DETAILS OF
PENN STATE'S
2008-09
BUDGET
PLAN AND APPROPRIATION REQUEST
The University’s proposed budget plan for 2008-09 reflects basic operating cost increases of $81,401,000. 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 request for an appropriation increase of $24,202,000 for 2008-09 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:
Faculty and Staff Salary Adjustments
Salary adjustments represent the largest component of the changes in the operating 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 Association of American Universities. This plan proved successful and showed steady improvement in our rankings through 2005-06. Limited funding for faculty and staff salary increases in the 2006-07 budget, however, resulted in some decline in our rankings. The modest salary increase plan implemented for 2007-08 will likely result in further slippage.
The budget plan for 2008-09 includes $39,594,000 for faculty and staff salary adjustments and related employee benefits. The plan includes a 2.5 percent increase in the salary pool for merit-based increases, plus a 1.5 percent increase for special merit, market and equity considerations from the President’s Excellence Fund.
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 several years – a trend which is expected to continue for the foreseeable future. The University is projecting an increase of 12.0 percent in 2008-09.
Penn State has aggressively pursued efforts to mitigate its health care costs. Beginning January 1, 2008, the University entered into a ten-year agreement with Highmark, Inc. As part of this new agreement, Highmark is the exclusive administrator of all health plans offered to Penn State’s employees, dependents, and retirees, 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 limit annual health care cost increases in future years.
While health care costs will account for the majority of the benefits cost increases, retirement and social security also are projected to rise. The employer contribution for the TIAA/CREF retirement program will increase as the number of University employees participating in the program continues to grow. In addition, funding will be required for changes in the social security base. As a result of recent legislation and actuarial projections, the employee contribution rate for the State Employees’ Retirement System (SERS) is not expected to increase for 2008-09. It should be noted, however, that the projections continue to show the rates increasing significantly by 2012. This is an area of concern for Penn State, and the University continues to monitor the situation closely. In total, benefits costs are projected to increase by $22,614,000.
In line with national trends, the University is expecting additional increases in property, liability, and workers’ compensation insurances. A total of $900,000 is projected for these expected cost increases.
Facilities
A total of $14,410,000 is projected for facilities cost increases. Included are funds for the maintenance and operation of new or newly renovated facilities, fuel and utilities cost increases, additional funds for deferred maintenance projects, and the continuation of the University’s capital improvement program.
Projected increases total $2,079,000 for the maintenance and operation of new or newly renovated facilities. This includes operating funds for the Dickinson School of Law Building, classroom and laboratory renovation projects at University Park, a classroom building at Penn State Worthington Scranton, the Community Arts Center at Penn State Altoona, and an addition to the Multi-Purpose Building at Penn State Schuylkill.
Global and national events have had a dramatic impact on the cost of fuel and utilities for the University. It is projected that an additional $5,681,000 will be needed for these increases at all campuses for 2008-09. Trends in the marketplace indicate that significant increases will continue for electricity, coal, and natural gas in the future.
Penn State’s physical plant is aging, and deferred maintenance continues to be 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. Since 1996-97, the University has permanently budgeted approximately $22.5 million for deferred maintenance. More needs to be done, however, to address the maintenance backlog. For 2008-09, additional support of $3,000,000 is included for deferred maintenance.
Insufficient or inadequate space continues to be 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 public
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.
A total of $3,650,000 is incorporated in the budget plan for 2008-09.
Strategic Initiatives and Other Program Needs
The budget plan includes a total of $7,946,000 for strategic initiatives and
other program needs at University Park and other campuses. Funding in the
amount of $3,000,000 is 
provided for strategic investments in selected academic programs.
A portion of these funds will provide additional support for the energy initiative
which was launched in 2007-08 through the Penn State Institutes of Energy
and the Environment. In addition, enhancement funds will support high
priority investments in a limited number of other academic programs and
the Huck Institutes of the Life Sciences.
A total of $3,500,000 is included for other program commitments. This amount includes funding for faculty positions, instructional workload adjustments that relate to enrollment changes in the colleges, and for academic excellence scholarships. Funds also will be provided for increasing costs of support services in areas such as research administration, information technology services, and the university-wide parking and transportation plan.
The budget plan also includes $1,446,000 of additional program funds for Agricultural Research and Cooperative Extension. These funds would be available if the Commonwealth is able to provide the appropriation increases requested for the two line items.
Libraries, Computing and Telecommunications
A total of $1,402,000 is included in the plan 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 $10 per semester increase in the student
information technology fee will provide the needed funds.
Internal Budget Reductions
Since 1992-93, the University has recycled over $163 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.
For 2008-09, the University is targeting $7,141,000 of internal expense reductions from all academic and administrative units. This represents a 1.0 percent across-the-board reduction in departmental operating funds. This will be the seventeenth consecutive year that Penn State has had a program of internal budget reductions and reallocations in effect.
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 $1,000,000 is included in the 2008-09 budget plan for need-based student aid. These funds will be used to leverage additional private donations for student grant and scholarship support.
Student Activities
An additional $580,000 will result from a $5 per semester increase in the student activity fee at all locations. The increase will be used to support student activities and programs at the generating campuses, as determined by the students themselves.
Income Changes
Income increases of $81,401,000 are projected for 2008-09. This amount includes $51,645,000 from projected tuition and fees rate increases for students at all locations and additional tuition income available as a result of enrollment growth at University Park in the Fall Semester 2006. It also includes $6,560,000 in other income.
Penn State is requesting an appropriation increase totaling $24,202,000 which represents a 6.9 percent increase on all line-items. Of this amount, $18,287,000 is requested for Penn State’s Educational and General line item and $4,909,000 for its other line items. An additional $1,006,000 increase also is requested in the State and Federal Medical Assistance funding provided to the Milton S. Hershey Medical Center through the Pennsylvania Department of Public Welfare.
If the Commonwealth is able to provide these appropriation increases, the tuition rate increase would be 4.9 percent for Pennsylvania resident students at Penn State’s Commonwealth Campuses and 5.5 percent for students at the University Park Campus. The information technology fee will increase by $10 per semester to support library resources and student computing and telecommunication needs, while the student activities fee will increase by $5 per semester for students at all campuses.
