Slide 1 – Title Slide
My report today will cover the University's 2010-11 operating budget and progress on the first-year implementation of the new five-year strategic plan. I'll be covering a lot of data quickly, and only able to hit the high points, but the slides and text will be on the Senate's website and you can see it again at your convenience.
Slide 2 – Budget Priorities
In view of the current fiscal environment, this year's budget was developed in a conservative manner. Our operating budget for this year: (1) keeps tuition at the lowest possible level without sacrificing quality, (2) reinstates modest salary increases after last year's freeze, (3) provides funding for unavoidable cost increases and a very limited number of strategic initiatives, and (4) includes significant expense reductions.
Slide 3 – 2010-11 State Appropriation
The funding appropriated by the Commonwealth of Pennsylvania for this academic year was $333.9 million. This figure includes $318.1 million from state funds and $15.8 million from federal stimulus funds. In addition, state and federal Medical Assistance funds estimated at $13.5 million are being directed to the Medical Center as a grant through the Pennsylvania Department of Public Welfare, a half percent less than last year's allocation.
Slide 4 – Summary of State Appropriations
This chart shows the University's appropriation history since 2001-02, including our initial appropriations and, in three cases, mid-year rescissions where some funding was pulled back by the state. As you can see, the level of state support is essentially unchanged over the past decade.
Slide 5 – Changes – Total Budget
We see growth in the overall General Funds budget this year of $87.8 million, primarily because of increases in tuition revenue. Restricted Funds will grow by $20.2 million, and Auxiliary Enterprises will increase by nearly $7 million, for a grand total of $114.9 million.
Changes of $113 million are budgeted for the Hershey Medical Center , Penn State 's self-supporting academic medical center that provides millions of dollars annually to help support the College of Medicine .
Slide 6 – 2009-10 Total Budget
Penn State 's total operating budget last academic year was $3.76 billion. With the changes shown on the previous slide, the total operating budget for 2010-11 is just over $4 billion.
Slide 7 – 2010-11 General Funds Budget - Income
This slide represents the General Funds portion of our budget which principally finances the core instructional and Land Grant mission of the University. Tuition and fees make up 75 percent of total General Funds revenue. State appropriation and federal stimulus funds represent 18 percent, and other sources, including facilities and administrative charges on research grants and contracts, contribute the remaining 7 percent.
Slide 8 – Appropriation vs. Tuition and Fees as a Percent of the General Funds Budget
This slide is the so-called X-Graph. Since 1971-72, the appropriation has fallen from 62 percent to slightly less than 18 percent of the University's General Funds.
Slide 9 – General Funds Budget
On the expense side, Penn State's General Funds budget is made up of five key areas: Educational and General (or E&G), Agricultural Research, Cooperative Extension, the College of Medicine, and Penn College. Let's look now at a few of the major expenditure changes in the General Funds budget this year.
Slide 10 – Salary Increase Plan
Salary adjustments typically account for the largest component of the changes in the Educational and General budget, indeed all of our budgets. Faculty and staff pay increases were reinstated this year at a modest 2 percent, awarded principally on merit. An extra 1.5 percent was made available for the President's Excellence Fund to address special merit, market and equity cases. Salary increases total $30.4 million.
Slide 11 – Employee Benefits
Rising health care costs continue to create challenges. We are projecting an increase in health care costs of $10.7 million this year. An even larger increase is being avoided by changes to our healthcare plans, including wellness initiatives, increased co-payments and co-insurance, and the implementation of increased deductibles effective January 2011.
We have included an additional $12.4 million in the budget for retirement benefits and changes in the Social Security base. Nearly $9 million of this increase is due to the rapidly rising employer contribution rates for the State Employees' Retirement System. Together health care and retirement cost increases total $23 million.
Slide 12 – Facilities and Maintenance
Turning to facilities costs, $4.2 million more has been budgeted for the maintenance and operation of new or newly remodeled facilities.
Energy conservation initiatives have helped to lower energy consumption, but rising energy prices will result in an increase of $436,000 in fuel and utilities.
A total of $3.7 million is included to help address the need for modern laboratory, classroom, and other space and facilities through the capital improvement program.
Deferred maintenance for the University's aging physical plant continues to be a critical challenge. For 2010-11, additional support of $3 million is included to help address the maintenance backlog at all of our campuses.
This brings the increase budgeted for Facilities and Maintenance to $11.4 million.
Slide 13 – Program Adjustments
Turning to program adjustments, $3 million has been budgeted for a small number of initiatives that are of strategic importance to the University. A total of $3.8 million is included for other program commitments, including a few new faculty positions, instructional workload adjustments, information technology services, undergraduate admissions, counseling services, and safety and security.
Nearly $1 million is earmarked for libraries and information technology. In keeping with our conservative approach to budgeting, funds in the amount of $4 million have been included in this year's budget to address future financial pressures such as the spike we know is coming in mandated SERS employer contributions.
And lastly, $1 million of additional permanent funding is included for need-based student aid.
Slide 14 – Internal Budget Reductions
Internal expense reductions in this year's budget total over $12 million. This includes administrative cost savings of $5 million and $7.3 million from a one percent across-the-board recycling from academic and administrative units. I am well aware of the continuing pain our budget units are experiencing from continued recycling. But let me remind you that salary and benefit cost increases totaled over $53.5 million this year. If there were no recycling or administrative cost savings, the tuition increase necessary to support just these salary and benefit increases would have been 5.5 percent.
Slide 15 – Percentage Increases In Lower Division Tuition Rates
Every effort was made to keep tuition rates as low as possible. The tuition increase for lower division students at University Park was 5.9 percent for residents and 4.5 percent for non-residents. Both resident and non-resident students at the Commonwealth Campuses saw a tuition increase of 3.9 percent.
Slide 16 – Summary of Changes – General Funds Budget
To summarize, the E&G budget has increased by $72 million; the College of Medicine budget increased by $7 million and Penn College increased by nearly $8.6 million. The total increase in the General Funds budget is $88 million. We note that Cooperative Extension and Agricultural Research budgets, because they are not supported by any tuition revenues, have no increase this year. With the rising costs of salaries and benefits that Extension and Ag Research must cover for their faculty and staff, significant internal program cuts are required to balance these budgets.
Slide 17 – 2011-12 State Appropriation Request
I'll now share just a few comments about the University's appropriation request to the Commonwealth for 2011-12 which was approved by the Board of Trustees last month. Developing next year's appropriation request was particularly difficult.
Slide 18 – Appropriation Request Summary
The starting point for our appropriation request is the $347 million that the University is receiving this year. We have asked the Commonwealth to increase our appropriation by 5 percent or $17.2 million. We recognize the dire financial straits of the Commonwealth owing to the deepest recession since the 1930s, but we feel compelled to request an increase given our declining inflation-adjusted appropriations over the past decade—and our belief that this is not a time when the Commonwealth can afford to disinvest in higher education.
Slide 19 – Budget Plan Summary
The appropriation request is just the first step in a complex state budget process. There are many variables that could influence the final outcome. It is difficult to predict the financial health of the economy nine months from now. But there are increasing signs that the state's structural deficit now looms in the $4-5 billion range, while the federal stimulus funding — about $2.75 billion — that has temporarily plugged much of the state's current budget gap, will end on June 30th. In addition, there are pressures of mandated spending such as Medicaid that tend to crowd out other segments of the budget, as well as the unknowns regarding the priorities of a new governor and General Assembly. I hope this brief recap concerning the financial pressures faced by Pennsylvania and state governments across the nation gives you some perspective on why next year is referred to in higher education circles as the “financial cliff.”
Slide 20 – First-year Implementation of the 2009-10 through 2013-14 Strategic Plan: Priorities for Excellence
The continuing challenge for all of us in higher education is to find ways to enhance student success and fulfill the University's mission while significantly reducing the rate of increase in the costs of education. This challenge is at the heart of the University's latest 5-year strategic plan that was adopted by the Board of Trustees in May 2009.
Slide 21 – Strategic Planning Goals
You'll recall that there are seven major goals represented in the Strategic Plan. They are: 1) to enhance student success; 2) to advance academic excellence and research prominence; 3) to realize Penn State's potential as a global university; 4) to maintain access and affordability and enhance diversity; 5) to serve the Commonwealth and beyond; 6) to use technology to expand access and opportunities; and 7) to control costs and generate additional efficiencies. Each of the goals contains from 4 to 8 strategies.
Slide 22 – Strategy Implementation Matrix
A Strategy Implementation Matrix assigns leadership responsibility for each strategy. The Faculty Senate has a consultative and/or implementation role for one or more strategies in each of the seven goals. The Matrix also identifies the projected start date for the strategies ranging from Year 1 to Year 3, measures to assess performance, and a general indication of the fiscal impacts of each strategy.
Some strategies will result in cost savings while others are cost neutral. Some will require new sources of funding as the economy hopefully improves and we have resources available.
Slide 23 – Year 1 Strategy Implementation
Lead administrators and groups have worked on the Year 1 Strategies and submitted mid-year and end-of-year progress reports. The remainder of my remarks will summarize progress that has been made on many strategies.
Slide 24 – OPIA Progress and Performance Webpage
I can only touch on some examples of implementation today, but considerable information can be found at the Office of Planning and Institutional Assessment's website at the URL shown here with a link from the OPIA home page.
Slide 25 – Goal 1: Enhance Student Success
Within Goal 1, Enhance Student Success, three strategies were projected for implementation last year.
(Strategy 1.1) More than 90% of our undergraduate programs now have formal learning objectives. The Schreyer Institute for Teaching Excellence has been leading the way by providing shared resources, networking, and workshops to advance program-based learning outcomes assessment.
(Strategy 1.2) An inter-college minor in Civic and Community Engagement is now available to students at eight campuses, focusing on what it means to contribute to citizenship beyond the classroom, laboratory, or studio.
(Strategy 1.2) We are creating more opportunities for undergraduate research, with the Office of Undergraduate Education and the Division of Student Affairs taking leadership. More information is now being disseminated about undergraduate research opportunities through small grants programs, travel to conferences, and research assistantship availability.
(Strategy 1.3) And, a Student Transitions Steering Committee is working on ways to improve the transition process at key points in students' lives, such as change of assignment to another campus.
Slide 26 – Goal 2: Advance Academic Excellence and Research Prominence
Goal 2 of the Strategic Plan is to “Advance Academic Excellence and Research Prominence.”
(Strategy 2.1) While many peer institutions have instituted hiring freezes, furloughs, and even terminations of tenured faculty as a result of current economic conditions, Penn State has continued replacement hiring in a conservative manner. As a result, we were able to attract truly exceptional faculty to the University in our recruitment efforts last year. A majority of our new hires have been in clusters of excellence where we can build from strength.
I hope you have all had a chance to review the recently released data and rankings of doctoral programs by the National Research Council. I am extremely pleased with how well Penn State programs ranked overall, and I believe our commitment to strong faculty hiring and development has been the key to our considerable success since the previous rankings in 1995.
(Strategy 2.3) The College of Medicine and Penn State Hershey Medical Center have several major initiatives to increase research and clinical capabilities in Central Pennsylvania and the local Centre Region. These include
The Regional Medical Campus at University Park
The Penn State Hershey Cancer Institute and the Northern Appalachia Cancer Network
Penn State Hershey Children's Hospital
Penn State Hershey Rehabilitation Hospital
Considerable progress has occurred in each of these initiatives.
Slide 27 – Goal 2: Advance Academic Excellence and Research Prominence (Strategy 2.4)
I'd like to briefly discuss Strategy 2.4, “Consolidate Academic and Administrative Programs through Targeted Reviews.” After 19 years of internal budget reductions and reallocations, Penn State is an efficient University. But we still need to shrink, merge, or eliminate some programs or activities in order to invest in promising new ideas.
Slide 28 – Review Coordinating Committees
A group called the Academic Program and Administrative Review Core Council was charged last fall by President Spanier to review academic programs and administrative services in order to find resources to help reduce tuition increases and to provide funds for new investments. The review process is systematic and broadly based, and decision making is data-informed.
The Core Council, which I chair, is working closely with three coordinating committees whose assessments feed into the overall recommendations of the Core Council. The membership of the Coordinating Committees includes a broad cross section of administrators and faculty. Each of the Coordinating Committees is chaired by a member of the Core Council and includes at least three members of the Council.
Deans, chancellors, vice presidents and vice provosts have been asked for their ideas about mergers, reconfigurations, program viability, and efficiencies within their units. A site on the Office of Planning and Institutional Assessment's webpage also requests ideas about ways to be more efficient and effective in the delivery of programs and services.
Slide 29 – Academic Program and Administrative Services Review Core Council
These are the members of the Council, which has been reviewing academic programs and administrative units. Criteria for the review of academic programs include:
enrollments as a reflection of student demand
student quality indicators such as SAT and GRE scores
external validations of program quality
program delivery costs
research funds secured, and
centrality to the core academic mission.
Savings on administration will have a more immediate financial impact than academic programs, given the lesser number of steps necessary to make administrative changes, and our obligation to allow students time to complete their majors. Criteria for review of administrative services include:
contribution to the core mission
demand for the services and potential overlap
quality of services provided
external availability and comparative pricing
the balance between central and distributed services
The Core Council is considering both permanent, long-term budgetary savings and short-term cuts, and looking at how cost savings in one unit may impact other units so we are not simply engaged in cost shifting.
The Core Council will be rolling out recommendations over the course of the year, getting feedback, providing feedback, and working to implement changes. Some changes will require Faculty Senate review, and some will require Board of Trustees action in the months ahead.
Slide 30 – Goal 3: Realize Penn State's Potential as a Global University
Moving back to the goals, Goal 3 is to “ Realize Penn State 's Potential as a Global University .”
(Strategy 3.1) The University Office of Global Programs has been restructured and strengthened. We have centralized additional student and faculty services in UOGP, and will add others over time.
(Strategy 3.2) We have completed six faculty-led task forces on “Global Engagement Networks” or GEN's for important regions of the world such as China and India . Our GEN strategy has identified key university partners and thematic areas where we can build more successful relationships.
(Strategy 3.5) And, we are seeing significant increases in the number of international undergraduate students, which has nearly doubled over the past six years to approximately 2,000 students. We continue to enhance and refine our recruiting strategies to attract top students from around the world.
Slide 31 – Goal 4: Maintain Access/Affordability and Enhance Diversity Goal 4 recognizes the important role that Penn State plays in the Commonwealth.
(Strategy 4.1) As a means of providing access and affordability, we are committed to maximizing student access to Penn State and to growing the tuition differential between the Commonwealth Campuses and University Park .
We are continuing our commitment to the 2 + 2 model, which has clearly helped to rejuvenate enrollments at our Commonwealth Campuses.
University Outreach is working with our Commonwealth Campuses to offer returning adult students a choice of various delivery options for courses—online, blended, or face-to-face.
(Strategy 4.3) We are increasing our focus on campus-based scholarships. Last fall, 864 first-year students at the 19 Commonwealth Campuses received a Chancellor Award, intended for students whom data indicate might not have otherwise enrolled at our campuses.
(Strategy 4.4) And, we are making great progress in meeting the “Ensuring Student Opportunity” goal our $2 billion “For the Future” fundraising campaign.
Slide 32 – Goal 5: Serve the People of the Commonwealth and Beyond
With respect to serving the people of the Commonwealth and beyond,
(Strategy 5.1) A Video-based Learning Network has been established to serve adult learners with real-time, interactive learning. Most campuses will be participating with the goal of five campuses up and running by the end of 2010.
(Strategy 5.3) With respect to the sharing of programs, faculty and staff, the Campus Academic Officers are developing operational principles and guidelines for successful cross-campus collaborations. Penn State Beaver, New Kensington , and Shenango now offer the Administration of Justice degree using shared faculty, while five of the eastern campuses are collaborating on the delivery of the B.S. in Business through a weekend/evening format to adult learners by sharing faculty.
Slide 33 – Goal 6: Use Technology to Expand Access and Opportunities
(Strategy 6.1 ) Penn State 's largest future enrollment growth will occur in the World Campus. World Campus course enrollments reached nearly 32,000 by the end of June 2010, a 32 percent increase over the previous year. We launched two new online undergraduate degrees last year, two graduate degrees, and three certificate programs. We have an aggressive slate of offerings scheduled to open during the coming year. We have now defined the World Campus as a unique cost center. And we are refining our business model and revenue sharing relationships with the academic units, developing a 5-year plan for expanding faculty capacity, and better integrating World Campus administration and student services into central University systems.
(Strategy 6.2) Some of the new initiatives in IT infrastructure include:
The Knowledge Commons in Pattee Library, which has been supported extensively through private philanthropy
The partnership among CIC universities to share digital content through a contract with Google, and
The eLearning Strategy Committee, which is working on ways to expand shared eLearning classes across Penn State .
(Strategy 6.4) And, we continue our actions to make Penn State 's IT resources more secure.
Slide 34 – Goal 7: Control Costs and Generate Additional Efficiencies
(Strategy 7.1) All of our colleges and campuses are well on the way to completion of formal workload policies to improve instructional productivity, reduce the number of under-enrolled course sections, better manage special topics courses, and create greater equity in teaching loads among their faculty.
(Strategy 7.2) Two task groups have developed recommendations concerning classroom scheduling, the software systems used for scheduling, and systematic approaches to improved facilities utilization.
(Strategy 7.2) Several of our major research units are actively exploring how they might better share core research facilities, instrumentation, and research administration services.
(Strategy 7.3) The increase of future health care costs will be reduced through a number of new policies and practices. Employees hired effective January 1, 2010 now have University contributions to health savings accounts that can be carried into retirement, thus moving from a defined benefit to a defined contribution approach that will produce an estimated $3 billion in cumulative savings over the next 30 years. I previously noted a number of changes to the Penn State health care plan and the expansion of the Hershey Medical Center presence in the Centre Region.
(Strategy 7.7) Last year, 60 new continuous quality improvement teams worked to improve everything from grants and contracts post-award services to math advising to Emergency Department patient throughput at Hershey Medical Center.
(Strategy 7.8) “ Sustainability” was a recurring theme in the strategic plan, and we are incorporating elements of sustainability at many levels within the curriculum and University operations. Penn State is now purchasing about 20 percent of its electricity from renewable resources. Faculty are engaged in several major research projects from federal agencies and companies to study promising avenues for energy transformation and utilization.
(Strategy 7.8) We are focusing the University's leadership for sustainability education in the Center for Sustainability. The Center is taking the lead to increase the number of courses focused on sustainability education and courses that incorporate aspects of sustainability. The faculty affiliated with the Center have now developed a proposal for a Minor in Sustainability Leadership.
(Strategy 7.6) – (listed for Year 2) I should note that, although Strategy 7.6 is listed for Year 2 implementation, central allocations to Outreach have been capped beginning with the current budget year. Major units within Outreach have been established as individual cost centers, some are being moved to self-supporting auxiliary status, and we are now in a much better position to determine the revenues and costs of various Outreach activities.
Slide 35 – Summary Slide (Fall Scene)
We made good progress on Year 1 implementation of the strategic plan, but much work and many tough decisions still lie ahead. These are indeed challenging times in all of higher education, but Penn State is still on the move.
And now I'd be happy to receive your questions and comments. As always, thank you for the opportunity to meet with the Senate.
201 Old Main, University Park, PA 16802
Phone: (814) 865-2505
Fax: (814) 863-8583
Web page last modified September 30, 2011