Penn State Intercom......July 26, 2001

Trustees OK budget

By Annemarie Mountz
Public Information

A smaller-than-expected appropriation from the state this year -- a 0.86 percent increase in the overall appropriation -- coupled with another round of internal budget cuts, has resulted in a lean operating budget for the University. Penn State's Board of Trustees on July 17 approved a total operating budget of just under $2.3 billion for the 2001-02 fiscal year beginning this month.

This budget reflects changes of just under $94.6 million in general funds, restricted funds and auxiliary enterprises, which is an increase of 5.4 percent over last year's budget. In addition, changes of $34.8 million for medical center operations were approved June 21 by the Milton S. Hershey board.

President Graham B. Spanier told the board that the budget reflects the University's goal of maintaining the resources that enhance students' educational experiences.

"We want to continue to lead the country in the area of information technology by supporting the School of Information Sciences and Technology as well as technology initiatives in the libraries and elsewhere on campus," Spanier told the board. "The University is in the midst of a six-year plan that focuses on four interdisciplinary academic program initiatives that are of strategic importance to the Commonwealth. We will continue to invest in the interdisciplinary initiatives in life sciences, environmental studies, materials science, and children, youth and families."

The budget also reflects some cutbacks.

"The $5 million line-item for program initiatives that was in our budget last year was eliminated," Spanier reported. "Last year's special funding of $2 million for Penn College also was eliminated" in the state appropriation, he said.

The state appropriation for Cooperative Extension increased by $809,000, but this increase is short of the cost increases needed to maintain programs at their current levels.

The proposed changes for agricultural research echo the changes for Cooperative Extension. The state appropriation increased by $705,000; however, due to increased costs in salaries and benefits, there will need to be some program reductions as well.

Internal reductions of $3.68 million also are reflected in the budget. These reductions amount to 1 percent of the departmental operating budgets of all colleges and support units at University Park, continuing the University's program of budget reductions and reallocations for the 10th consecutive year. Under the cost center budgeting model, each cost center is responsible for reallocating resources internally to address the University's highest priority academic and support unit needs. Other campus locations also reallocate internally to help fund their highest priorities.

Because the state capital funds already approved will not be sufficient to meet the University's most critical needs, the University has established an ongoing general funds budget, funded by a portion of the tuition rate increases, to support the capital improvement program.

"Over the next decade, Penn State's progress will be linked significantly to the quality of the facilities that are available to carry out its educational programs," said Spanier. "Increasing numbers of students and faculty, changing technology, more interdisciplinary programs and a growing research program have led to a serious space problem for the University. Insufficient or inadequate space has become a serious impediment to a growing number of academic programs."

Over a six-year period, this investment will allow the University to incur an additional $180 million of debt for capital construction and renovation projects over and above what might be received from the Commonwealth. It also will provide the associated operating expenses for facilities that will be built from these funds. A total of $4.46 million is included in the budget plan for 2001-02, the third year of this program.

The single largest component of the total operating budget is the general funds budget. For 2001-02, more than
61 percent of the total budget, or $1.13 billion, comes from general funds dollars. The components of the general funds budget include: the Educational and General budget, which supports most of the University's basic teaching, research and public service programs; the budgets for Agricultural Research and Cooperative Extension, which remain separate from the Educational and General budget by virtue of their separate line-item funding; the College of Medicine at The Milton S. Hershey Medical Center; The Pennsylvania College of Technology; and The Dickinson School of Law.

Tuition contributes 29.4 percent of the total budget, with the state appropriation contributing 14.6 percent. Each year, the state appropriation funds a smaller percentage of the University's total budget, with tuition funding a larger portion.

An increase in the student information technology fee will provide critically needed funds for improvements in libraries and information technology. Limited new funding is included for colleges and support units.

A total of $1 million is included in the budget for Information Sciences and Technology (IST) as the University continues its multi-year development plan for the new school. For 2001-02, the state is providing an additional $812,000 for the line-item appropriation for IST, bringing the total appropriation for IST to $5.3 million. Also, the first class of IST students will reach its junior year in 2001-02, and begin paying the surcharge of $750 per semester. The surcharge, which was approved by the board in 1999-2000, applies to upper-division and graduate students enrolled in IST programs. It will result in additional funding of $188,000.

"We are once again placing a high priority on attracting and retaining the highest quality faculty and staff, including providing competitive salary increases," Spanier told the board. "Our salary increases have lagged those of peer institutions during the last six years, making it critically important to focus on this aspect of the budget so the quality of our faculty and staff does not erode."

To that end, salary adjustments represent the largest component of the changes in the educational and general operating budget. For 2001-02, the budget includes
$16.4 million for recommended salary increases and
$3.6 million for related benefits, for a total of $20 million.

"The University continues to be committed to awarding salary increases principally on the basis of merit as determined by annual evaluations," Spanier said. "A salary increase pool of 3 percent will be used for merit-based increases and for market, equity and compression considerations for groups or individuals within the unit."

In addition, Spanier has set aside additional money for the Faculty/Staff Excellence Fund and the President's Excellence fund to supplement the salary increase pool and help to raise the competitiveness of the University's salaries.

Penn State average faculty salaries have slipped compared to the other public Big Ten institutions and 22 public institutions participating in the American Association of Universities Data Exchange.

The University is committed to complying with federal and state environmental regulations and is working diligently to keep pace with new mandates. A total of $250,000 is being allocated to address environmental protection issues that will allow the University to improve air quality, ensure the quality of the water supply, enhance hazardous waste materials management and remediate contamination of some of its land.

Other components of the budget include: $2.55 million for maintenance and operation of new facilities; $1 million for deferred maintenance; $1.35 million for interdisciplinary initiatives; and $2 million for libraries and information technology.

The total 2001-02 operating budget for the College of Medicine is slightly more than $124 million. The budget includes $75.1 million for general funds, $45 million for restricted funds and $3.9 million for auxiliary enterprises. When combined with the budgeted expenses and income of $463.9 million for The Milton S. Hershey Medical Center, a subsidiary corporation within Penn State that was formed to operate the clinical activities, the budget for the entire medical center operation for 2001-02 is nearly $588 million.

The total 2001-02 operating budget for The Pennsylvania College of Technology is $80.76 million. This includes the general funds budget of $61.7, restricted funds of $7.98 million and a budget for auxiliary enterprises of $11.06 million. The budget reflects a reduction of $576,000, due in part to the elimination of the special funding for the college that was included in last year's state appropriation. Also included is a drop in restricted funds from the close-out of a number of multi-year projects.

The Dickinson School of Law operating budget is $14.8 million. This includes a general funds budget of $11.93 million, restricted funds of $2.56 million and $339,000 for auxiliary expenses.

Annemarie Mountz can be reached at AMountz@psu.edu.

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