Transcript Short and Intermediate Term Financial Planning January, 2010 The Perfect Storm  A worldwide financial crisis and an already weak state  Significant long-term financial.

Short and Intermediate Term
Financial Planning
January, 2010
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 a tax increase, the State’s structural
budget deficit is $5 billion or more.
 Tax revenue continues to decline
 State has mandates (debt service, Medicaid) &
costs that grow in economic downturns
(unemployment, health care, social services)
 State has backlog of unpaid bills lead some to
characterize State budget problem as an $11
billion shortfall
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.
 Stimulus funds ($45.5m) used in University
appropriation.
 Risks to campus: indirect appropriations
($30m+), growth since FY08 ($11m) &
benefits($$$$)
 The State is 150+ days behind on payments
– a great risk to our institution
FY 2010 Budget Outcomes
 On the surface things look good:

No GRF Reductions

Cost Increases – 1.7% reallocation

Significant growth in tuition revenue
 However, significant mid-year risks:
 State revenues continue to decline
 Shortfall may require action at any time
 Possible passing of benefit and other costs on
to campus.
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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Real Gross Domestic Product by State
1997 – 2008
(Millions of Chained 2000 Dollars)
*Average of top five performing states.
Source: U.S. Bureau of Economic Analysis.
Stimulus Funding:
Short-term help; Long-term risk
Operating
 $45.5m 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 may not allow indefinite
funding
Summary of State Financial Issues
 Uncertainty regarding taxes
 ISAC funding cut by > 50% Restored but not
funded
 State is 180+ days behind on payments to the
University
 Stimulus funding runs out this year
 Rumors of benefit charges to university
 Pension system dramatically underfunded
Total risk to campus is many tens of millions
of dollars!
Campus Financial Challenges
UIUC 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
FY07
Institutional Total (Excluding Utilities)
FY08
Self-Supporting Total
FY09
Gift/Endowment Total
Deficits — Improved in FY09;
Progress Still Required
 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
 Annual commitments beyond funding
 Unit Deficits
Planning Constraints
 Revenue
 State Funds—declining industrial base;

significant unfunded retirement costs
Tuition—One of the highest cost publics; cost
growing beyond capacity to pay
 Expense



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
 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!
Planning Issues (strengths)
 High quality faculty, students & staff
 Improving financial control & health
 Fee support for facilities & Library/IT
 Stabilized utility costs—both price &
conservation
 Good state capital budget
 Aggressive pursuit of stimulus grants
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. 4.5% of college
budgets set aside in special
accounts
Some Actions Taken Centrally
 Hiring plans required again this year; hires
must be limited
 Initiatives stretched over a multi-year period;
a review of funding for all recent initiatives
 Increased vigilance regarding unit finances
 Administrative reduction program goes
forward: > $1.2m this year
 Establishment of advisory groups
These steps will not be enough . . .
. . . We need to move beyond belttightening and take a deep look at
our institution
How do we move forward in an era of
declining resources?
Meeting the Challenge
Initial
Steps
Through Dec.
Identifying
Opportunities
Jan.– mid-Feb.
Deploy
Teams
Feb.- March
Implement
Plans
March-
Communicating
scope of problem
Broader
Communicating
Review teams
charged
Brief reviews
completed
College planning
Review college
plans
Specific unit
reduction targets
Review revised
plans
Cost reduction
Forming Teams
Identify areas for
review
Bridge plan
completed
What We Have Done So Far
 Communication and Planning


Kickoff meetings with all colleges to outline
scope of problem
College planning efforts to address reductions
 Aggressive cost reduction


First stage of administrative reductions—
$1.3m in savings
Accelerated energy conservation efforts—
millions in annual savings
 Increased financial oversight and reduced
deficits
What We Have Done So Far (cont.)
 Formed central teams
 Steering Committee—4 deans, 1 VC, 1 faculty
 Campus Advisory Group—13 faculty & APs
 Implementation Team—9 campus admin. staff
 System-wide Administrative Review
Committee


Exploring next steps for strategic procurement,
IT efficiencies & service centers
Review administrative structure for possible
streamlining
Project Structure
Bob Easter
Chancellor
Dick Wheeler
VC Academic Affairs
Senate Budget
Committee
Steering Team
Deans of LAS, AHS, ACES, Grad
College; VC Student Affairs; VC
Academic Affairs; two faculty; staffed
by Provost’s Office
Implementation Oversight Team
VC Academic Affair, VC Public
Engagement, Dean of LAS, Assoc,
Chancellor Public Affairs, Chancellor’s
and Provost’s Staff
Campus
Advisory
Group
Steering Committee
 Deba Dutta—Graduate College
 Bob Hauser—ACES
 Tanya Gallagher—AHS
 Linda Smith—GSLIS
 Ruth Watkins—LAS
 Tony Liss—Physics
Campus Advisory Group
 Elabbas Benmamoun—Linguistics
 Ralph Brubaker—Law
 Deba Dutta—Grad College & Engineering
 Rayvon Fouché—History
 Scott Irwin—ACE
 Tony Liss—Physics
 Jim Lisy—Chemistry
 Edward McAuley—Kinesiology
 Curtis Perry—English
 Kim Shinew—Recreation
 Linda Smith—GSLIS
 Ginger Winckler—VM
Discussion