DETAILS OF PENN STATE'S 2006-07
BUDGET PLAN AND APPROPRIATION REQUEST

The University’s proposed budget plan for 2006-07 reflects basic operating cost increases of $72,036,000. Table 1 summarizes the proposed budget plan for the Educational and General Budget, Agricultural Research and Cooperative Extension, the College of Medicine at the Milton S. Hershey Medical Center, and the Pennsylvania College of Technology.

Penn State’s appropriation increase request of $30,872,000 for 2006-07 is summarized by line item in Table 2. Details of the University’s proposed budget plan and appropriation request are discussed below.

BASIC OPERATING COSTS:

Benefits and Insurances

Rising health care insurance costs continue to create challenges for both employers and employees across the country. Health care costs have escalated dramatically over the last severalmont alto chapel years — a trend which is expected to continue for the foreseeable future. While Penn State is not immune to these increases, the University will be able to moderate the increase for 2006-07 through a combination of potential strategic health care partnerships currently under review and continued cost containment measures. Penn State is projecting an increase of 11 percent in the coming year, compared to annual increases in the 15 percent range over the last several years. While health care costs will account for the majority of the benefits cost increases, retirement, social security, and grants-in-aid costs also are projected to rise. The employer contribution rate for the State Employees’ Retirement System is scheduled to increase again in 2006-07, and required contributions to TIAA/CREF will increase as the number of University employees participating in the programs continues to grow. In addition, funding will be required for changes in the social security base and for increases in employee and dependent grants-in-aid budgets. In total, benefits costs are projected to increase by $23,677,000.

In line with national trends, the University is expecting additional increases in property and liability insurances. A total of $850,000 is projected for these expected cost increases.

Facilities

A total of $11,473,000 is projected for facilities cost increases. Included are funds for the maintenance and operation of new or newly renovated facilities, additional funds for deferred maintenance projects, and the continuation of the University’s capital improvement program.

Projected increases total $5,823,000 for the maintenance and operation of new or newly renovated facilities and for fuel and utilities cost increases. This includes operating funds for the new Food Science Building, classroom and laboratory renovations at University Park and the Arts Center at New Kensington. Funds also are included for increases in fuel and utilities costs projected for 2006-07.

Schuylkill administrative building Penn State’s physical plant is aging and deferred maintenance is a critical problem. 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. The backlog of major maintenance projects is estimated at over $800 million university-wide. Between 1996-97 and 2003-04, the University added $1,000,000 per year to the permanent budget for deferred maintenance. This was increased to $2,000,000 per year for 2004-05 and 2005-06. This brings the current total permanent budget for these needs to nearly $19 million. More needs to be done, however, to address the maintenance backlog. For 2006-07, additional support of $2,000,000 is included for deferred maintenance.

students at Penn State McKeesport Insufficient or inadequate space has become a serious impediment to Penn State’s academic programs. The University lags behind its peers in providing modern laboratory and classroom space for its students, faculty, and staff. Even with the new facilities constructed over the last several years, Penn State has among the lowest overall space per full-time-equivalent (FTE) student of any university in the Big Ten. While capital funds received from the Commonwealth are greatly appreciated, they will not be sufficient to meet the University’s most critical needs. As a result, the University has 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, and to provide for the operating costs of the buildings once they are completed. A total of $3,650,000 is included in the budget for 2006-07.

Faculty and Staff Salary Adjustments

Comparisons with other Big Ten public universities and 22 public research universities participating in the American Association of Universities Data Exchange (AAUDE) show that Penn State’s average faculty salary levels slipped substantially from 1995-96 to 2000-01. Because of concerns about the competitiveness of Penn State’s salaries, the Board of Trustees adopted a multi-year plan to reduce the gap between Penn State’s faculty salaries and those at peer institutions. As a result, since 2001-02, Penn State’s average faculty salaries have shown improvement in these comparisons.

In order to maintain these rankings, the budget plan for 2006-07 includes $30,776,000 for faculty and staff salary adjustments and related employee benefits. The plan includes a 2.0 percent increase in the salary pool for merit-based increases, plus some additional funds for special merit, market and equity considerations from the President’s Excellence Fund and the Faculty/Staff Excellence Fund.

Strategic Initiatives and Other Program Needs

The budget plan includes a total of $10,381,000 for strategic initiatives and other program needs. Funding in the amount of $5,831,000 is included in the 2006-07 budget for strategic investments at both University Park and other campus locations. Funding for these investments will result from the tuition differentials approved by the Board of Trustees in July 2002. A portion of these funds at University Park will be used to reduce the student/faculty ratio and/or to convert fixed-term faculty appointments to standing positions in selected academic programs. Additional support will be provided for programs in the fine and performing arts, humanities, and social sciences. Enhancement funds also will be provided for World Campus and resident instruction blended learning opportunities, development activities, student services, and student recreation programs. At other campus locations, these funds will be used for the highest priority needs identified by each campus.

students at Penn State DuBois A total of $4,550,000 is included for other program commitments. This amount includes funding for new faculty positions and for instructional workload adjustments that reflect enrollment changes in the colleges. In addition, funds will be provided for high priority academic needs and for other support services such as research administration, information technology services, and the university-wide parking and transportation plan.

Libraries, Computing and Telecommunications

The budget plan includes a total of $1,600,000 for libraries, computing and telecommunications. These funds will help to maintain library resources, which are essential to the quality of the University’s academic programs, and help the University keep pace with rapidly expanding student computing and telecommunications needs. A proposed $12 per semester increase in the student information technology fee will provide the needed funds.

Cost Savings InitiativesPenn State Harrisburg Library

Since 1992-93, the University has recycled over $139 million from departmental operating budgets. These funds have been reallocated to help offset cost increases and to provide critically needed support for academic programs. Over the years, this has resulted in a significant shift of funds from non-academic to academic functions.

The University has systematically eliminated or merged existing academic programs as it has added new ones. In addition, Penn State has one of the most effective continuous quality improvement programs of any university in the country. Nevertheless, the University is committed to finding new ways to reduce costs and enhance income from sources other than tuition.

In September 2002, the University established a Cost Savings Task Force to explore opportunities for additional cost savings that Penn State at Penn State Beaver would not adversely affect the academic quality of the institution. Over the three-year period from 2003-04 through 2005-06, the University has accrued $31,626,000 in savings and non-tuition income enhancements. This is equivalent to $530 per student per year, or 5.5 percent in avoided tuition increases.

For 2006-07, the University is targeting $8,062,000 in cost savings, resulting from selective budget reductions and from across-the-board budget reductions from all academic and administrative units. This will be the fifteenth consecutive year that Penn State has had a program of internal budget reductions and reallocations. The University is also projecting $4,000,000 in non-tuition income, primarily from increased recovery of facilities and administration costs from sponsored research grants and contracts.

Need-Based Student Aid

Because the University must increase tuition to generate the necessary funds to meet its strategic goals, it is imperative that additional need-based student aid also be provided. This is to help meet the University’s goal to ensure 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 $1,200,000 is included in the 2006-07 budget plan for need-based student aid as the fifth year of a five-year program. These funds will be used to leverage additional private donations for student support through the Trustee Scholarship Program.

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