1. The University of California Opening Comments Peter Taylor Chief Financial Officer Office of the President

2. The University of California OVERVIEW 2

3. The University of California The University of California Includes 10 Campuses, 5 Academic Medical Centers and the Lawrence Berkeley National Laboratory Established in 1868 and Governed by a 26-member constitutionally autonomous Board of Regents Educated over 230,000 full-time equivalent students in FY 2009-10 and has conferred approximately 1.9 million degrees Pre-eminent faculty who have won 57 Nobel Prizes, more than any other U.S. public university – 28 Nobel Prize winners currently on faculty Over 380 University researchers have been elected to the prestigious National Academy of Sciences

4. The University of California “… Amherst has created a model for attracting talented low- and middle-income students that other colleges can copy. It borrows, in part, from the University of California, which is by far the most economically diverse top university system in the country.” - David Leonhardt, “Top Colleges, Largely for the Elite” The New York Times, May 24, 2011 AFFORDABILITY ACCESS QUALITY –A large proportion of UC students come from low-income families –UC’s strong financial aid program – including the Blue and Gold Opportunity Plan - have kept UC financially accessible to students from every income level –Over the past eight years, the amount of financial aid given to UC students has tripled. In 2009-10, for example, UC students received more than $1.5 billion in financial aid.

5. The University of California Undergraduate Access and Excellence at UC –California’s ongoing fiscal crisis has raised concerns that the University would be unable to sustain its strong track record of promising access and excellence. Recent data suggests the opposite: UC enrolls more Pell Grant recipients than ever before, at every campus ($286 million in 2009-10) Average high-school GPA of Fall 2011 California freshmen admits is 3.83 46% of first-year students are first-generation college students Pell Grant Recipients (UC 2008-09, 2009-10, 2010-11 & Select Universities 2008-09) 7%

6. The University of California FINANCIAL SUMMARY & BUDGET CHALLENGES

7. The University of California UC Overall Financial Position ($ in millions for the year ended June 30) http://www.universityofcalifornia.edu/finreports 2011 2010 Change from Prior Year Total Assets$49,813$46,589$3,224 Total Liabilities30,04827,238 2,810 Total Net Assets$19,765$19,351$414 Financial Position

8. The University of California (in millions of dollars at and for the year ended June 30) 20112010Change Operating Revenues$19,040$17,326$1,714 Operating Expense(24,154)(22,929)(1,225) Non-operating Revenues, Net5,0744,717357 Other Changes in Net Assets 45436193 Increase (Decrease) in Net Assets $414$(525)$939 UC Operating Results ($ in millions for the year ended June 30) Statement of Revenues, Expenses & Changes in Net Assets

9. The University of California Revenues & Expenses ($ in millions for the year ended June 30, 2011) -Diverse revenue sources comprise UC’s core revenues - Operating Revenues grew by $1.7 billion or 10% RevenuesExpenses - 65% of expenses relate to Salaries & Benefits - Operating Expenses grew by $1.2 billion or 5%

10. The University of California Financial Myths and Facts Billions in Unrestricted Net Assets can close budget gap While Unrestricted Net Assets do not have externally imposed restrictions, these funds are already internally allocated Myth:Fact: The cost per student has decreased steadily over the last 20 years, from over $21,000 to $17,400 Cost of UC Administration has risen over the years While the majority of UC hospitals’ revenue is restricted, some of the hospitals’ net revenue was transferred to the health professional schools in FY11 Medical center revenues can be used to support core operations Private giving greatly adds to what the University can accomplish, however the use of the funds is almost always restricted. Only about 2% is “unrestricted” in purpose UC can use endowment to supplant losses in State funds

11. The University of California Per-Student Average Expenses for Education The cost per student has decreased steadily over the last 20 years, from over $21,000 to $17,400

12. The University of California The Long-term Budget Problem Core expenses will continue to increase Pace of growth in mandatory costs is accelerated by post- employment benefit contributions UC needs steady and predictable revenue growth to address budget shortfalls and meet our future financial expenses Failure to bridge the gap threatens UC’s quality, access, and affordability By FY2015-16 the budget gap is projected to equal $2.5 billion

13. The University of California UC Budget Gap: $2.5 billion Dollars in billions. Display 13 Budget Gap: $1.5 billion

14. The University of California Alternative Budget Gap Scenarios for FY2015-16 Dollars in billions.

15. The University of California Credit Ratings Drive Our Borrowing Costs Credit ratings assess the credit worthiness of our debt issues Analogous to individuals’ credit scores Assess probability of default and expected loss under a default Assigned by credit rating agencies such as Moody's and Standard & Poor's Ensure market access Determine cost of borrowing Cost vs. Aa1/AA AaAAUC GENERAL REVENUE BONDS AA+0.63% (UC saving $630,000 on interest/yr on every $100M of bonds) BaaBBB+1.37% (UC saving $1,370,000 on interest/yr on every $100M of bonds) Ba & below BB & belowConsidered non-investment grade (or junk) Based on current municipal bond yields

16. The University of California NEW INITIATIVES

17. The University of California “ Working Smarter” Keep the pipeline full on three levels of change: Campus restructuring initiatives Regional centers of excellence Systemwide efficiency measures Vision: 10 campuses using ONE administrative framework: Common, integrated financial and payroll systems Common, integrated time & attendance/HR systems Common, integrated extramural fund accounting Common, integrated data warehousing Common, integrated asset management Common, integrated strategic investment program Common, integrated e-procurement Common, integrated energy solutions Common, integrated approach to ICR $500 million of positive fiscal impact in five years

18. The University of California Human Capital Management System Tiger Teams San Diego Super Computing and eventually more… Business Software Campus and Regional Efforts Already Underway Extramural Fund Accounting System E-Procurement Organizational Excellence Operational Excellence Streamlined Administration Financial Systems Process Simplification Organizational Improvement at Individual Campuses Existing Regional / Collaborative Efforts Future Regional / Collaborative Efforts Restructuring Steering Cmte. Job Classification System E-Procurement Facilities Maintenance System Efficiencies Workgroup USHIP / GSHIP 1 and eventually more… 1 Undergraduate/Graduate Student Health Insurance Program

19. The University of California CFO Mission, Vision, Values & Operational Focus Areas 1. Common Systemwide Technology Systems 2. Procurement 2003. Reduce Cost of Risk4. Lean Organizational Alignment5. Balance Sheet Management Mission: The mission of the CFO Division is to provide leadership, operational oversight, and system coordination of financial products and services for the UC Community. We add value with accurate, insightful, and timely information, analysis, and solutions that promote informed decision-making. 2011-12 CFO Operational Focus Areas Vision : The CFO Division will be known as a model for organizational efficiency and effectiveness that leverages: Integration of risk considerations to enhance decision-making processes and operations; Benchmarking to improve accountability, transparency, and performance; and Professional expertise to deliver results on behalf of our customers. Values: Effective Fiscal Stewardship Customer Service Continuous Improvement

20. The University of California Payroll Personnel System Replacement Project Overview Status Signed contract with Oracle Implementation began in early September with PMO planning activities and training for UC team members Early adopters/first wave implementation locations will be UCLA (including medical center), UCM, UCOP, UCSC and UCSD (including medical center). Deploy a single payroll system and a single human resources system across all ten campuses and five medical centers Projected Fiscal Impact One-time implementation costs, excluding restructuring costs, total $151M Ongoing costs are expected to be ~$60 million over the next eight yrs Over this period, cost reductions/savings are expected to be ~$750 million, resulting from technology efficiency gains, process standardization and consolidation of transactional activities into a shared services center. Project Net present value is over $250 million* * 9% Discount Rate

21. The University of California GOAL: Increase annualized savings from $65mm to $200mm and help drive efficiencies Central data repository from all locations (financial, procurement, P-Card, etc) Ability to produce reports on all line item purchases Ability to scrub procurement systems and bring back “tags” for minority vendors Move all RFP’s from paper to on-line Ability to see all contracts (t&c’s, language, etc) and streamline the contracting process Introduce reverse auction for better pricing on items with set specifications Track all procurement opportunities/needs to allow joint projects Use SharePoint to help with version control and to reduce email attachments P200mm Build a new commodity focused team of specialists Build a strong analytics and reporting team and processes Build a “compliance” team to make sure the RFP and contracts process is followed Manage the data flow to eliminate the repeated request for “more” data to the campuses Leverage the use of GPO contracts to help drive savings and efficiencies On-going training and support for campuses and UCOP Define the “value” all will provide as part of their role TechnologyPeople & Process Implementation starts in early 2012 and will run through 2014

22. The University of California Enhance TRIP Investment $1 bn transfer generated add. $40M in FY10-11 $8.9 billion In STIP Debt restructuring and hedging strategies Sell MOP Loans Increase liquidity Central Bank and expanded SIP Liquidity Mgmt. Ratings Strategy, Bank lines of credit, reserve analysis Balance Sheet Management Strategic Balance Sheet Management

23. The University of California UC Strategic Investment Program CapEquip (Capital Equipment Financing) C3 (Cross-Campus Collaborations) STARs 1 (Strategic Teaching Acquisition & Retention) Purpose: Equipment acquisition in lieu of 3rd-party leasing Regional centers of excellence, systemwide efficiency initiatives Lab renovations/equipment specific to a single faculty recruit Strategic Goal: Cut costs through economies of scale inherent in UC debt program Cut duplication and increase systems commonality Maintain competitive research and academic excellence Size: $200 million authorized/year $20-50 million authorized/year Structure: Amortizing loans funded via CP on reimbursement basis Rate: 1.99% (subject to annual review)0% Term: 3-7 years 11 years avg. (15 renovations, 7 equipment) Debt Service: Campus funds that formerly paid third-party lease payments Principal possibly paid by savings (interest covered by program) Principal possibly paid by ICR (interest covered by program) Awards: Campuses submit authorization requests annually to Regents Campuses competitively apply throughout the year 1 STARs is still in the developmental / conceptual stage. It’s roll-out date is not yet determined.

24. The University of California UC Contribution to Economic Activity Report can be found at the following link: http://www.universityofcalifornia.edu/regents/regmeet/sept11/f7.pdf UC generates about $46.3 billion in economic activity in California and contributes $32.8 billion to the gross state product ‐ $25 billion in annual direct spending from the University creates successive rounds of economic activity through consumers and businesses ‐ Economic activity related to UC supports about 1.8% of CA’s gross state product Every $1 the California taxpayer invests in UC, leveraged by other revenue sources, results in $13.80 in economic output ‐ California’s $3.35 billion in UC-related spending including general support, Cal Grants, contracts, health care payments, and special appropriations is matched by an additional $17 billion from non- state government sources ‐ Through the economic “multiplier effect” the $3.35 billion investment provides foundation for a total economic impact of $46.3 billion creating $13.80 in economic output for every $1 of state investment ‐ In terms of employment, UC creates 128 jobs per $1 million in state taxpayer funding or about $7,790 per job Every $1 that is cut from the State’s support of UC would result in direct losses of about $2.10 in the state’s economic output, $1.30 in employee compensation, and $1.60 gross state product plus a potential for negative secondary impacts associated with a decline in the scale and quality of UC’s academic and research programs ‐ This report evaluates the primary economic impact of two hypothetical funding scenarios, one in which the state cuts UC employee compensation and another in which it cuts total UC operating expenditures.

25. The University of California UC Continues its Commitment to Excellence The University of California Instruction FY2009-10 UC students received more than $1.5 billion in financial aid Research 57 Nobel Prize Winners Including 25 Since 1995 Public Service Top THREE spots in the Washington Monthly's 2010 annual college rankings

26. The University of California Thank you! And enjoy the Business Officer Institute AFFORDABILITY ACCESS QUALITY