered in this situation, as President Dynes reported in his Senate Budget and Fiscal Review, March 8, 2004: “Faculty salaries are more than 10 percent below market; health benefit costs are skyrocketing; energy costs are continuing to increase; maintenance backlogs continue to grow; no funding provided for maintenance of new space; non-salary price increase (inflation costs for equipment, library materials, etc.) is not funded.”⁹ The issue of faculty salaries is particularly troubling because it represents a steady erosion of faculty salaries in public vs. private universities. In 1978-79, full professors at public doctorate-granting universities earned about 91 percent of their counterparts at private universities, but in 2003-04, that percentage had declined to 71 percent.¹⁰ This difference in salary makes it increasingly difficult for public universities to compete with privates for the best faculty, and if allowed to continue it will inevitably lead to a qualitative decline that will undermine 150 years of state and federal commitment to public higher education in the U.S.

B. The Higher Education Compact: Future Partnership with the State

To mitigate some effects of this disturbing trend, in May 2004 the Regents of the University of California and the governor agreed to the Higher Education Compact.¹¹ The Higher Education Compact addresses problems stemming from several years of declining support from the state, which have undermined the capacity of the University of California to fulfill its mission. The Compact is designed to halt that decline and provide a stable minimum level of state funding on which the university can base its planning at least for the period 2005-06 to 2010-11. The principal points of agreement between the university and the state related to strategic planning are:

• State-funded annual enrollment increases of roughly 2.5 percent, i.e., about 5,000 students per year for UC (p. 2).¹²
• General fund increases of 3 percent to prior year’s base for 2005-06 and 2006-07, and then annual 4-percent increases 2007-08 to 2010-11 (p. 2).
• Priority to restoring funding for competitive salaries for faculty, staff and graduate students, and for ... libraries, instructional technology, instructional equipment and building maintenance” (p. 8).
• Increase in undergraduate fees averaging 10 percent per year over the next three years, and graduate fees of 20 percent in 2004-05 and 10 percent per year for the next two years. Of the new fee revenue, 20 percent to 33 percent will be reserved for financial aid (p. 4).
• State support for bond measures to fund “a viable building program,” and continuing permission for UC to use institutional resources to supplement state-funded capital projects (p. 5).
• Continuing commitment by UC to improve the quality of K-12 education by increasing the number and quality of science and math teachers in the State of California (p. 7).
• Development of UC “Student and Institutional Outcomes” measures that will make accountability “highly visible and public” (p. 8).

C. Other Resources

The new Compact renews California’s extraordinary record of commitment to public funding for higher education and to the support of the University of California as a premier research university. State appropriations for higher education in California are almost twice what they are in any other state and constitute 14 percent of total state appropriations for the whole United States.¹³ In addition to support from the governor’s office, California voters have repeatedly approved generous bond measures to fund building and research in the UC system. Nevertheless, in California as elsewhere in the U.S., increasing demands on state budgets, coupled with the increasing complexity and scope of research at public universities, have steadily eroded the percentage of universities’ budgets that are funded by the state, and that trend is unlikely to change. To compensate for this structural shortfall in one of their primary funding sources, public universities will have to further diversify their sources of income.¹⁴ Fees and tuition have risen and will continue to rise nationally, as they have in California: for 2004-05, undergraduate fees increased 14 percent, and graduate fees increased 20 percent.¹⁵ However, concomitant increases in financial aid, coupled with increases in merit-based aid necessary to remain competitive for the best students, significantly offset the revenue derived from higher fees. For 2004-05, for example, tuition and fee increases offset only about one-quarter of the total $1.5 billion shortfall in the UC budget, and even the increases authorized in the Compact will barely keep up with rising expenses.¹⁶

Fundraising from private donors is another important source of money for public as well as private universities, as evinced by the number of public universities among the 25 universities that have announced billion-dollar campaigns.¹⁷ However, such fundraising is notoriously more difficult for most public universities than for privates, and any benefits of increased fees or fundraising are often limited by further cuts to state funding. As a result, strategies to ameliorate the effect of shrinking state appropriations for public higher education often seem to exacerbate the problem, which in turn limits the benefits of increased philanthropic support.¹⁸

Research universities have an important additional source of revenue unique to their research functions, of course: extramural funding for research from state and federal agencies and private industry. Such funding is not immune from the vagaries of budget fluctuations at the state and federal level, however. For example, during the California state budget crisis of the early 1990s, state-supported research in UC was cut by 20 percent and never fully restored. Then, at the beginning of 2002-03, all state-funded research programs in the University of California were cut across-the-board by 10 percent, for a total of $32 million, and in December of that year several university research programs were targeted for additional one-time cuts of $18 million. The following year that same budget was cut another 10 percent, or $28 million.¹⁹

After the state general fund, federally funded research is the most important source of income for colleges and universities in California, which received $2,949,032,000 in federal funds in fiscal 2002 – about twice as much as any other state.²⁰ The University of California is highly competitive for these funds, which accounted for 55 percent of all research expenditures for the University of California in 2002-03. Much of that federal funding – 76 percent of total federal awards in 2002 – comes from the Department of Health and Human Services and the National Science Foundation, with much of remainder coming from the Department of Defense, the National Aeronautics and Space Administration, and the Department of Energy. Like state funding, however, federal funding for research is sensitive to fluctuations in the economic health of the country, so even this resource is highly variable from year to year.²¹

Thus, as shown below, total funding for the University of California consists of several different sources.²²

D. State Funding for UCI

The various sources of funding for UCI reflect the range for the University of California as a whole. For fiscal year 2003-04, the total funds received by UCI were just under $1.3 billion. State appropriations totaled $213 million, federal funds $183 million, and the rest came from other contracts and grants, student fees, and private dollars, for a total of $644 million. UCI’s teaching hospital, auxiliary enterprises and other sources generated another $637 million in revenue.

UCI total receipts have almost doubled since 1994-95. However, as receipts from federal government and our teaching hospital have increased, funding from the state, as a percentage of total receipts, has dropped from almost 21 percent to less than 17 percent of the university’s budget, even though the dollar amount of state appropriations has increased by 52 percent over this time period. While student fees have been increasing significantly in recent years, their contribution to total receipts has decreased from 13 percent to less than 12 percent. These changes are indicated in the following table:

E. Extramural Funding at UCI

Extramural funding at UCI is approximately $250 million per year. Below is a chart of extramural awards to UCI over the past decade which displays an annualized growth rate of 9 percent. The next few years will probably see a slower growth rate in extramural awards since the federal deficit will constrain federal investment in science and technology research. It is likely that UCI can continue to grow its research activities even as the availability of federal funds declines if UCI continues to hire faculty who can write competitive proposals. As indicated in the following graph, in the past five years federal funding at UCI has significantly outpaced the growth in federal funding generally, which suggests an increasing “market share” of that funding coming to the campus:²³

Since federal agencies provide slightly more than two-thirds of the extramural awards, it is unlikely that increases in corporate sponsors or not-for-profit sponsors could fully compensate for any short-term decline in federal funding. Nevertheless, it is reasonable to expect that UCI could continue to increase its non-federal support of research even in the presence of a decline of federal support.

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F. Fundraising at UCI

In an era of declining state support to the University of California, private support is essential to maintain and enhance the quality of UCI’s schools and programs and to achieve the goals set forth in the strategic plan. The Office of University Advancement, in conjunction with The UCI Foundation, raises private funds from individuals (alumnae/i and friends), corporations and foundations. UCI’s development program works hand-in-hand with UCI schools and programs to secure major gifts to support faculty priorities; assists donors through gift planning who wish to include UCI in their estate plans; and secures a large number of annual gifts through the Chancellor’s Club and the Annual Fund. In addition, numerous support groups offer affiliation with academic units, athletics and student programs. Private support for UCI has risen steadily over the past decade to a current total of approximately $100 million.

As indicated in the preceding chart, our highest annual total was $101 million in 2005-06. The number of individual gifts increased from 14,295 in 1997-98 to 25,053 in 2005-06; this trend should lead to future fundraising success. Private funds – for student financial aid, research, libraries, endowments and facilities – are essential as UCI continues to enhance its capabilities and stature. Community friends, The UCI Foundation, the Chancellor’s Club, the CEO Roundtable, area businesses, support groups and our alumnae/i deserve our thanks. Much of UCI’s future development will depend on the generosity of such people. As noted in “Where We Are Now,” naming gifts for The Henry Samueli School of Engineering (1999), Claire Trevor School of the Arts (2000), Jack Langson Library (2003), Donald Bren School of Information and Computer Sciences (2004), and The Paul Merage School of Business (2005) are providing endowment support for the students and faculties of those schools. The International Center for Writing and Translation (2001) also is being funded largely by a UCI alumnus.

CAMPAIGN FOR THE FUTURE

In the near future, UCI will be considering a major comprehensive fundraising campaign to coincide with the next period of growth for the campus. The campaign will augment state funding and other forms of support and will focus primarily on faculty and students as well as capital projects. Many of our peer institutions across the U.S. have undertaken multiyear fundraising campaigns of $1 billion or more. Twenty of these universities have successfully completed their $1 billion-plus campaigns.

Another 25 universities have $1 billion-plus campaigns in progress.

Four University of California campuses are either planning, in the midst of, or have completed $1 billion-plus campaigns; the other campuses are engaged in campaigns on a smaller scale.

In order for UCI to further strengthen its position among the nation’s top universities, we must consider a campaign of similar scale. Though ambitious, such a goal would be realistic. In 40 short years (short by university standards), UCI has achieved great success and is currently ranked among the top 2 percent of universities nationwide. At least five of our graduate programs and specialties are ranked in the top 10 nationally and more than 40 other graduate programs/specialties are ranked in the top 50 by U.S. News & World Report. These accomplishments and the many others described above in “Where We Are Now” demonstrate UCI’s legacy of rapid growth at an extraordinarily high level of excellence across the whole campus, and they favorably position the campus to reach even higher levels of achievement in an even shorter time with the generous help of the equally accomplished and ambitious community of supporters in our region.

UCI is located in one of the nation’s wealthiest areas and counts among its supporters some of the most successful executives and innovative entrepreneurs in the country. We have been encouraged by this community’s interest in partnering with UCI on a universitywide comprehensive campaign. Evidence of that support has been increasingly dramatic. During the last four years, UCI has benefited from a 189-percent increase in private support (from $35 million in 2001-02 to $101 million in 2005-06). This increase in annual giving has been accompanied by a similar growth in our endowment during the same period, from approximately $118 million in 2002-03 to almost $195 million in 2005-06. This growth is impressive, but it must continue if UCI is to develop an endowment that is comparable to that of the best public research universities and that is capable of supporting the ambitious academic objectives of the strategic plan.

As a first step toward a fundraising initiative of the scale undertaken at comparable universities, this strategic plan clarifies our vision for the future and clearly establishes priorities that could help inform an ambitious fundraising campaign. As we begin to consider that campaign, a plan for support will be developed and a feasibility study conducted to determine fundraising capacity.

Another critical component of planning for a campaign of this scale will be to determine the infrastructure required to support such an effort. Established national standards suggest that the cost-per-dollar range of a campaign effort might be $0.10-$0.15. At that rate, an aggressive large-scale campaign may require additional investments, as much as or more than two times the current level. UCI also will need to consider how to further strengthen its University Advancement organizational structure to support a large campaign. In order to leverage the strengths of the schools and units and maximize efficiency, an interdependent model could centralize a variety of functions that would be cost prohibitive to duplicate in each school and unit. Additionally, an interdependent model promotes a shared approach to planning that is consistent with the integrated objectives and planning processes proposed in this strategic plan.

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Last Updated: January 22, 2007