UCSC projecting a slightly higher deficit, still has $99 million in cuts coming

UC Santa Cruz officials are projecting a slightly higher deficit than it had budgeted for this year, in part due to continued rising costs, lower-than-projected international student revenue and higher student-aid expenses. 

The university foresees an $81 million deficit for the 2025-26 fiscal year, more than the initial estimate of $79 million. 

During the quarterly senate faculty meeting with UCSC administrators last week, school leaders said there are still planned cuts worth $99 million designed to eliminate the school’s structural deficit over the next two years. 

The senate faculty is the governing body made up of UCSC professors who run committees that write policy and make decisions involving curriculum, budgeting and instruction.

Raphael Kudela, chair of the faculty Committee on Planning and Budget, said that this fiscal year so far is showing the school has more one-time money coming in, but also has higher expenditures than expected. 

“We’re not doing terribly badly,” he said. “But we are slipping a little bit compared to where we would like to be at this time in the fiscal year.”

To address its structural deficit, during the 2024-25 fiscal year the university began implementing a multiyear reduction plan that aims for $170 million in cuts by the end of the 2027-28 fiscal year. UCSC officials have reduced costs by more than $70 million by lowering operating expenses, decreasing doctoral program admissions, implementing layoffs and trimming the staff and faculty ranks through attrition, or not hiring replacements after departures. University of California data shows that UCSC laid off 41 staff members during the 2024-25 fiscal year. 

During the meeting, officials focused on the reductions affecting faculty. UCSC has already cut instructional costs by $10 million and is planning to cut $15 million more by 2028.

Interim Campus Provost Paul Koch told Lookout that to reach that target, the school needs to lower the faculty size by more than 10% through retirements and departures. The five academic divisions were asked to prepare three scenarios of cuts – what would it look like for them to operate at 95%, 90% and 85% of their peak number of faculty, using this year or last year’s numbers. In the scenario with the steepest reductions, the faculty ranks could drop by about 100 – from 687 to about 584. 

Koch told Lookout that the reductions will impact departments and divisions differently depending on the specific needs of each. 

“So asking every division to think through a range of reduction scenarios gives us – campus and divisional leaders, the faculty Senate, and the faculty as a whole – the opportunity to think through a range of possible ways to make the total reduction,” he said via email.

During the meeting, Koch showed how over the past five years or so, the growth in overall personnel costs is primarily from the academic divisions – representing 65% of the total share of growth in employee costs from 2021 to 2025. Within the academic divisions, faculty and lecturer costs made up 46% of the growth in personnel expenses. 

“The disciplinary divisions are the largest portion of our overspending,” he said, adding that within the divisions, the “bulk” of that is tenure-track faculty and lecturers, followed by graduate student costs.

Kudela, during the faculty meeting, said that thus far the reduction targets are nearly on pace with the plans and that while the university is trying to increase revenue – through international student tuition – that revenue source isn’t going up fast enough. 

“I just want to acknowledge that these [cuts] are painful,” he said. “We’re losing staff, we’re losing faculty, and this needs to be done, but no one wants to do it.” 

Higher expenses, lower revenue 

Officials say the slightly higher deficit this year is due to lower-than-projected revenue from federal grant funding and from non-California resident tuition, and higher-than-projected student aid expenses. 

University officials estimate that they’ll spend about $163.5 million on student aid this fiscal year – $39 million more than the $124.4 million they budgeted for, according to the school’s quarterly financial report released this month. Lookout asked why the university spent so much more than it expected. Koch said via email that administrators “are still exploring this” and didn’t provide examples of how the money had been spent. 

On the revenue side, the nonresident tuition is about $1.7 million lower than expected, at just over $50 million for this fiscal year. 

Non-California resident students pay more than double the tuition of California residents to attend UCSC. Annual tuition costs for a California resident are about $16,785, while out-of-state students pay around $37,602. 

The budget committee chair, Kudela, said the multiyear reduction plan and its underlying assumptions were made before President Donald Trump’s administration was “basically not allowing international students to come in.” Similarly, the school’s planning considered maintaining the same levels of federal grant funding from previous years and didn’t factor in the federal administration’s slashing of financial assistance toward its research activities and programs. Now, the university is factoring about 10% less federal funding this year and in the next two years. 

In dollar amounts, the loss of federal funding this year brings the school at about $4.1 million less than it projected for indirect cost recovery. Indirect cost recovery is the overhead expenses for research and programs that universities incur while carrying out that work. UCSC budgeted about $36.8 million for indirect costs recovery this year, but with the lost funds it’s now expecting to have about $32.7 million to spend. 

The financial outlook 

Kudela said that based on the budget committee’s modeling on current revenue and expense trends, there are three potential paths the university could take at this point: a worst-case scenario, a mid-level scenario and a best-case scenario. 

The best-case scenario shows the university reaching a $40 million surplus by 2030-31; the baseline shows a small surplus before dropping into deficit spending by 2028-29; and the worst case shows a growing deficit ending at $128 million in the red by 20230. Kudela emphasized that UCSC can’t “cut our way” out of the deficit but needs to produce more revenue. 

“That is alarming, and certainly is alarming to [the committee], but it gives us something to work with,” he said. “It’s this balance between bringing in more revenue, keeping costs down, and dealing with the ever increasing salaries [and benefits] for academic staff.” 

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