Friday,
September 9
Finance and Physical Plant Agenda Item #13 |
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PENN STATE'S 2006-07
APPROPRIATION REQUEST
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Penn State is many things to
many people. For more than 81,000 students matriculating at 24 locations across
the Commonwealth, Penn State provides unparalleled access to knowledge and
skills, social mobility and a brighter
future.
For business and industry, Penn
State's more than $630 million research program helps unfold new frontiers of
knowledge, new products and new businesses.
For the citizens of Pennsylvania, Penn
State Outreach activities reach half of the households in Pennsylvania with
everything from 4-H and farm advice to continuing education and public
broadcasting.
And, for the Commonwealth,
the University provides the single largest impact on economic growth of any
enterprise in the state, producing a total economic impact of more than $6.1
billion and an induced impact of an additional $7
billion.
Despite the University's vast
social and economic importance, state budget difficulties have led to a current
year appropriation that is less than what the University received in 2001. The
appropriation cutbacks that have occurred since the turn of the century have
forced tuition increases that threaten access for many Pennsylvanians,
primarily at the campus locations.
The
2006-07 budget request from the University seeks to address this issue. Penn
State is seeking an appropriation increase from the Commonwealth of 10 percent
for the University's Educational and General line item. An increase is also
included for the Pennsylvania College of Technology (Penn College). In
return, the University would freeze tuition for nearly 38,000 students at 20
undergraduate campus locations at their current 2005-06 levels, and hold the
tuition increase at University Park to 5.9 percent for Pennsylvania resident
students.
A 10 percent increase in the
Educational and General line item, plus the requested increase for Penn
College, totals $28,354,000. Cost-of-living increases to the University's other
line items, covering such things as Agricultural Research, Cooperative
Extension, and Medical Education would entail approximately $2.5 million, and
bring the total requested appropriation increase to $30,872,000, or 9.5 percent
overall.
These funds will be used to help
support basic operating cost increases, with emphases on escalating health care
costs, deferred maintenance and facilities improvements, and modest faculty and
staff salary adjustments.
Over the past
decade, Penn State has aggressively trimmed budgets, producing nearly $139
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 and expect to reallocate an additional $8.1 million in
the coming budget year. The University cannot continue to cut, however, and
still provide the access and economic vitality so critical to the
Commonwealth's future.
The budget request
that the University is submitting will make the University and the Commonwealth
partners in an effort to assure continued access and affordability for the
citizens of our state, while also ensuring the level of quality that
Pennsylvanians have come to expect from their Land-Grant
University.
An appropriation increase of
$30,872,000, with a corresponding freeze in tuition at the 20 undergraduate
campus locations outside of University Park, will make Penn State and the
Commonwealth partners in the greatest investment that could be made for the
future of Pennsylvania.
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HIGHLIGHTS OF PENN STATE'S
2006-07 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.
- Strategic Academic Initiatives –
Address the most critical strategic academic initiatives.
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APPROPRIATION
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- The University is requesting an appropriation
increase of $30,872,000. Of this amount, $24,721,000 is requested for the
Educational and General line item, $3,633,000 for Penn College, and $2,518,000
for the other line items.
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TUITION
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- If the Commonwealth is able to provide these
appropriation increases, tuition rates at Penn State's 20 undergraduate
campuses, including the Pennsylvania College of Technology, will be frozen at
2005-06 levels. The tuition rate increase for Pennsylvania resident
students at the University Park campus will be 5.9 percent.
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DETAILS OF PENN STATE'S 2006-07
BUDGET
PLAN AND APPROPRIATION
REQUEST |
The University's proposed budget plan
for 2006-07 reflects basic operating cost increases of $72,036,000. 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 appropriation request of
$30,872,000 for 2006-07 is summarized by line item in Table 2. Details of the
University's proposed budget plan and appropriation request are discussed
below.
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BASIC OPERATING COSTS:
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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. While Penn State is not immune to these increases, the University will
be able to moderate the increase for 2006-07 through a combination of potential
strategic healthcare partnerships currently under review and continued cost
containment measures. Penn State is projecting an increase of 11 percent in the
coming year, compared to annual increases in the 15 percent range over the last
several years.
While health care costs
will account for the majority of the benefits cost increases, retirement,
social security, and grants-in-aid costs also are projected to rise. The
employer contribution rate for the State Employees' Retirement System is
scheduled to increase again in 2006-07, and required contributions to TIAA/CREF
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 and for increases in employee and dependent
grants-in-aid budgets. In total, benefits costs are projected to increase by
$23,677,000.
In line with national trends,
the University is expecting additional increases in property and liability
insurances. A total of $850,000 is projected for these expected cost increases.
Facilities
A total
of $11,473,000 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 total $5,823,000 for
the maintenance and operation of new or newly renovated facilities and for fuel
and utilities cost increases. This includes operating funds for the new Food
Science Building, classroom and laboratory renovations at University Park, and
the Arts Center at New Kensington. Funds are also included for increases in
fuel and utilities costs projected for
2006-07.
Penn State's physical plant is
aging and deferred maintenance is 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. The backlog of major
maintenance projects is estimated at over $800 million university-wide. Between
1996-97 and 2003-04, the University added $1,000,000 per year to the permanent
budget for deferred maintenance. This was increased to $2,000,000 per year for
2004-05 and 2005-06. This brings the current total permanent budget for these
needs to approximately $19 million. More needs to be done, however, to address
the maintenance backlog. For 2006-07, additional support of $2,000,000 is
included for deferred maintenance.
Insufficient or inadequate space has
become 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 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 to support the
capital improvement program. These funds enable the University to incur debt
for building renovations and construction, and to provide for the operating
costs of the buildings once they are completed. A total of $3,650,000 is
included in the budget for 2006-07.
Faculty and Staff Salary
Adjustments
Comparisons with
other Big Ten public universities and 22 public research 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, since 2001-02, Penn State's average faculty salaries have shown
improvement in these comparisons.
In order
to maintain these rankings, the budget plan for 2006-07 includes $30,776,000
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.
Strategic Initiatives and Other Program
Needs
The budget plan includes
a total of $10,381,000 for strategic initiatives and other program needs.
Funding in the amount of $5,831,000 is included in the 2006-07 budget for
strategic investments at both University Park and other campus locations.
Funding for these investments will result from the tuition differentials
approved by the Board of Trustees in July 2002. A portion of these funds at
University Park will be used to reduce the student/faculty ratio and/or to
convert fixed-term faculty appointments to standing positions in selected
academic programs. Additional support will be provided for programs in the fine
and performing arts, humanities and social sciences. Enhancement funds also
will be provided for World Campus and resident instruction blended learning
opportunities, development activities, student services, and student recreation
programs. At other campus locations, these funds will be used for the highest
priority needs identified by each campus.
A total of $4,550,000 is included for
other program commitments. This amount includes funding for new faculty
positions and for instructional workload adjustments that reflect enrollment
changes in the colleges. In addition, funds will be provided for high priority
academic needs and for other support services such as research administration,
information technology services, and the university-wide parking and
transportation plan.
Libraries, Computing and
Telecommunications
The budget
plan includes a total of $1,600,000 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 $12 per semester increase in the student
information technology fee will provide the needed funds.
Cost
Savings Initiatives
Since 1992-93,
the University has recycled nearly $139 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. The University has systematically eliminated or merged existing
academic programs as it has added new ones. In addition, 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.
In September 2002, the University
established a Cost Savings Task Force to explore opportunities for additional
cost savings that would not adversely affect the academic quality of the
institution. Over the three-year period from 2003-04 through 2005-06, the
University has accrued $31,626,000 in savings and non-tuition income
enhancements. This is equivalent to $530 per student per year, or 5.5 percent
in avoided tuition increases.
For 2006-07,
the University is targeting $8,062,000 in cost savings, resulting from
selective budget reductions and from across-the-board budget reductions from
all academic and administrative units. This will be the fifteenth consecutive
year that Penn State has had a program of internal budget reductions and
reallocations. The University is also projecting $4,000,000 in non-tuition
income, primarily from increased recovery of facilities and administration
costs from sponsored research grants and contracts.
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
2006-07 budget plan for need-based student aid as the fifth year of a five-year
program. These funds will be used to leverage additional private donations for
student support through the Trustee Scholarship Program.
Strategic Investment Priority: Campus Tuition
Freeze
Penn State's Commonwealth
Campuses and Penn College are major contributors to workforce development in
Pennsylvania.
- In Fall 2004, 37,684 students were enrolled at one of the
University's 19 Commonwealth Campuses across the Commonwealth or at Penn
College. This represented 46 percent of Penn State's total enrollment.
- These campuses offer many educational programs that are
specifically designed to meet the needs of business and industry in the
communities that they serve.
- Last year, just over 10,000 adult students (students 24
years old or older) were enrolled at these campuses, representing 27 percent of
the total enrollment. Adult students made up 30 percent or more of the
enrollment at eight of the 19 Commonwealth Campuses.
- Many campuses have historically served a role similar to
community colleges. Just over 7,500 students enrolled in Associate Degree
programs at the Commonwealth Campuses and Penn College last fall. Commonwealth
Campus and Penn College students received 12.5 percent of the Associate Degrees
awarded by Pennsylvania colleges and universities in 2003-04. Penn State is the
Commonwealth's single largest provider of associate degrees.
Because of state and
national economic conditions, Penn State has faced reductions in its
appropriations from the Commonwealth in three of the last five years. In
2001-02, the University's initial appropriation was $334,813,000. For 2005-06,
the appropriation is only $323,562,000 (including the funds for the College of
Medicine directed through the Department of Public Welfare as proposed by the
State). This is three percent less than it was five years
ago.
At the same time, Penn State has
faced dramatic increases in costs such as health care, insurances, technology,
maintenance and library materials. As an example, health care costs increased
by $59 million, or 92 percent, from 2001-02 to 2005-06. To compensate for
health care increases alone would require an appropriation increase of 20
percent. Throughout this period, the University also maintained a high priority
on competitive faculty salaries, based on a plan approved by the Board of
Trustees to regain ground lost in the previous five years.
Over the past decade, as support from the
Commonwealth has diminished, the burden of financing higher education has
increasingly fallen on our students and their families. As a result, Penn
State's tuition is currently the highest in the nation for public universities
-- effectively raising barriers of affordability for
many.
The Commonwealth Campuses are facing
growing pressure on tuition to the point where access is at risk. Penn State's
Commonwealth Campuses and Penn College were created specifically to open
opportunity and broaden access to higher education in the communities that they
serve. We must ensure that this aspect of our land-grant mission
continues.
Our appropriation request
includes a modest increase of 3.7 percent to help cover the basic operating
cost increases that are projected in the University's 2006-07 budget plan. We
are proposing that additional appropriation funds be provided, beyond those for
basic cost increases, to offset the income generated from the tuition rate
increases for the Commonwealth Campuses and Penn College. An additional
$15,682,000 would offset the full 5.9 percent tuition rate increase and freeze
tuition at current levels for the 19 Commonwealth Campuses. An increase of
$3,044,000 would allow a similar tuition freeze for Penn College.
INCOME CHANGES:
Income
increases of $72,036,000 are projected for 2006-07. This amount includes
$36,164,000 from projected tuition and fees increases for students at the
University Park campus, the College of Medicine, and the Great Valley Graduate
Center. It also includes $5,000,000 in other income.
Penn State is requesting a ten percent
increase, or $24,721,000, in its Educational and General line-item
appropriation, plus an increase of $3,633,000 for Penn College. An additional
$2,518,000 is requested for increases in its other line-item appropriations,
including Agricultural Research, Cooperative Extension and Medical Education.
Overall, the total requested increase for all Penn State line items will be
$30,872,000, or 9.5 percent.
If the
Commonwealth is able to provide these appropriation increases, tuition
rates at Penn State's 20 undergraduate campuses, including the Pennsylvania
College of Technology, will be frozen at 2005-06 levels. The tuition
rate increase for Pennsylvania resident students at the University Park campus
will be 5.9 percent. The information technology fee will increase by $12 per
semester to support library resources and student computing and
telecommunications needs.
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