We must make strategic changes in how we fund our mission. 

Take a few minutes to learn about the UC Davis budget and our financial challenges.

• What is the current status of UC Davis' core funds deficit?

• How is our core funds deficit impacted by increasing employee compensation costs?

• What are we doing to address our budget challenges?

What is the current status of UC Davis' core funds deficit?

Updated as of August 5, 2025 

• At UC Davis, the 2025-26 state budget translates to a projected state funding reduction of $1.3 million in 2025-26, not accounting for any loan support that could occur. 

• The structural deficit in UC Davis core funds is estimated to be more than $43 million at the end of fiscal year 2025-26 if no additional actions are taken.

• The amount of facilities and administration (F&A) cost recovery funds we can expect in 2025-26 remains uncertain.

• We are preparing for uncertainties in future funding levels from multiple sources.

Student tuition and unrestricted state funding are called “Core Funds,” and are the primary financial resources for our campus educational mission — but only make up about 16% of the UC Davis budget. Over the years, the state has provided a shrinking share of our core funds, while our employment costs have continued to rise. Recent increases in state funding and tuition revenue, while helpful, have not been sufficient to cover our increasing costs.

In 2025-26, the state budget keeps University of California funding essentially flat by deferring $129.6 million of the UC’s appropriation to 2026-27 while also restoring a one-time reduction of $125 million from 2024-25. In addition, the budget defers additional promised funding increases through 2027-28.

There is uncertainty related to F&A cost recovery funds due to actions taken by the federal government. Funding grew less than expected in 2024-25, and the campus must prepare for potential decreases in future years due to potential changes in federal recovery policies and fewer federal grants.

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How is our core funds deficit impacted by increasing employee compensation costs?

Updated as of August 5, 2025 

Rising costs of salaries and benefits: UC Davis is people-driven, and so are our costs. At UC Davis, employee compensation costs — including salaries and benefits for both faculty and staff — are about 75% of our total operating expenditures. If we exclude the medical center’s budget, which has higher costs for supplies and equipment, then our employee-driven costs are closer to 80%.   

Using current information and assumptions about salary programs, here are the estimated increases in funding sources and compensation costs on core funds: 

This table shows the annual incremental increases in revenue sources for core funds and the annual incremental increases in costs for employee compensation assigned to core funds. The difference is estimated to be at least $12.6 million in fiscal year 2025-26. The 2025-26 estimate accounts for the reduced level of state funding and increased tuition revenue expected in 2025-26 and implementation of salary programs when approved by the Office of the President. In addition, it is likely that international student enrollment will be lower than anticipated in fall 2025, resulting in reduced nonresident supplemental tuition revenue that is not yet included in these estimates. Consequently, a structural deficit is still projected in state funds and tuition, and continued funding challenges are expected in future years across multiple funding sources.

Salary costs usually increase each year and vary based on a faculty member's or staff member’s union representation, merit or experience step, performance or other salary program changes. The amount of increase is not the same for every individual. In 2025-26 individual salary increases may range from 3% to 10%. 

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What are we doing to address our budget challenges?

Updated as of August 5, 2025 

Since January 2020, the campus has made progress toward the goal of reducing ongoing reliance on core funds (state funds + tuition revenue). We have allocated savings targets to campus units totaling $108 million. The campus is on track to achieve these targets. However, continuing cost pressures and an expected reduction in state funds exacerbate the need to make fundamental, long-term changes in business practices and fund management strategies across all facets of UC Davis.

In 2025, the campus completed an effort to develop strategic reduction plans that identified prioritized program or service reductions, eliminations or consolidations that equal 10% of prior year expenditures on Common Operating Funds (COFI), which includes both core funds and F&A funds. Campus leaders reviewed these plans and requested that each dean, vice chancellor or other unit leader address specific, proposed reductions in their annual budget meetings. In these meetings, the selected reductions were discussed with the provost and/or chancellor as well as Academic Senate representatives. The Academic Senate Committee on Planning and Budget also provided campus leadership with feedback on the topics discussed in the academic unit meetings.

Final decisions about which reductions will move forward were made by the chancellor and provost. Units are being asked to implement strategic budget reductions of $41.5 million in 2025-26, which represents approximately 3.3% of COFI and student services fee. Units should also prepare to implement an additional $52.8 million reduction in 2026-27, which is an additional 4.2% of COFI and student service fee. Planning for the additional reductions in 2026-27 helps prepare for significant out-year funding uncertainties. The exact timing of when specific reduction actions in units take place and are communicated will vary based on local needs, transition planning, and other factors.

Leadership also identified changes to centrally managed funds and programs to address our budget challenges. Combined, in 2025-26 these changes will reduce the structural deficit by $29.6 million and one-time debt by $41.5 million. These decisions limit campus leadership’s ability to invest in strategic priorities and campus needs. Under this plan, the structural deficit on core funds is expected to be reduced to approximately $5 million by the end of fiscal year 2025-26 based on current information. The student service fee structural deficit is expected to be resolved. Planning for the additional reductions in 2026-27 prepares the campus for significant out-year funding uncertainties. 

Since 2020, we have worked together to resolve and manage a core fund structural deficit through a combination of expenditure reductions, efficiencies, net revenue generation, and leveraging other appropriate fund sources to replace core funds. With the additional strategic budget reductions and other actions outlined above, by the end of fiscal year 2025-26, we will have reduced our cumulative core operating expenditures by over $173 million since 2020. We have also allocated over $250 million of one-time funds, primarily from centrally-managed sources, to mitigate our accrued debt during this period. 

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