Senate Budget UpdateSenate Budget Update

Linda P.B. KatehiUniversity of Illinois at Urbana-Champaign

February 23, 2009

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AgendaAgenda

Overview

We are not AloneState of Illinois’ Finances

State of the Campus

Meeting this ChallengePlanning for the Worse

Capturing the OpportunityThe Stimulus Package

Looking Forward

Q & A

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We are not Alone….We are not Alone….

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National Slow-Down: At Least 44 States Face National Slow-Down: At Least 44 States Face Budget ShortfallsBudget Shortfalls

FL

IL

HI

ME

NH

VT

CTNY

PA

RIMA

DE

MDWV

VA

NC

SC

GA

OH

MI

WI

IN

KY

TN

ALMS

LA

AR

MO

IA

MNND

SD

NB

KS

OK

TX

WY

MT

UT

NMAZ

NV

ID

AK

CA

OR

WA

CO

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Economic OutlookEconomic Outlook

There have been 10 recessions since WW II with an average length of ten months

The longest two –1973 & 1981 – lasted 16 months. The shortest – 1957 – lasted six months

Most economists believe that the current recession will be one of the longest since WW II – at least 18 to 24 months

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Budget ContextBudget ContextScope of State Budget ProblemScope of State Budget Problem

Without revenue measures, the state’s structural budget deficit is $2.1 to $2.4 billion

Unprecedented instability in the economy may cause additional declines in state revenue

Some expenditures may increase over appropriations: state mandates (debt service, public safety, Medicaid) and demands on Human Services grow in economic downturns (unemployment, health care, social services)

State has backlog of unpaid bills lead some to characterize state budget problem as $4-5 billion

Source: Commission on Government Forecasting and Accountability

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Anticipated Impact on Our Anticipated Impact on Our Campus…Campus…

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What this Means for IllinoisWhat this Means for Illinois

Current recurring state revenue shortfall is 7-8% of General Revenue and growing

Since some expenditures are mandated by law or necessitated by public safety, other areas may face larger reductions

Our minimum reduction is 2.5% called for by IBHE.

Given the magnitude of state shortfall, a more realistic planning assumption is a 10% GRF reduction

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Illinois’ Tuition Increases Have Not OvercomeIllinois’ Tuition Increases Have Not OvercomeLoss of State Direct Tax Support, FY89-FY09Loss of State Direct Tax Support, FY89-FY09

(Changes in Average Expenditures Per Student)(Changes in Average Expenditures Per Student)

FY 2009 Difference = -$2,900 per student or $119 million in total!

Tuition

State Suppor

t

In 2008 dollars

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

FY89 FY94 FY99 FY04 FY09

(th

ou

san

ds

of

do

llar

s)

$2,900 per student

Excludes benefit payments by State

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Planning ConstraintsPlanning Constraints

Revenue• State Funds - declining industrial base; significant

unfunded retirement costs• Tuition - Significant growth in recent years;

increases will be required to help offset declines in state support

Expense - Growing faster than revenue• Personnel - 80% of total costs; significant growth;

losing ground on faculty salaries• Utilities - significant cost growth in recent years.

Facilities still require investment• Financial Aid - major investment required

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FY09 Budget—$1.6 BillionFY09 Budget—$1.6 Billion

Funds Are Not Interchangeable!Funds Are Not Interchangeable!

Institutional Funds8%

Tuition (Income Fund)25%

State Appropriations

18%

Grants, Contracts & Federal

Appropriations22%

Auxiliary Enterprises

12%

Departmental Activities

7%

Gifts & Endowment Income

8%

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Meeting the Challenge…Meeting the Challenge…

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A Values-Guided ProcessA Values-Guided Process

Protect quality of core programs

Serve well students and others who depend on us

Minimize adverse effects on our people

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Unit Budget ReductionsUnit Budget Reductions

Some one-time actions will protect units this year

All units will contribute at least 1.5%

GRF funded units will pay more, particularly those without student connection

If cash rescission becomes permanent, deeper reductions will be required for FY10

Deficits can not be incurred

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Short-term ActionsShort-term Actions

Only critical hires are allowed at this time (all colleges have been advised to limit hires)

State funded travel is limited to that required for development and scholarship

Purchases and new services will be deferred unless critical

Make necessary investments to allow institution to compete for funding

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Meeting a 10% RescissionMeeting a 10% Rescission

Capture natural gas savings—$2.5M

Assess GRF funded units full share of reduction—$3.3M

Capture unit set-aside—$5.0M

Assess Academic Unit GRF—$1.6M

Assess Non-tuition Units—$3.3

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Meeting a 10% Rescission Meeting a 10% Rescission (cont.)(cont.)

Delay some commitments and facilities projects—$2.5M

Sweep selected admin. balances—$.8M

Additional targeted reductions—$1M

Borrow large balances—$2.5M

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Considerations for Next YearConsiderations for Next Year

Cash rescissions often become permanent

Personnel rules do not allow rapid response to changing economic environment

Campus cash balances are low, providing less flexibility

While long term actions can create efficiencies, short term actions are required to raise cash

Deficits are not an option! Colleges need to limit expenditures wherever possible

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If FY09 Cash Rescission Becomes If FY09 Cash Rescission Becomes PermanentPermanent

Cash reductions made Permanent 13,250

Elimination of Certain Subsidies 1,500

Natural Gas Savings 2,500

Reserve & Other Cash Actions 3,000

Total of Actions 20,250$

Required Budget Reductions (10%) 26,000$

Shortfall (5,750)$

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Long-Term Actions for Effectiveness and Long-Term Actions for Effectiveness and EfficiencyEfficiency

IT@Illinois - a project to redesign how we support IT on campus

Service Centers - finding ways to minimize what is spent on support services

Process Improvement - using business methodology to improve quality and reduce cost of delivery of support services

Energy Conservation - we are moving aggressively to reduce our costs

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Capturing the Opportunity….Capturing the Opportunity….

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Stimulus PackageStimulus Package

The American Recovery and Reinvestment Act 789.5B789.5B

Significant funding for research agencies demonstrating that the Congress recognizes science and innovation as playing a role in the near-term and long-term economic health of the nation

All the funds of the bill are available to expend between now and September 2010

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Distribution of Funds by AgencyDistribution of Funds by Agency

NIH : 10.4 B10.4 B

NSF : 3 B3 B

D of Energy : Office of Science 1.6B1.6B

ARPA-E 400M400M

Energy Programs 30B30B

Energy Efficiency and Renewables 2.5B2.5B

Smart Grid 4.5B4.5B

Others: 10B10B

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Distribution of Funds by AgencyDistribution of Funds by Agency

D of Education : State Fiscal Stabilization Plan 53.6 B 53.6 B

Student Aid 15.6B 15.6B

Teacher Quality Enhancement 100M 100M

Institute of Education Science 250M 250M

NASA : 1 B1 B

NOAA: 830M830M

NIST: 580M 580M

Geological Surveys: 140M 140M

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Department of Labor 2.95B2.95B

EPA: 7.22B 7.22B

Other: 10B 10B

Distribution of Funds by AgencyDistribution of Funds by Agency

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While times like these are unique in the While times like these are unique in the their volatility and uncertainty….their volatility and uncertainty….

we should not be immobilized by fear … we should not be immobilized by fear …

but be energized by the opportunity to but be energized by the opportunity to participate in an unprecedented participate in an unprecedented

reshaping of our future.reshaping of our future.