Slide 1 - Title Slide, Budget Presentation
Thank you for the opportunity to share some highlights about Penn State’s operating budget for this academic year. I’m also planning to summarize the University’s budget plan and appropriation request to the Commonwealth for 2002-2003.
Slide 2 - Summary of 2001-02 State Appropriation
Let’s start with a look at the current year’s state appropriation. We received a total appropriation of more than $334 million. This represents an increase of less than one percent or $2.8 million in new funds over last year.
Slide 3 - Summary of 2001-02 State Appropriation (continued)
How did we arrive at this modest increase?
First, the $5 million line item for program initiatives that was in our 2000-01 appropriation was eliminated.
Special funding of $2 million for Penn College was also eliminated.
We then received an increase of 3 percent on each of our remaining line. This includes the Educational and General, Agricultural Research, Cooperative Extension, and the College of Medicine line items.
And the School of Information Sciences and Technology received an additional increase of $812,000.
Slide 4 - 2001-02 Total Budget - Income
The state appropriation is just one piece of Penn State’s budget. The total budget for this academic year is just less than $2.3 billion. The activities on the left side of this chart are all self-supporting budgets. These include the medical center and restricted funds, each representing about 20 percent of the total budget. Auxiliary enterprises comprise nearly 10 percent.
The items on the right side represent the general funds portion of the total budget. Tuition contributes 29.4 percent and the state appropriation contributes 14.6 percent.
Slide 5 - 2001-02 General Funds Budget - Income (Excl. Hershey, Penn College, and Dickinson School of Law)
Let’s look more closely at the general funds budget. This is the budget that supports the University’s academic and administrative activities and maintenance of the physical plant.
The state appropriation represents 31.4 percent of our general funds budget this year. Student tuition and fees contribute 62.1 percent, the reverse of what these shares were in 19 . “Other” income, such as income on investments, recovery of indirect costs, and departmental services, contributes 6.5 percent.
This year, the general funds budget totals $978 million.
Slide 6 - One Percent Increase Modules
Last year, I introduced you to the concept of one percent increase modules. We calculate income and expenses in one percent modules to provide some initial parameters in budget planning. For example, on the expense side, a one percent increase in salaries and related benefits currently costs about $6.2 million. On the income side, a one percent increase in the state appropriation, excluding Hershey and Penn College, will yield $2.9 million. A one percent increase in tuition will generate about $4.5 million in revenue.
The important point here is that a one percent increase in state appropriation does not correspond directly with a one percent increase in salaries and benefits. The cost of a 3 percent salary increase would be roughly $18.6 million. Hypothetically, if we were paying for the $18.6 million out of our state appropriation alone, it would require a 6.3 percent appropriation increase just to cover a 3 percent salary increase. Or, if we were paying for the increase totally from tuition, it would require a 4.2 percent tuition increase.
Slide 7 - Salary Adjustments
Salaries and related benefits are the largest component of the general funds budget, comprising 72 percent of all general funds. Penn State’s average faculty salaries have slipped in ranking since 1995-96 in comparison to other Big Ten universities and the 22 public universities participating in the Association of American Universities Data Exchange (AAUDE). We continue to be committed to making salary increases the highest budget priority.
Slide 8 - Salary Increase Plan
This year, we set a salary increase pool of 3.0 percent for merit-based increases and for market, equity, and compression considerations. We also have a Faculty/Staff Excellence Fund for special merit, market, and equity concerns. In addition, the entire President’s Excellence Fund was used to supplement the salary increase pool.
Slide 9 - Employee Benefits Cost Increases
This slide shows our benefits cost increases this year for the University’s Educational and General operations. The net increase is more than $7.8 million.
Health care insurance cost increases represent $6.1 million of this total.
And we are incurring increased costs of $1.7 million in the TIAA-CREF retirement program due to the increasing number of University employees who participate in this program.
Slide 10 - Facilities and Maintenance
Turning now to facilities cost increases, we have budgeted just over $2.5 million for the maintenance and operation of new or newly remodeled facilities at various campus locations.
We are continuing the capital improvement program begun two years ago to help address the University’s urgent space needs. We have set aside money for financing construction and renovation projects above and beyond those supported by the Commonwealth. The $4.5 million shown here represents the third year of a six-year program to support the $180 million of debt for capital construction and renovation projects. It also provides the associated operating expenses for facilities that will be built from these funds.
An additional $1 million is included for deferred maintenance. Penn State’s backlog of deferred maintenance projects currently totals more than $200 million.
And, we have allocated $250,000 to address environmental protection needs such as improving air quality, ensuring the quality of the water supply, enhancing hazardous waste materials management, and removing contamination from some of our lands.
Slide 11 - Program Adjustments
Program adjustments in this year’s budget total nearly $5.5 million. A total of $1 million is included for the School of Information Sciences and Technology to continue its multiyear buildup. These funds come from an additional state appropriation of $812,000 and $188,000 from IST student tuition surcharge funds.
You’ll recall that we are in the midst of a six-year plan that focuses on four interdisciplinary areas that address important societal needs–the life sciences; materials sciences; environmental studies; and children, youth, and families. We are continuing that investment this year with a total amount of $1.35 million.
$2 million is included in the budget for libraries and information technology. These funds are provided from the student information technology fee and are used for high priority student computing, telecommunications, and information resource needs.
An additional $379 thousand was budgeted for student activities at all campuses.
The $766 thousand budgeted for other program adjustments needs a bit more explanation.
Slide 12 - Other Program Adjustments
Internal budget reductions total nearly $3.7 million. This budget recycling amount to 1 percent of the operating budgets of all academic colleges and administrative units at University Park. Other campus locations also reallocate internally to help fund their highest priorities.
Adjustments of $3.3 million have been budgeted for high priority academic program needs in the colleges at University Park and other campus locations.
And, we have budgeted $1.1 million for academic and administrative support units including enhancements in administrative computing and the transportation and parking programs at all locations. The net of these recycling and enhancement funding changes is $766 thousand.
Slide 13 - Tuition Rate Increases
The basic tuition rate increase for this year was 5.76 percent.
In addition, the tuition increase included $33 per semester to support the capital improvement plan and $33 per semester for the competitive salary program.
The total increase in tuition, therefore, is 7.76 percent.
Slide 14 - Student Fee Increases
There is a $3 per semester increase in the student activities fee, which generates the additional $379 thousand for student activities I mentioned previously. These funds are made available to each campus for allocation by its campus student activities fee committee.
A $15 per semester increase in the information technology fee provides an additional $2 million.
Slide 15 - Tuition Increase Factors
We do not take tuition increases lightly. We have had to turn to tuition to help support critical areas that are necessary to protect Penn State’s educational quality. These are:
– competitive salary increases
– employee benefits
– capital improvements, including new facilities, renovations, and deferred maintenance
– information technology, and
– new academic initiatives.
Slide 16 - 2001-02 Tuition Increases Big Ten Public Universities
Penn State is not alone in implementing relatively large tuition increases. Tuition increases for the other Big Ten public universities range between 6.5 percent and 18.4 percent, with an average of about 10 percent. Our increase of 7.76 percent places us near the bottom of this list.
We will continue to work for maximum efficiency in order to keep tuition as low as possible. One way that we focus on Penn State’s goals and how best to use our resources is through strategic planning.
Slide 17 - Strategic Planning
The next series of slides highlight our planning activity.
Strategic planning is a disciplined and coordinated effort to meet the University’s overarching goals through decisions and actions that shape what Penn State is, what it does, and why it does it.
Slide 18 - Strategic Planning
Eighteen years of planning experience has made Penn State a national leader, and strategic planning has become a part of the Penn State culture.
Each unit’s strategic plan serves as a guide for determining direction and for making unit-level budget and resource allocation decisions. It has enabled us to improve all kinds of processes involving our teaching, research and outreach.
Strategic planning continues to improve our efficiency and effectiveness. Penn State is consistently ranked as one of the most efficient universities in the nation while accounting for academic quality.
Slide 19 - Strategic Planning: Principles for the Next Cycle
For the next planning cycle, we have avoided issuing a rigid set of guidelines, but rather have allowed for flexibility and creativity. We recognize that our academic units and administrative units differ in the ways they approach planning and are at different stages in the implementation of their strategies. We want a process that is–first and foremost–useful to the participants.
We will continue to monitor performance indicators at the university level and to encourage individual units to collect and use indicators appropriate to their own goals.
To encourage comprehensive and coordinated planning, we are asking the units to discuss their goals specifically in light of enrollment projections, staffing requirements, budget forecasts, and existing and projected space and facilities. This approach provides a comprehensive and realistic background for planning.
We plan to use existing councils and committees to discuss University directions and to make recommendations on enhancements. Short-term working groups will be commissioned to undertake special studies on critical issues, as they are needed.
Slide 20 - 2002-2005 Strategic Planning Guidelines
We have chosen a three-year rather than a five-year planning cycle to maintain maximum flexibility and because of the uncertainties surrounding the economy and the associated implications for future sources of funding. Units have been asked to discuss their future directions, their strategies to achieve their vision and goals, and the measures they will use to evaluate their performance.
Each unit has been asked to discuss the implications of major University task force reports and University Faculty Senate legislation on their respective units.
For the next planning cycle, we are placing a moratorium on central recycling, and asking that all budgetary units recycle at least one percent of their permanent budgets on an internal basis each year, moving funds from lower priority to higher priority academic and administrative needs.
Slide 21 - Integrated Planning: Focus Areas
Integrated planning is an aspect of the current cycle of strategic planning that we will continue to refine for each of the campus college cost centers. We wanted a process that would better integrate academic planning with budget, enrollment and facilities planning. So we worked with the campus colleges as they collected data and developed individual business and academic plans for each campus.
The objective is to advance our academic goals while taking into account infrastructure and human resource needs. This process is providing an excellent context for the strategic planning that our campus colleges are undertaking with respect to new baccalaureate and other academic programs.
Slide 22 - A Framework to Foster Diversity at Penn State: 1998-2003
One highly positive outcome of the current cycle of University planning was the creation of the report entitled, A Framework to Foster Diversity at Penn State: 1998-2003. Diversity strategic plans from each unit were woven into one comprehensive document and set of challenges. The seven challenges are shown on this slide. Budget executives have been asked to submit a status report on their progress in meeting these challenges.
Slide 23 - 2002 Appropriation Request
The final portion of my remarks will take a look at the University’s budget plan and appropriation request to the Commonwealth for 2002-2003. Let me emphasize that there are many steps in the process that need to be played out both in Harrisburg and here before the Board of Trustees gives final approval to the budget next July.
Slide 24 - 2002-03 Appropriation Request
We have requested a 4.25 percent increase in our basic operating costs. This slide highlights our top priorities for the basic budget next year. They are:
– improving faculty and staff salaries
– meeting escalating health care costs, and
– supporting facilities improvements and deferred maintenance.
Slide 25 - 2002-03 Appropriation Request
In addition to the request for basic operating costs, we have made four special funding requests. These include funds for:
– Information Sciences and Technology
– Agricultural Research and Cooperative Extension
– the College of Medicine, and
– Workforce Development at Penn College
Slide 26 - Tuition Rate Changes
To maintain our commitment to providing high-quality education and to fund the priorities on the last two slides, we have proposed a basic tuition increase of 5.84 percent.
In addition, a $35 increase per semester is planned to support the capital improvement program.
And, a $35 increase per semester is anticipated to support the faculty salary initiative.
If our requested appropriation increase for operations is funded, the overall proposed tuition increase would be 7.84 percent.
Slide 27 - 2002-03 Appropriation Request Summary
Here is a summary of Penn State’s appropriation request for next year.
We have asked for a basic increase of 4.25 percent for operating costs, or $13.94 million.
And, we are requesting special funding of $12 million for Information Sciences and Technology, Agricultural Research, Cooperative Extension, the College of Medicine, and for workforce development at Penn College.
The total increase requested is $25,940,000.
And, the total proposed state appropriation requested for Penn State for 2002-2003 is $360,753,000.
Let me reiterate that we are still many months away from a final budget for the next academic year.
You have probably noticed that the budgetary priorities for next year are similar to the priorities for this year. We are still working to bring faculty salaries to a level which compares more favorably with our peer institutions, to improve facilities, and to enhance academic quality. As I pointed out last October to this group, significant tuition and appropriation increases will be needed in each of the next several years. The level of tuition increases obviously depends directly upon the level of Commonwealth appropriations for Penn State in the form of base operating support. If we do not receive the requested appropriation increase for the 2002-03 budget, we will undoubtedly have to readjust our salary and tuition increase recommendations.
Penn State is an efficient and well-run University and I am confident that our budget plans reflect our priorities to continue to enhance the academic quality and reputation of the
Slide 28 - Commonwealth Spending Freeze
Finally, I should say something about the Commonwealth’s recent freeze of $200 million of state spending. Penn State’s share of the freeze is 1 percent of our appropriation or $3.35 million.
Accordingly, we have implemented a 0.5 percent recycling on current general funds operating budgets from all budgetary units at all campus locations, and a 1.0 percent recycling from Agricultural Research, Cooperative Extension, and the College of Medicine’s state appropriation. We hope that the freeze, or recision if that turns out to be the case, is a temporary phenomenon, and we will be working hard to see that our base budget is not reset to a lower level when the Commonwealth’s Fiscal Year 2003 budget is approved.
There is, of course, the possibility that additional Commonwealth spending may be frozen if state revenue collections continue to fall farther below forecast. President Spanier and I are currently working with University budget executives to consider how to best deal with such a possibility. Thus, it is essential that all of us make the wisest possible decisions regarding the allocation of our scarce resources. We’re determined to maintain our forward momentum and to continue to improve the quality of education at Penn State in the midst of these financial challenges.
Again, my thanks to the Senate for this opportunity to share some information and perspectives on the Penn State budget. I’d be happy to take some questions if time permits.
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Web page last modified September 30, 2011