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Budget Questions and Answers
Introduction
The University is facing an $81 million shortfall of funds available to support our academic and statewide missions for FY2004 (starting July 1, 2003). This is the severest budget deficit the University has experienced since its designation as the flagship campus in 1988. It is essential that all members of the campus community understand the scope of the problem and work together to develop appropriate responses. The vice presidents for Academic Affairs and Administrative Affairs have prepared a comprehensive document explaining how this budget shortfall occurred and how the university is dealing with it. You can access the complete document here, or you can look for your question below and follow the links to detailed responses.
Q. Where does the university's funding come from?
Q. How does the university spend its state-supported funds?
Q. How did the budget shortfall come about?
Q. How is the university addressing this shortfall?
Q. Why raise tuition?
Q. Why are layoffs necessary?
Q. Are there any guidelines for expenditure reductions?
Q. Why don't you use reserves to offset the shortfall?
Q. Why can't we just raise more money from individual or corporate donors?
Q. Why can't we take some money out of our endowment to address the deficit?
Q. Why are we still building or renovating new facilities when we are laying off staff?
Q. Where does the university's funding come from?
The total 2003 budget of $1.16 billion was made up of $633 million in state-supported revenue and $522 million in non-state supported revenue. State-supported revenue consisted of $360 million in state appropriations, $209 million in tuition and fees, $13 million in restricted grants and contracts and $51 million from other sources. The non-state supported revenues are earmarked for specific purposes and cannot be reallocated to cover the university's state-supported activities. So, for example, funds for a research grant cannot be diverted from a specific project to address the deficit. Likewise, a gift from a private donor to support a building, program or scholarship cannot be redirected to pay for salaries and wages. For more, please click here.
Q. How does the university spend its state-supported funds?
For the fiscal year just completed, here is how the budget was apportioned: The overwhelming majority (77%) of the $633 million in state support went to salaries and benefits; $45 million for grants and financial aid; $31 million for communications and other contractual services; $25 million for equipment and supplies; $24 million for fuel and utilities; and $21 million for debt service and rentals. For more, please click here.
Q. How did the budget shortfall come about?
The $81 million shortfall has three components: 1) A $17 million increase in mandatory expenses, such as health insurance premiums, utilities and debt service; 2) $54 million in reduced state appropriations; and 3) A commitment for $10 million for additional financial aid to offset the tuition increase. For more, please click here.
Q. How is the university addressing this shortfall?
State appropriations and tuition make up almost all of the revenues needed to support the primary missions of the university. The response to such a drastic decrease in state appropriations requires a solution that balances tuition increases and reduced spending. For more, please click here.
Q. Why raise tuition?
After 10 years of modest tuition increases, the university must look at additional tuition as one way of offsetting the reduced appropriations in order to maintain and enhance the quality of our academic programs. Expenditure reductions alone cannot achieve cuts of this magnitude without diminishing the high quality of education our students expect and deserve. For more, please click here.
Q. Why are layoffs necessary?
The largest component of the university's state-supported expenditures is salaries, wages and benefits ($487 million) and another $90 million is in fixed operating costs that cannot be reduced. There is not enough flexibility in the remaining $56 million to achieve the full reduction in funding. The university is required by the state to reduce the total position count by 208 in FY 2004, on top of 75 positions eliminated last year. Most of these reductions are being accomplished by not filling vacant positions. Unfortunately, some layoffs are necessary to cover the position reductions and balance the university's budget. For more, please click here.
Q. Are there any guidelines for expenditure reductions?
First and foremost, we will protect the quality and availability of our instructional programs. This will result in a greater share of reductions in other university activities, which may result in substantial reductions or even elimination of some service and outreach programs. We also are committed to ensuring the safety of students and employees, and we will protect public safety activities from budget reductions. For more, please click here.
Q. Why don't you use reserves to offset the shortfall?
Well, in fact, we have, at least for part of the deficit plan. The university's fund balances, or net assets, are mostly restricted funds or capital assets. Most have to be maintained at a certain level in order to maintain our bond rating, or credit worthiness. The unrestricted net assets are spread across the campus in various units and are used for facilities renewal, continuity of operations, maintaining credit worthiness and for contingencies. For more, please click here.
Q. Why can't we just raise more money from individual or corporate donors?
The university is doing all it can to increase the proportion of the budget from philanthropic support, knowing that public funding is declining. In the fiscal year just completed, the university raised $81 million, the second highest annual fundraising total in the university's history. However, like grants and contracts, most gifts are given for a very specific purpose. Donors generally give their philanthropic support to create or enhance programs, scholarships, endowed faculty chairs, or new facilities. So while donations help the university progress in important ways, they don't cover cuts in state funds. Very few donors give unrestricted gifts, and even fewer give funds for salaries and general operating budgets.
Q. Why can't we take some money out of our endowment to address the deficit?
Money given by donors for endowed gifts is invested for the university; the income earned on these investments supports particular projects. By definition and by law, the principal must remain invested and only the income can be spent in a given year. For example with an endowment of $100 million, only a percentage-on the order of 5% or $5 million--is available each year to spend, and this goes to the projects for which the endowed gifts were earmarked. All of the university's endowment gifts were contributed by donors for designated purposes, and the university is legally required both to preserve the principal and spend the income only for the agreed upon purposes.
Q. Why are we still building or renovating new facilities when we are laying off staff?
Funds for construction come from the state capital budget, which is wholly separate from the state's annual operating budget. The capital budget is different from the operating budget in a couple of important ways. First, capital projects are approved years in advance, so that the money for planning, designing and building a facility is spread over several years. A building going up right now had most of its funding approved and spent before the economy slowed down. For this reason, a few years from now, you are likely to see very little new construction. Second, the money the state dedicates to capital projects is borrowed and paid back over man