Friday,
September 19
Finance and Physical Plant Agenda Item #15 |
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PENN STATE'S 2004-05
APPROPRIATION REQUEST
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The Commonwealth's budget
process typically requires Penn State to submit its request for appropriations
for the following fiscal year to the Pennsylvania Department of Education in
late September. Although not required by the state, the University presents its
request to the Board of Trustees for approval at the September meeting.
The University's 2003-04 appropriation,
which provides the base for the 2004-05 appropriation request, has not been
passed at this writing. One result is that the Commonwealth has not issued the
guidelines and instructions for preparation of the 2004-05 request, nor has it
provided a time line for submission of the request. We have been told that we
will receive the instructions once the 2003-04 appropriation is final, and that
we will need to be prepared to submit our request a short time thereafter.
Penn State's 2003-04 operating budget,
approved by the Board of Trustees in July, is based on a state appropriation of
$306,465,000. This is the amount recommended in the Governor's budget, and
represents a 5 percent reduction over the 2002-03 appropriation level. The
proposed 2004-05 appropriation request presented in the attached document also
is based on the reduced appropriation level of $306,465,000 for 2003-04. If the
final state appropriation varies from this amount, appropriate adjustments will
be made to the 2004-05 appropriation request.
As the Commonwealth's largest public
university, Penn State has a long and successful tradition of educating
Pennsylvania's citizens, as well as providing valuable research and service
that have strengthened Pennsylvania and added to our quality of
life.
Penn State's contribution of talent,
intellect, and service to the Commonwealth is enormous. Last year, in addition
to educating 83,000 students on our 24 campuses, we also played an essential
role in improving the state's labor pool by enrolling more students in
professional, occupational, and technical programs than any other institution.
We fostered technological and economic growth through the more than $500
million in research performed at Penn State, and provided unmatched resources
and expertise to our communities through Cooperative
Extension.
In Penn State's 2004-05
appropriation request to the Commonwealth, we seek to have our appropriation
restored to the 2001-02 level. These funds will not be used simply to replace
the budget cuts we have made over the last two years. Rather, they will be used
to help support basic operating cost increases, with special emphases on
escalating health care costs, deferred maintenance and facilities improvements,
competitive faculty and staff salary adjustments, and high priority academic
program initiatives.
While we are mindful
of the financial challenges facing the Commonwealth, we believe that this is a
modest request in light of the decreases in the state appropriation that Penn
State has received over the last two years. If the Commonwealth is able to
restore our appropriation to the 2001-02 level, the University will be able to
hold the basic tuition increase for Pennsylvania resident students to 4.0
percent.
In addition, we are once again
requesting special support for only one area of critical need – Penn
State's College of Medicine. We focus on this single special request because
the only academic medical center in Pennsylvania outside of Philadelphia and
Pittsburgh is in jeopardy. Penn State's College of Medicine has substantial
economic, social, and employment impacts on the Commonwealth. Its importance as
a training ground for future generations of health care professionals, its
reputation for quality health care, and the life-saving advances that are
routinely discovered at Hershey point to the urgency of additional support for
our College of Medicine.
Over the past
decade we have aggressively trimmed budgets, producing over $109 million in
budget reallocations. Penn State is ranked as one of the most efficient
universities in America. We remain committed to cost containment and
belt-tightening measures, but a continuing erosion of our state funding base
has a direct effect on the educational, civic, and economic vitality of
Pennsylvania. As support from the Commonwealth diminishes, the burden of
financing higher education has increasingly fallen on our students and their
families -- effectively raising barriers of affordability for many. Public
institutions like Penn State were created specifically to open opportunity and
broaden access to higher education. We must ensure that this mission
continues.
While access to a college
education is critical to individual success, it is also paramount to the future
success of the Commonwealth. An increase in the number of individuals with
greater problem-solving skills and technological knowledge can help advance the
state in many ways. Returning to the level of support Penn State received two
years ago and providing special support to the College of Medicine will not
only help keep education accessible, it also will allow Penn State to continue
its historic contribution to
Pennsylvania.
Through this critical
investment, Penn State continues to stand with the Commonwealth in securing the
future of its citizens by developing a more educated, more productive, more
competitive Pennsylvania.
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HIGHLIGHTS OF PENN STATE'S
2004-05 APPROPRIATION REQUEST |
BASIC OPERATING COSTS:
- Benefits and Insurances – Respond to
rapidly escalating costs for health care and property and liability insurances,
plus increases in retirement and social security costs.
- Facilities – Provide for facilities
cost increases, including support for deferred maintenance projects,
maintenance and operation of new facilities, and fuel and utilities cost
increases.
- Faculty and Staff Salary Adjustments –
Maintain competitive faculty and staff salaries.
- Academic Programs – Address the most
critical academic program needs.
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APPROPRIATION
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- Restore appropriation to the 2001-02 level
– The University is requesting an increase of $28,348,000 to restore
the appropriation to the level provided by the Commonwealth three years
ago.
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TUITION
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- Basic tuition increase of 4.0 percent –
Pennsylvania resident students would have a basic tuition increase of 4.0
percent if the appropriation is restored to the 2001-02 level.
- Alternative scenario – If the
Commonwealth is able to restore Penn State's appropriation only to the 2002-03
level (appropriation increase of $16,127,000), then the basic tuition increase
for Pennsylvania resident students would be 5.8 percent.
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STRATEGIC INVESTMENT PRIORITY: MEDICAL EDUCATION
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- Penn State is requesting an increase in the base
support of $10,000,000 for the College of Medicine to help offset the decline
in income provided from hospital clinical operations and to bring Commonwealth
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.
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DETAILS OF PENN STATE'S 2004-05
BUDGET
PLAN AND APPROPRIATION
REQUEST |
The University's proposed
budget plan for 2004-05 reflects basic operating cost increases of $74,377,000.
Restoring the University's appropriation to the 2001-02 level would provide
$28,348,000 toward these increased costs, requiring $46,029,000 to come from
tuition and fee increases. 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
2004-05 is summarized by line item in Table
2.
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BASIC OPERATING COSTS:
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Benefits and
Insurances
Nationally, health
care costs have escalated dramatically over the last several years, and
increases approaching 20 percent are expected again for 2004-05. Penn State
will experience similar cost increases. The University is projecting an
increase of 18 percent in the costs of health care for next year. The employer
contribution rate for the State Employees' Retirement System will increase, and
the number of University employees participating in the TIAA/CREF retirement
program (which currently has higher costs than SERS) will continue to grow. In
addition, funding will be required for changes in the social security base. In
total, benefits costs are projected to increase by
$21,916,000.
In line with national
trends, the University is expecting significant increases in property and
liability insurances. A total of $1,200,000 is projected for these expected
cost
increases.
Facilities
A
total of $9,615,000 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 for the
maintenance and operation of new or newly renovated facilities and for modest
fuel and utilities cost increases total $3,356,000 for 2004-05. This includes
operating funds for: the new building for the School of Architecture and
Landscape Architecture building, environmental projects, and classroom and
laboratory renovations at University Park; the Classroom Building at Penn State
Altoona; the Library/Classroom Building at Penn State York; the Maintenance
Building at Penn State Delaware; the Training and Technology Center at Penn
State Hazleton; and the Research and Economic Development Center at Penn State
Erie.
Penn State's physical plant is
aging and deferred maintenance is a critical problem. Currently, the University
has a backlog of deferred maintenance projects conservatively estimated at over
$200 million. Since 1996-97, the University has allocated a total of $7 million
for deferred maintenance, bringing the total permanent budget for these needs
to approximately $14 million. More needs to be done, however, to address the
maintenance backlog. For 2004-05, additional support of $1,000,000 is included
for deferred maintenance.
Steady
enrollment growth, combined with changing technologies, more interdisciplinary
programs, and a growing research program have led to a significant space
problem for the University. Insufficient or inadequate space has become a
serious impediment to a growing number of academic programs. Penn State lags
behind its peers in providing modern laboratory and classroom space for its
academic programs. The University has the lowest overall space per FTE student
of any public university in the Big 10. 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, funded by a portion of the tuition rate
increases, to support this program. A total of $5,259,000 is included in the
budget plan for 2004-05.
Faculty and Staff 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 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, for 2001-02 and 2002-03, Penn State's average faculty salaries showed
modest improvement in these comparisons, and continued modest improvement is
anticipated when comparisons for 2003-04 are available. There is still lost
ground to be made up, however, so these efforts will need to be continued again
for 2004-05. The University is making faculty and staff salary increases a high
priority again in the 2004-05 budget plan.
The budget plan for 2004-05 includes
$30,291,000 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.
Academic Initiatives and Other
Program Needs
The budget plan
includes a total of $10,142,000 for academic initiatives and other program
needs.
In the last few years, Penn State has
focused on four interdisciplinary initiatives that address important societal
needs for the future, including the life sciences, materials science,
environmental studies, and children, youth, and families. The budget plan
includes a total of $450,000 to complete the multi-year commitment to provide a
funding base for these initiatives. In addition, $1,000,000 is included for
Information Sciences and Technology as the University continues its multi-year
development plan for the School.
A total
of $5,000,000 will be used to launch a series of high priority investments
designed to enhance the University's educational programs. These investments
will include enhancements for key academic fields, interdisciplinary programs,
and other strategic initiatives at all Penn State campuses, including the World
Campus, and help to enrich student life experiences. They will contribute
further to the University's long-standing efforts to support economic
development and cultural enrichment in the
Commonwealth
The balance of $3,692,000 will be
allocated for new faculty positions and instructional workload adjustments that
reflect enrollment changes in the academic colleges and for critical support
services.
Libraries, Computing and
Telecommunications
The budget
plan includes a total of $2,200,000 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
For 2004-05, the University will
continue a program of internal budget reductions and reallocations based on the
strategic planning process. This will be the thirteenth consecutive year that
this process has been in effect. A total of $5,639,000, or the equivalent of
one percent in departmental operating funds will be reallocated within each
college, campus, and support unit to meet their highest priority needs
identified in their strategic plans.
Cost Savings/Enhanced Income
Initiatives
Since 1992-93, the
University has recycled over $109 million. 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. 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.
Last
year the University established a task force to explore opportunities for
additional cost savings that will not adversely affect the academic quality of
the institution. Cost savings 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. Many of these efforts are long-term in nature, particularly
as they relate to program reductions, administrative reorganizations, and
changes in public service activities.
As
a result of the work of the Cost Savings Task Force, $14,416,000 in savings and
non-tuition income enhancements were reflected in Penn State's 2003-04 budget.
For 2004-05, the University has once again 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
future years as these initiatives are put into place.
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
2004-05 budget plan for need-based student aid. These funds will be used to
leverage additional private donations for student support through the Trustee
Scholarship Program. This represents the third year that funds have been
included in the budget for this purpose.
Student
Activities
An estimated $162,000 will
be generated from a $2 per semester increase in the student activities fee at
University Park and a $1 per semester increase at all other locations. These
funds will be made available to each campus for allocation by its campus
student activities fee committee.
STRATEGIC
INVESTMENT PRIORITY: MEDICAL EDUCATION
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 700 scientists have graduated from the College. Student interest
remains exceptionally strong, with 5,200 applicants for an entering class of
125. 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 a major metropolitan area, and the only one between
Pittsburgh and Philadelphia. In 2002-03, the Medical Center admitted over
21,000 hospital patients, saw more than 58,000 people in its emergency and
operating rooms, and served over 623,000 people through its clinics. The
Medical Center has the only children's hospital in central Pennsylvania,
serving the needs of more than 3,500 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 was $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.
In 1997-98, 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 was such that the Medical Center was able to
transfer only $20,000,000 to support the College of Medicine. It is anticipated
that this amount will continue to decline in the
future.
To meet the challenge of decreased
funding over the past four years, the College of Medicine has had to increase
medical tuition for Pennsylvania resident students by $8,886, or 52 percent.
The current annual tuition for resident medical students is $26,062.
(Non-resident students pay $36,232.) 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
over 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 2004-05, and again in
2005-06 and 2006-07, 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 $84,377,000 are projected for 2004-05, including: $46,029,000 from
projected tuition and fees increases, a requested appropriation increase of
$28,348,000 for basic operating costs, and $10,000,000 in additional support
from the Commonwealth for the first year of a three-year plan to increase
funding for the College of Medicine.
An
increase of $28,348,000 from the state would restore Penn State's appropriation
to its 2001-02 level. If the Commonwealth were able to provide this
restoration, the basic tuition rate increase for Pennsylvania resident students
would be 4.0 percent. If the Commonwealth is only able to restore Penn State's
appropriation to its 2002-03 level (an increase of $16,127,000), the basic
tuition increase would be 5.8 percent.
In addition to the basic increase,
additional tuition charges will be implemented for lower division, upper
division and graduate students consistent with the recommendations of the
Tuition Task Force approved by Penn State's 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 activities fee will increase by $2 per semester at the
University Park campus and $1 per semester at other locations. |
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