In a budget full of bad news for state workers, health and social services and prisons, Gov. Arnold Schwarzenegger stuck to his promise to hold the line on higher education cuts, unveiling a spending plan Friday that includes $371 million in additional money for UC plus funding for Cal Grants.

"I know many of these cuts are painful," Schwarzenegger said. "Believe me these are the hardest cuts a governor makes."

Seeking to close a nearly $20 billion state budget deficit, Schwarzenegger proposed $8.9 billion in cuts and declared a fiscal emergency, calling a special legislative session to begin addressing the cost-savings. To achieve those savings, he proposed eliminating state worker furlough days but imposing a permanent 5 percent salary cut and 5 percent increase in retirement plan contributions for state workers. He also calls for all state departments to cut their budgets by 5 percent. Schwarzenegger's spending plan includes a $1.2 billion cut to the prison budget.

In his State of the State address Wednesday, the governor introduced a constitutional amendment that would guarantee UC and CSU 10 percent of the state general fund while shifting funding from state prisons.

"Choosing universities over prisons is a historic and transforming realignment of California's priorities," Schwarzenegger said Wednesday. "If you have two states and one spends more on educating and the other one spends more on incarcerating, in which state's economy would you invest?"

The governor's commitment to fund Cal Grants for UC students means eligible low-income students will receive enough money from the state program to cover the recently approved mid-year and 2010-11 fee increases. Cal Grants were on the chopping block last year until the Legislature agreed to keep funding the program. The grants help stabilize UC's Blue and Gold Opportunity Plan, which ensures that aid is available to pay the systemwide fees of all needy California resident undergraduates whose family income falls below $70,000.

"These restorations, in addition to the governor's proposed constitutional amendment earlier this week, are clear evidence that he understands the vital role public higher education plays in California," said UC President Mark Yudof.

Yudof acknowledged the challenges the state faces in funding critical programs such as health care, in-home support services for the frail and disabled and public transit, but cautioned that UC still has a big budget shortfall to fill. UC's share of the proposed 2010-11 state budget includes about 40 percent of the additional funds the university had requested. Funding higher education creates opportunities for all Californians, Yudof said, and paves the way for economic recovery.

"While we deeply appreciate the governor's actions, notwithstanding the crisis in the state budget, there is still a significant gap as we seek to repair a budget that has been severely cut," Yudof said. "The university requested $913 million to address this critical issue."

UC faces at least a $1 billion budget shortfall brought about by two consecutive years of state funding cuts resulting in fee increases, layoffs and employee furloughs, academic and student service cutbacks and a severe slowdown in faculty recruitment.

The next step in the state budget process requires the Legislature to review the governor's proposal and approve it or offer revisions. In May the governor typically introduces a revised budget that could eliminate or augment funds proposed in January.

Yudof said UC will now turn to legislators to ask them to adopt the governor's proposal and to look for opportunities to fulfill UC's request to restore the full $913 million to its budget.

"This money is vital if UC is to avoid declining educational quality, access and research," Yudof said.

Some funds restored

A major bright spot in the governor's proposal is a restoration of $305 million that was cut from UC's 2009-10 budget. The money is needed to restore instructional offerings and students services, like class sections and library hours, that were eliminated or curtailed when UC lost those funds.

Enrollment growth

UC also had made a pitch for an additional $155.8 million for unfunded enrollment growth. The governor's budget includes $51.3 million to fund enrollment. That amount would serve 5,121 full-time equivalent students.

But the enrollment growth money is tied to California's request to the federal government for $6.9 billion. If the state does not receive that money, which would mostly impact state health and human services programs, the $51.3 million would be lost.

Retiree benefits

The governor is proposing $14.1 million for UC retiree health benefits. But his budget does not contain the $95.7 million UC sought for employer contributions to the UC Retirement Plan.

Capital projects

No funding is proposed for a November bond measure that would have filled UC's request for $631.5 million for facilities projects. However, the governor's spending document indicates a possible introduction in May of an alternative funding proposal.

Donna Hemmila is managing editor with the UC Office of the President Integrated Communications. For more information, visit the UC Newsroom or follow us on Twitter.