Transcript Slide 1

Short and Intermediate Term
Financial Planning
COD Retreat
July 24, 2009
New Budget Model
FY10 Budget Outcomes
Budget Planning
New Budget Model
On hold except:
 Utility budgets—units benefit from unit
conservation measures
 Grad Tuition—trued up for current year
 UG Tuition—set $ per IU based on most
recent year
 Outreach—trued up for current year
 ICR—let’s talk!
FY10 Budget Outcomes
 Budget expected shortly
 Significant risks remain—more on this later
 Limited salary program: promotions, retention
agreements & awards
 Slow allocations, where possible
 Admin budget reductions move forward
 Unit budget reductions ~1.5% (depending on
final state outcome)
Short and Intermediate Term
Financial Issues
The Perfect Storm
 A worldwide financial crisis and an already
weak state
 Significant long-term financial challenges for
the state
 An overextended institution with limited cash
 Facility and other costs that can not be
deferred
How do we best move forward in a way that
protects our institution?
Budget Context
Scope of State Budget Problem
 Without revenue measures, the State’s structural
budget deficit is $4 billion or more.
 Unprecedented instability in the economy is
causing additional declines in State tax revenue
 State has mandates (debt service, public safety,
Medicaid); certain costs grow in economic
downturns (unemployment, health care, social
services)
 State has backlog of unpaid bills lead some to
characterize State budget problem as $11-14
billion
Source: Commission on Government Forecasting and Accountability
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Budget Context
Status of FY10 State Budget
 Short-term solutions will get us through at
least part of year. Super-majority required to
approve revenue increases now.
 Risks to campus: state scholarship program
($15m+), indirect appropriations ($30m+) and
growth since FY08 ($11m)
 State is still behind by >$125m in
reimbursements to University – a great risk to
our institution
FY 2010 Budget Outcomes
 Direct GRF Reductions
 State Scholarship Commission – 85% funding
for fall; 0% for spring
 Cost Increases
 Mid-year Risks – State revenues continue to
decline. Shortfall may require action early in
fall.
State of Illinois
Longer-term Financial Issues
State Support Per Tuition Dollar
FY 1970 to FY 2009
12.8 to 1
8.6 to 1
4.5 to 1
2.9 to 1
1.5 to 1
FY02-09 excludes health insurance re-direction to CMS.
1.4 to 1
1.3 to 1
1.2 to 1
1.1 to 1
State Tax Appropriation
Changes by Agency
In Constant 2008 Dollars (CPI)
Elementary/Secondary
18.6%
12.0%
Human Services
3.7%
State Average
Higher Education
-24.1%
-32.0%
All Other
FY02 - FY09 exclude $45 million from higher education for Health Insurance payment to CMS.
State of Illinois Debt
(Dollars in Billions)
(Dollars in Billions)
$71.3
Pension Debt
$27.5
Bonded Debt
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Stimulus Funding:
Short-term help; Long-term risk
Operating
 $53m shortfall in FY10 University budget
funded with stimulus funding
 State can’t cut FY10 operating below FY08
 These stimulus funds gone in FY11; state
must have new revenue to cover
Stimulus Grants
 Research funds provide 2 year opportunity
 Federal deficit will not allow indefinite funding
Summary of State Financial Issues
 Uncertainty regarding taxes
 ISAC funding cut by > 50%
 University owed $125 million
 Stimulus funding runs out this year
 Rumors of increased benefit charges
 Pension system dramatically underfunded
Total risk to campus is many tens of millions
of dollars!
Campus Financial Challenges
Illinois’ Tuition Increases Have Not Overcome
Loss of State Direct Tax Support, FY89-FY09
(Changes in Average Expenditures Per Student)
18.0
16.0
$2,900 per student
(thousands of dollars)
14.0
12.0
10.0
Tuition
8.0
6.0
4.0
State
Support
2.0
FY89
FY94
FY99
FY04
FY09
FY 2009 Difference = -$2,900 per student or $119 million in total!
Excludes benefit payments by State
In 2008 dollars
Urbana Year-End Operating Fund Balances (millions)
$250.0
$200.0
$150.0
$100.0
$50.0
$0.0
($50.0)
($100.0)
FY04
Total Balance
FY05
Institutional Total
FY06
Institutional Total (Excluding Utilities)
FY07
Self-Supporting Total
FY08
Gift/Endowment Total
Deficits
 Utilities
 University-wide funding hid size of deficits
 Annual budget now fully funded
 Cumulative deficit of $90m
 Campus Reserves
 Long-term commitments use most of reserve
 Growth in utilities did not allow new funds to
be directed to reserve
 $15m+ annual commitments beyond funding
 Unit Deficits
Planning Constraints
 Revenue
 State Funds—declining industrial base;
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significant unfunded retirement costs
Tuition—One of the highest cost publics; cost
growing beyond capacity to pay
 Expense
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Personnel—80% of total costs
Utilities—significant cost growth in recent
years. Facilities still require investment
Financial Aid—major investment required
Planning Constraints (cont.)
 Buildings/ Maintenance
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State stopped supporting facilities in 2002
Campus stepped up to cover desperately
needed remodeling and facilities
Deferred maintenance of $550 million!
Below average $ per square foot to
maintenance—and it shows!
How Do We Respond?
First Steps: Unit Financial Control
 Eliminate Deficits—we need to
move quickly. Most recurring
deficits resolved this year.
 Raise Cash—delay hires and
purchases
Some Actions Taken Centrally
 Hiring plans required again this year; hires
must be limited
 Initiatives stretched over a multi-year period
 Increased vigilance regarding financial status
 Administrative reduction program goes
forward
 Establishment of advisory group(s)
These steps will not be enough . . .
. . . We need to move beyond belttightening and take a deep look at
how to protect our institution
How do we move forward in an era of
declining resources?
A Call for Profound College-based
Planning
Some Characteristics of this Effort:
 Focus on protecting quality and reducing
costs
 Plans needed quickly—unit kickoffs in early
fall
 Bottom up effort with significant faculty
involvement
 Everything must be on the table
Let’s design this process