PENN STATE'S
2003-04
APPROPRIATION
REQUEST
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Penn State has a long tradition
of providing high quality educational experiences for citizens of the
Commonwealth, while producing cutting-edge research that will be vital to
Pennsylvania's future economic growth. We are eager to strengthen our
partnership with the state to do even more to meet the challenges of the
future.
At Penn State, we have delivered
on our promise to educate the citizenry of the state with our system of 24
campus locations that enroll more than 82,000 students. Penn State is the
university of choice for many of the Commonwealth's most talented students, in
addition to being a major contributor to workforce development by enrolling
more students in professional, occupational, and technical programs than any
other institution. For the twelfth consecutive year, the University's minority
enrollment has increased, opening the doors of learning even wider for all
Pennsylvania residents.
In Penn State's
2003-04 appropriation request to the Commonwealth, we seek a 4.5 percent
appropriation increase to help support basic operating costs, with special
emphases on faculty and staff salaries, meeting escalating health care costs,
and providing support for facilities improvements and deferred maintenance. We
are mindful of the financial challenges facing the Commonwealth and we believe
that this is a modest request, in light of the 3.6 percent decrease in the
state appropriation that we received last year. In addition, we are requesting
special support for only one area of critical need – Penn State's College
of Medicine. We focus on a single special request this year because the only
academic medical center in Pennsylvania outside of Philadelphia and Pittsburgh
is in jeopardy, making an investment in the health and well being of the
citizens of the Commonwealth a high priority.
To give the greatest return to all who
invest in our University, we remain committed to cost containment, budget
recycling, cutting unnecessary services, and continued belt-tightening. As
support from the Commonwealth diminishes, however, the burden of financing
higher education has increasingly fallen on our students and their families.
Although access to a college education is critical to individual success, it is
also paramount to the future success of the Commonwealth. Without a
well-trained, technologically literate work force, Pennsylvania will not be
able to attract and retain the best and brightest of our citizens. We stand
ready to join the Commonwealth in making this critical investment in our
future.
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HIGHLIGHTS OF PENN STATE'S
2003-04 APPROPRIATION REQUEST |
BASIC OPERATING COSTS:
- Faculty and Staff Salaries –
Maintain competitive faculty and staff salaries.
- Benefits and Insurances –
Respond to
rapidly escalating costs for health care and property and liability insurances.
- Facilities –
Provide for facilities
cost increases, including support for new facilities, deferred maintenance
projects, and fuel and utilities cost increases.
- Academic Programs –
Address the
most critical academic program needs.
Total Basic Operating Costs
– $14,529,000 (4.5 percent)
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STRATEGIC INVESTMENT PRIORITY:
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- Medical Education –
Penn State is
requesting an increase in the base support for the College of Medicine to help
offset the decline in income provided from hospital clinical operations and to
bring the Commonwealth's support of medical education more in line with public
medical schools nationally. This is part of a multi-year request to insure the
future viability of the College of Medicine.
Total College of
Medicine Strategic Investment - $10,000,000
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APPROPRIATION INCREASE REQUESTED - $24,529,000
TOTAL APPROPRIATION
REQUESTED - $347,121,000
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DETAILS OF
PENN STATE'S 2003-04
BUDGET
PLAN AND APPROPRIATION
REQUEST |
The 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 (4.50 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.
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BASIC OPERATING COSTS:
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1. Salary
Adjustments
Comparisons with
other Big Ten public universities and 22 public universities participating in
the American Association of Universities Data 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.
2. 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.
3. 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.
4. 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 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.
5. 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.
6. 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.
7. 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.
8. Internal Budget Reductions
and Reallocations
As part of the
three-year strategic planning process begun last year, 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.
9. 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.
10. 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.
11. 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.
12.
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.
STRATEGIC
INVESTMENT PRIORITY:
Penn State's
College of Medicine
Penn State's
College of Medicine and The Milton S. Hershey Medical Center are important
statewide resources, training many of Pennsylvania's physicians and providing
the highest level of health care to more than half a million patients each
year. Since its first graduating class over 30 years ago, more than 3,000
physicians and 500 scientists have graduated from the College. Student interest
remains exceptionally strong, with 4,800 applicants for an entering class of
120. Nationally, one out of every seven applicants to medical school in the
United States applies to Penn State's College of Medicine. It is recognized by
U.S. News and World Report (March, 1999) as one of the top medical schools in
the country for primary care, which includes family practice, general internal
medicine, and general pediatrics.
The
Milton S. Hershey Medical Center is the only academic medical center in
Pennsylvania not located in an urban area, and the only one between Pittsburgh
and Philadelphia. In 2001-02, the Medical Center admitted over 21,000 hospital
patients, saw more than 53,000 people in its emergency and operating rooms, and
served over 594,000 people through its clinics. The Medical Center has the only
children's hospital in central Pennsylvania, serving the needs of more than
3,000 critically ill children each year. It is the only level-one trauma center
and the only poison control center in the region. These services would not be
available to residents of a large part of the state without the expertise of
physicians associated with the College of
Medicine.
The College of Medicine has been
the provider for the statewide Area Health Education Centers (AHEC) program
since its inception in 1994. Penn State coordinates eight regional groups
around the state to facilitate the recruitment and retention of primary care
providers in under-served communities. These efforts demonstrate Penn State's
unique commitment to build education programs in the health professions
including medicine, nursing, and allied health in every corner of the state. In
addition, the College of Medicine produces the largest number of practicing
primary care physicians of any medical school in the
Commonwealth.
Historically, the College of
Medicine has received a much smaller share of its operating budget from
Commonwealth appropriations than any similar university medical center in the
nation. Penn State's appropriation for medical education, which is $5,044,000
for 2002-03, has for several years ranked 75th out of 75 public medical schools
in the United States – dead last. The average appropriation for other
medical schools is now approaching $50,000,000. One result of Penn State's
inadequate state appropriation is that the College of Medicine has had to rely
on Medical Center revenues to provide support for medical education.
Nationally, academic medical centers are facing
severe fiscal constraints brought about by the Balanced Budget Act of 1997,
which has resulted in declining reimbursements from Medicare and Medicaid, and
from changes in managed care. The impact of these trends on Penn State is that
The Milton S. Hershey Medical Center can no longer generate a sufficient
operating margin from clinical revenues to support the College of Medicine in
the absence of an adequate state
appropriation.
The Medical Center's annual
operating margin, or the income generated over actual expenses, has
historically provided the funds to support medical education. In 1997-98, the
operating margin was 8.8 percent, and the Medical Center was able to provide
academic support of $42,540,000 to the College of Medicine. Because of the
declining reimbursements and managed care changes, the operating margin for
2002-03 is projected to be just 4.0 percent, and the Medical Center will be
able to transfer only $19,850,000 to support the College of Medicine. Within
three years, it is projected that hospital operations will no longer be able to
support the College of Medicine.
To meet
the challenge of decreased funding over the past three years, the College of
Medicine has had to increase medical tuition for Pennsylvania resident students
by $6,734, or 39 percent. The current annual tuition for resident medical
students is $23,910. (Non-resident students pay $33,240.) It has also had to
reduce investments in medical research, restrict salary increases for faculty
and staff, reduce or defer facilities renewal investments, and cut departmental
operating budgets by almost 20 percent. At the same time, the Medical Center
has had to deplete its operating margin to provide even the reduced academic
support payments to the College. Therefore, it has not been able to support
critically needed investments in the clinical enterprise of the Medical Center.
The world-class medical education
available through Penn State's College of Medicine is in serious jeopardy. The
University is requesting an increase of $10,000,000 for 2003-04, and again in
2004-05 and 2005-06, for a total increase of $30,000,000 in the base
appropriation for the College of Medicine. This will represent an important
strategic investment in the health and well being of the citizens of the
Commonwealth of Pennsylvania.
INCOME CHANGES:
Income
increases of $80,716,000 are projected for 2003-04, including: $52,513,000 from
projected tuition and fees increases; $3,674,000 in enrollment-related and
other income; and $24,529,000 in requested additional appropriation support
from the Commonwealth. The University's appropriation request includes an
increase of $14,529,000, or 4.5 percent, for basic operating costs, and
$10,000,000 for the first year of a three-year plan to increase funding for the
College of Medicine.
If the Penn State
receives the requested appropriation increase from the Commonwealth, the basic
tuition rate increase for most Pennsylvania resident students for 2003-04 is
projected to increase by 6.5 percent. This would be an increase of $260 per
semester, for example, for lower division students at University Park, and $252
per semester for lower division students attending one of the campuses in Penn
State's Commonwealth College. Tuition for non-resident lower division students
at University Park would increase by $390 per semester, or 4.5 percent, while
tuition for non-resident students attending one of Commonwealth College
campuses would increase by $378 per semester, or 6.3
percent.
In addition to the basic
increase, additional tuition charges will be implemented for first-time
freshmen and upper division and graduate students consistent with the
recommendations of the Tuition Task Force approved by the Board of Trustees on
July 12, 2002. The information technology fee also will increase by $15 per
semester to support library resources and student computing and
telecommunications needs, and the student activity fee will increase by $1 per
semester. The planned increases in tuition and fees will generate $52,513,000
in additional income. |
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