| PENN STATE'S 2003-04 BUDGET PRIORITIES |
 he University’s
proposed budget plan for 2003-04 reflects basic operating cost increases of
$70,716,000. Of this amount, $52,513,000 will come from projected tuition and
fee increases; $3,674,000 in enrollment-related and other income; and a
requested increase of $14,529,000 (4.5 percent) in additional appropriation
support from the Commonwealth. The budget plan also contains a $10,000,000
funding request from the Commonwealth for critically needed support for the
College of Medicine. |
| Details of the University’s proposed budget plan and appropriation request are discussed below. 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 request for 2003-04 is summarized by line item in Table 2. |
| BASIC
OPERATING COSTS |
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| Salary
Adjustments Comparisons with other Big Ten public universities and 22 public universities participating in the |
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| American Association of Universities Data | |
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Exchange (AAUDE) show that Penn State’s average faculty salaries slipped substantially from 1995-96 to 2000-01. Because of concerns about the competitiveness of Penn State’s salaries, the University has adopted a multi-year plan to reduce the gap between Penn State’s faculty salaries and those at peer institutions. As a result, in 2001-02, Penn State’s average faculty salaries showed modest improvement in these comparisons, and continued modest improvement is |
| anticipated when comparisons for 2002-03 are available. There is still considerable lost ground to be made up, however, so these efforts will need to be continued for several more years. The | |
| University is making faculty and
staff salary increases a high priority again in the 2003-04 budget plan. The
budget plan for 2003-04 includes $35,942,000 for faculty and staff salary
adjustments and related employee benefits. The plan includes a 3.0 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. |
  
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| Benefits Cost Increases Nationally, health care costs are projected to increase in the range of 20 percent in 2003-04. Penn State is anticipating an 18 percent increase in the costs of health care for next year. In addition, continued growth is anticipated in the number of employees participating in the TIAA/CREF retirement program. In total, benefits costs are projected to increase by $16,117,000. Property and Liability Insurances In line with national trends, the University is expecting significant increases in property and liability insurances. A total of $1,000,000 is projected for these expected cost increases. New Facilities/Fuel and Utilities A total of $4,800,000 is projected for the maintenance and operation of new or newly renovated facilities and for modest fuel and utilities cost increases for 2003-04. Included are operating funds for the new Information Sciences and Technology Building, the Chemistry Building, the |
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Life Sciences Building, and
classroom and laboratory renovations at University Park. Maintenance and
operating funds also are required for the Classroom Building at Penn State
Altoona, the Library/Classroom Building at Penn State York, and the Workforce
Development and Technology Building at Penn State DuBois. Deferred Maintenance The increasing maintenance needed by Penn State’s aging physical plant is a critical problem. Currently, the University has a backlog of |
| deferred maintenance projects totaling approximately $200
million. Penn State has 1,300 buildings at all campus locations, and the
average age of these buildings is approximately 28 years. There is an industry
benchmark which finds that buildings require major renovations and renewal
after 35 years of use. The distribution of Penn State’s building space by
gross square feet and the decade in which buildings reached the 35-year
benchmark highlights the problem. In the 1970's, about one million gross square
feet of space reached the 35-year benchmark. By the 1980's, an additional 2
million gross square feet of space reached 35 years of use. During the 1990's,
this doubled to almost 4 million. In the next 10-year period, an additional 6.5
million gross square feet will reach the point where major renovation and
renewal projects are required. Over the last several years, the University has provided additional funding for major maintenance. Since 1996-97, $6 million has been allocated, bringing the total permanent budget for major maintenance to approximately $13 million. More needs to be done, however, to address the major maintenance backlog. For 2003-04, additional support of $1,000,000 is included for deferred maintenance. |
| 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. Lack of space to accommodate 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 is a serious impediment to a growing number of academic programs. The state capital funds already approved will not be sufficient to meet the University’s most critical needs. As a result, the University has established an ongoing general funds budget, funded by a portion of the tuition rate increases, to support this program. 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 $5,180,000 is included in the budget plan for 2003-04 as the fifth year of this program. |
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| Libraries, Computing and Telecommunications The budget plan includes a total of $2,000,000 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 $15 per semester increase in the student information technology fee will provide the needed funds. Internal Budget Reductions and Reallocations As part of the three-year strategic planning process begun last year, |
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| the University will continue a program of internal budget reductions and reallocations for 2003-04. This will be the twelfth consecutive year that an internal budget reduction and reallocation process has been in effect. The academic colleges and support units at all locations will be required to reduce their operating budgets by a minimum of one percent again in 2003-04. For 2003-04, the budget reductions will generate $5,500,000 which will be available for reallocation within the individual units to areas of higher priority need. | |
| Cost Savings/Enhanced Income
Initiatives Penn State is nationally recognized as one of the most efficiently run universities. The University has recycled over $95 million since 1992-93, and moved most of these funds from non-academic to academic functions. The University has systematically eliminated or merged existing academic programs as it has added new ones. 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. Earlier this year, the University established a task force to explore opportunities for additional cost savings that will not adversely affect the academic mission. Cost cutting and income enhancement strategies that are under consideration by the task force include: increased scrutiny of low enrollment and less centrally critical academic programs, possibly resulting in additional program mergers or closures; administrative cost efficiencies, including the prospects of further consolidation of administrative units; reduction of some support services; additional cost recovery on research grants and contracts; and reduction or elimination of subsidies for selected outreach and public service activities. These efforts will be long-term in nature, particularly as they relate to program reductions, administrative reorganizations, and changes in public service activities. For 2003-04, Penn State has established a target of $2,500,000 in cost savings and enhanced income beyond the on-going internal budget reduction and reallocation program. Additional cost savings are anticipated in 2004-05 and beyond, as these initiatives are put into place. |
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| Academic Initiatives and Other Program Needs The budget plan includes a total of $5,750,000 for academic initiatives and other program needs. This includes $1,100,000 in continuing funding for multi-year commitments for three academic initiatives of strategic importance to the Commonwealth and the University — Materials Science, Environmental Studies, and Children, Youth and Families. An additional $1,000,000 is included for Information Sciences and Technology as the University continues its multi-year development plan for the School. An additional $3,650,000 is planned for other high priority program needs of academic and support units. |
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| Need-Based Student Aid As the University is required to 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 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 $1,200,000 is included in the 2003-04 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 estimated $150,000 will be generated from a $1 per semester increase in the student activities fee at participating campuses. These funds will be made available to each campus for allocation by its campus student activities fee committee. |
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