Scenario 1

TABLE 2
SUMMARY OF ESTIMATED 2009-10 STATE APPROPRIATION
AND FEDERAL STIMULUS FUNDS

Scenario 2

TABLE 1
TOTAL UNIVERSITY BUDGET
SUMMARY OF 2009-10 CHANGES

Scenario 2

TABLE 2
SUMMARY OF ESTIMATED 2009-10 STATE APPROPRIATION
AND FEDERAL STIMULUS FUNDS

EDUCATIONAL AND GENERAL BUDGET

     In 2000, the Board of Trustees adopted a multi-year plan to make Penn State’s faculty salaries, which had been falling dramatically against other universities nationally, more competitive relative to our peer institutions in the Big Ten and the Association of American Universities.  This plan proved successful and showed steady improvement in our rankings through 2005-06.  Limited funding for salary adjustments in the 2006-07 and 2007-08 budgets resulted in some decline in our rankings, while our 2008-09 salary increase program enabled us to maintain our relative position.  Information regarding Penn State’s faculty salary rankings can be found in Tab B of this document.

     As a result of the current economic downturn, salaries for faculty and staff in 2009-10 will be frozen at current levels.  Funds are included in the budget plan to meet a 3.0 percent wage increase for technical service employees included under the University’s collective bargaining agreement.  It should be noted that the technical service employees recently ratified a one-year extension of the agreement through June 30, 2011, which includes a deferral of the scheduled July 1, 2009 wage increase to February 15, 2010.  Funds are also provided in the budget for promotions and other existing commitments.

     In total, the 2009-10 budget includes $2,919,000 for salary adjustments and related benefits. 

     Rising health care insurance costs continue to create challenges for both employers and employees across the country -- a trend which is expected to persist for the foreseeable future.  The University is projecting an increase of $16,586,000, or 12.0 percent, in health care costs for 2009-10.  The full amount of the projected increase is budgeted in Scenario 1.   

     Under Scenario 2, the University will budget $15,086,000 for health care cost increases.  Employees will be asked to cover the remaining $1,500,000 through an increase in the co-payments for health care services. 

     Penn State continues to aggressively pursue efforts to mitigate its health care cost increases.  On January 1, 2008, the University entered into a ten-year agreement with Highmark Blue Shield.  As part of this agreement, Highmark is the exclusive administrator of all health plans offered to Penn State=s employees, retirees, and their dependents, allowing the University to offer a comprehensive benefits plan across its geographically diverse locations.  This partnership with Highmark provides a joint focus, involving the Hershey Medical Center, the College of Medicine, the College of Health and Human Development and the Mount Nittany Medical Center, on the development of wellness and disease management programs which will provide savings that will enable Penn State to reduce annual health care cost increases in future years.

     2. Retirement -- $4,098,000 or $3,402,000

     Penn State has received information from the State Employees’ Retirement System (SERS) that the University’s 2009-10 employer contribution rate will continue at essentially current levels.  Actuarial projections continue to show the rates for SERS increasing significantly in future years, particularly in the face of the uncertainty which surrounds the financial markets.  This is a major area of concern for Penn State, and the University continues to monitor the situation closely.  In Scenario 1, the University has included additional funds of $4,098,000 in the 2009-10 budget in anticipation of a future spike in the employer contribution rate.  In Scenario 2, the funds provided will be reduced by $696,000 to $3,402,000.

     A total of $778,000 will be budgeted for the maintenance and operation of new or newly remodeled facilities scheduled to come on-line in 2009-10.  Operating funds for projects at University Park include renovation projects for James Building and North Frear Building as well as various laboratory and classroom renovations.  Funds also are included for the Misciagna Arts Center at Penn State Altoona; support for the new Penn State Lehigh Valley Campus; and the Metzger Admissions and Alumni Center at Penn State Erie.

     2. Fuel and Utilities Cost Increases -- $5,808,000

     Global and national events have had a dramatic impact on energy costs, and trends in the marketplace indicate that significant increases will continue in the future.  Funds in the amount of $5,808,000 are included in the 2009-10 budget for projected increases in fuel and utilities costs at all campuses.  

     3. Capital Improvement Program -- $2,695,000

     Penn State continues to trail its peers in providing modern laboratory and classroom space for its academic programs.  Even with the new facilities constructed over the last several years, Penn State still has among the lowest overall space per full-time-equivalent (FTE) student of any public university in the Big Ten.  While capital funds received from the Commonwealth are greatly appreciated, they are not sufficient to meet all of the University=s most critical needs.  As a result, the University established an ongoing general funds budget to support the capital improvement program.  These funds enable the University to incur debt for building renovations and construction.  A total of $2,695,000 is included in the budget for 2009-10.  The current economic situation has forced the University to reduce the funding originally planned for the program by $1 million. 

     4. Deferred Maintenance -- $2,000,000

     Penn State=s physical plant is aging, and deferred maintenance continues to be a strategic challenge.  During this decade, more square footage will reach the 35-year threshold, where major maintenance is required, than at any time in the University=s history.  Currently, the University has permanently budgeted approximately $24,500,000 for deferred maintenance.  More needs to be done, however, to address the maintenance backlog.  For 2009-10, additional support of $2,000,000 is included for deferred maintenance at University Park and the Commonwealth Campuses.  This allocation reflects a reduction of $1 million in the amount originally planned for deferred maintenance. 

     This is the eighteenth consecutive year that the University has had a program of internal budget reductions and reallocations in effect.  An increase of $3,500,000 in non-tuition income is also projected for 2009-10.  In combination, internal budget reductions and non-tuition income enhancements total $21,317,000.  This is equivalent to $292 per student, or 2.3 percent in avoided tuition increases for 2009-10.

     The entire $14,663,000 will be eliminated from the budget plan under Scenario 2. 

      An additional $179,000 will result from a $2 per-semester increase in the Student Activities Fee at University Park.  The fees charged at the other campuses will not change from the 2008-09 level.  Student Activities Fees are used to support student activities and programs at the generating campuses.  The proposed increase for University Park will be directed toward support of legal aid services for students.  Student Activities Fee charges by campus can be found on Schedule 3 in Tab E of this document.  These fees are recommended by students themselves via a student-government process. 

     A total of $3,815,000 is included in the budget for the Student Facilities Fee, resulting from an increase of $50 per semester in the student facilities fee for the University Park campus.  The increase will bring the fee to $100 per semester as approved by the Board of Trustees in May 2008.  An additional $604,000 is included in the budget for fee increases ranging from $25 to $75 per semester at the Penn State Altoona, Hazleton, Lehigh Valley, and New Kensington campuses.  Funds from the fee will be used to support capital projects designated to enhance student activities, fitness and recreation.  A summary of the Student Facilities Fee charges for each campus can be found on Schedule 4 in Tab E of this document.

     As the University implements tuition increases to provide necessary funds to meet its strategic goals, it is imperative that the amount of need-based student aid also be increased.  This will help the University meet its continuing goal that any student from the Commonwealth will be able to attend Penn State through a combination of institutional, federal, state, and private philanthropic support.

     A total of $1,000,000 is included in the 2009-10 budget for need-based student aid.  These funds will be used to leverage additional private donations for student support. 

TABLE 3
EDUCATIONAL AND GENERAL OPERATING BUDGET
2009-10 EXPENSE CHANGES

EDUCATIONAL AND GENERAL INCOME CHANGES

     For the Educational and General (E&G) portion of the budget, a reduction in direct state appropriation support is offset by federal stimulus funds resulting in no change in the amount available for 2009-10 over the University’s 2008-09 initial E&G appropriation in Scenario 1.

      In Scenario 2, the E&G appropriation is reduced by $48,224,000 from the initial 2008-09 appropriation level and no federal stimulus funds are provided. 

      Tuition rate schedules for resident and non-resident students by student level and by campus are shown on Schedule 1 in Tab E of this document for both Scenarios 1 and 2. 

     Based on the recommendations of the Tuition Task Force adopted by the Board of Trustees in July 2002, tuition increases for non-resident students are set at 1.5 times the increases for resident students, reflecting more appropriately the increases in the actual costs of instruction.  For University Park students, where the current differential is 1.8 to 1 between non-resident and resident tuition, this will result in percentage increases that are less for non-resident students than those for resident students.  For most campuses, where the current differential is approximately 1.5 to 1, the percentage increases will be similar to those for resident students.

Scenario 1:

     For resident lower division students, the tuition increase for 2009-10 will be $295 per semester at University Park, $226 per semester at Erie, Harrisburg, Altoona, and Berks, and $217 per semester at other Penn State campuses.   

     For non-resident lower division students, the tuition increase for 2009-10 will be $443 per semester at University Park, $346 per semester at Erie, Harrisburg, Altoona, and Berks, and $331 per semester at other Penn State campuses.

Scenario 2:

     For resident lower division students, the tuition increase for 2009-10 will be $640 per semester at University Park, $284 per semester at Erie, Harrisburg, Altoona, and Berks, and $272 per semester at other Penn State campuses.   

     For non-resident lower division students, the tuition increase for 2009-10 will be $960 per semester at University Park, $434 per semester at Erie, Harrisburg, Altoona, and Berks, and $415 per semester at other Penn State campuses.

     The tuition rate changes in Scenario 1 will generate an additional $42,045,000 in tuition income for 2009-10, while the tuition rate changes in Scenario 2 will generate an additional $77,280,000.  Additional tuition income of $4,941,000 also will be budgeted as a result of enrollment growth experienced at University Park over the past three academic years, for a total of $46,986,000 in Scenario 1 and $82,221,000 in Scenario 2. 

TABLE 4
EDUCATIONAL AND GENERAL OPERATING BUDGET
2009-10 INCOME CHANGES

TABLE 5
AGRICULTURAL RESEARCH AND COOPERATIVE EXTENSION
2009-10 CHANGES

AGRICULTURAL RESEARCH