Graham Spanier Remarks
to
Finance and Physical Plant Item #15 |
The Pennsylvania State
University
Board of Trustees |
Boardroom
The Nittany Lion
Inn |
Friday, September 19, 2003
1:00 p.m. |
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| Slide 1
– Title Slide |
| The circumstances of our
appropriation request this year are unique, in that the 2003/04 appropriation,
which provides the base for our request for 2004/05, has not yet been passed.
We have been told that we will need to be prepared to submit our request a
short time after the budget for the current year is approved, so we are coming
to you as we normally would in September for approval of our request, but with
the caveat that things could change depending on what the Commonwealth does
with this year's appropriation. |
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| Slide 2
– 2004-05 Appropriation Request |
| With the
current year appropriation not yet passed, we are basing our appropriation
request for next year on the assumption that for this year there will be a 5
percent reduction from last year's total appropriation, which is the estimate
that we used in establishing our budget for the current fiscal year. So we are
estimating an appropriation level of approximately $306 million. If the final
state appropriation varies from this amount, appropriate adjustments will be
made to the 2004/05 request. |
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| Slide 3
– Basic Operating Costs |
| There are six major
areas that impact our basic operating costs. These are benefits and insurances,
facilities, faculty and staff salaries, academic program needs, need-based
student aid, and our on-going efforts to reduce overall costs and identify
budget savings. I now want to address each of these areas in detail. |
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| Slide 4
– Benefits and Insurances |
Health care costs have
escalated dramatically for all employers over the last several years. Increases
approaching 20% are projected nationally. At Penn State we are anticipating
health care costs to increase by 18%.
We
also expect to see continued growth in the number of employees in the TIAA/CREF
retirement system instead of the State Employee Retirement System. At the same
time, however, we also anticipate an increase in Penn State's contribution
level to SERS which has been low by historical standards for the past few
years, as well as an increase in our Social Security base. In total, benefits
costs are projected to increase by
$21,916,000.
We also expect a significant
increase in property and liability insurances. A total of $1,200,000 is
projected for these expected cost increases.
It is noteworthy that the increasing cost
of employee benefits now exceeds our basic 2% salary increase pool. |
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| Slide 5
– Facilities |
Under the
facilities category, funds are required for the maintenance and operation of
new or newly renovated facilities which includes: the SALA 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
County; The Training and Technology Center at Penn State Hazleton; and the
Research and Economic Development Center at Penn State Erie. We also anticipate
modest fuel and utilities costs increases during 2004/05. A total of $3,356,000
is included for new facilities, and fuel and utilities cost
increases.
Deferred maintenance is a major
concern with respect to our overall facilities costs. Our physical plant is
aging, and the backlog of deferred maintenance projects is conservatively
estimated at over $200 million. The current budget for deferred maintenance is
$14 million. For 2004/05, we are budgeting for support of an additional $1
million.
The Capital Improvement Program
is the final component of the facilities request. As you are aware, Penn State
has the lowest overall space per FTE student of any public university in the
Big Ten. We are lagging behind our peers in providing modern laboratory and
classroom space for our academic programs. To address this very important
budget issue, the Board of Trustees approved a plan several years ago to
establish an on-going general funds budget line that is funded by a portion of
the tuition rate increase, and is used to support our Capital Improvement
Program. A total of $5,259,000 is included in the budget plan for this
area.
A total of $9,615,000 is projected
for facilities cost increases in 2004-05. |
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| Slide 6
– Salary Adjustments |
| Our appropriation
request for 2004/05 includes a continuation of the multi-year plan approved by
the Board in 2001 to make Penn State salaries more competitive by regaining
lost ground within the Big Ten. Our salary adjustment plan for this year is to
have a basic salary increase pool of 2%, and to continue The President's
Excellence Fund and Faculty/Staff Excellence Fund for special merit, market and
equity considerations. A total increase of $30,291,000 is included in the
appropriation request. |
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| Slide 7
– Academic Initiatives and Other Program Needst |
The budget plan
includes a total of $10,142,000 for academic initiatives and other program
needs. This includes $1 million for the School of Information Sciences and
Technology, as we complete our multi-year development plan for the school. The
request also includes $450,000 to complete multi-year commitments to
interdisciplinary initiatives in Environmental Studies, and Children, Youth and
Families.
This request includes a total
of $2,200,000 in much needed support for libraries and our telecommunications
and computing infrastructure. These funds would help maintain library
resources, which are essential to the quality of a 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.
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
to improve faculty-student ratios in key academic fields, improve instruction,
maintain efforts in development, and support 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, human development, and
cultural enrichment in the
Commonwealth.
As is customary, additional
funds will be allocated for instructional workload adjustments that reflect
enrollment changes in the academic colleges. |
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| Slide 8
– 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. 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, which is
proving to be successful for Penn State. This represents the third year that
funds have been included in the budget for this purpose |
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| Slide 9
– Internal Budget Reductions and Reallocations |
| Over the past 12
years, Penn State has recycled more than $109 million. For 2004/05 we plan to
continue this program of internal reallocations. A total of $5,639,000, or 1%
of departmental operating funds, will be reallocated within each college,
campus or support unit. These funds will be reallocated to meet the highest
priority needs identified in the strategic planning process. |
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| Slide 10
– Cost Savings/Enhanced Income Initiatives |
This past year, I charged a
task force headed by Executive Vice President and Provost Rod Erickson and
Senior Vice President for Finance and Business Gary Schultz to recommend major
cost savings actions within the University, and to find ways to increase
non-tuition income. The task force was able to identify $14 million in
recurring expense cuts and income enhancements. The savings from the Cost
Savings Task Force translated into a tuition savings of $200 per student for
the current academic year.
In the current
appropriation request, we are committed to carrying forward this work by
cutting additional costs and finding still new sources of income.
The targeted amount of savings and enhancements in
the 2004/05 budget plan is $2.5 million. These cuts are separate and distinct
from the internal reallocations. We will be looking closely at program mergers
and closures of low enrollment or less critical academic programs;
administrative cost efficiencies and further consolidation of administrative
units; reduction of some support services; additional cost recovery on research
and grants; and reduction or elimination of subsidies for selected outreach and
public service activities.
This
is not a short-term effort on the part of the University. We expect that the
cost savings and income enhancement efforts at Penn State will be an ongoing,
long-term commitment to keep our overall costs as low as possible, while still
maintaining the quality of a Penn State education. |
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| Slide 11
– Appropriation |
In Penn State's 2004/05
appropriation request to the Commonwealth, we seek to have our appropriation
restored to the 2001/02 level. Returning Penn State to the level of funding
that it received from the Commonwealth in 2001 would require an increase of
$28,348,000 over the appropriation that we believe we will be receiving this
year.
These funds will not be used to simply replace
the budget cuts we have made over the past two years. Rather, they will be used
to help support basic operating cost increases, with special emphasis on
escalating health care costs, deferred maintenance and facilities improvements,
faculty and staff salary adjustments, and high-priority program
initiatives.
We are mindful of the financial
challenges facing the Commonwealth. But we believe that it is eminently
reasonable to request, in light of the decreases in the state appropriation
that Penn State has received over the last two years, that our appropriation be
restored to the dollar amount that was received three years earlier. |
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| Slide 12
– Tuition |
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.
If the
Commonwealth is only able to restore Penn State's appropriation to the 2002/03
level (an increase of $16,127,000) then the basic tuition increase for
Pennsylvania residents would be 5.8 percent. |
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| Slide 13
–Strategic Investment Priority |
We are
requesting special support for only one area of critical need – 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 annually. We focus on this single special
request because the only academic medical center in Pennsylvania outside of
Philadelphia and Pittsburgh is in
jeopardy.
As members of the Board
are aware, Penn State ranks dead last in state appropriations for public
colleges of medicine in the United States. The average appropriation is just
under $50 million, with some institutions – like UCLA and Texas –
receiving well over $100 million each from their respective states. This year
Penn State received less than $5 million from the Commonwealth. Not only do the
other public medical schools in Pennsylvania receive more, all of the PRIVATE
medical schools within the state receive more from the Commonwealth than we do.
With such an extraordinarily low
level of state funding, we have historically supported the College of Medicine
from clinical revenue generated by the medical center. But changes in Medicare
reimbursements, managed care, and operations have driven down the margin from
the medical center to the point that it is impossible to support the college
from these funds over the long
term.
An investment in Penn State's
College of Medicine is a critical one for the state. A recenteconomic impact
report showed that Penn State Hershey generated 13,520 Pennsylvania jobs, both
directly and indirectly, and had a positive economic impact that equaled $613
million. So in addition to being the primary source of health care for central
Pennsylvania, the college and the medical center are huge economic drivers for
the region.
To support the continued
vitality of the College of Medicine, we are asking for an increase in funding
for Hershey of $10 million.
We plan
to request similar base increases over the next two years, to try to bring
funding for Hershey closer in line with peer medical schools around the |
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| Slide 14
– 2004-05 Appropriations Request Summary |
To summarize
our appropriations request, we are simply asking the Commonwealth to restore
Penn State's funding to the level that it was at in 2001/02.
And we are asking for just one new,
strategic investment – that being a commitment of $10 million as the first
part of a three-year plan to bring funding for the College of Medicine more in
line with its peers.
That concludes
my report. I would be happy to answer any questions. |
| 2004-05
Appropriation Request |
|
University Budget Office Web Site |
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