Stewarding Excellence@ Illinois
Campus PresentationsFebruary, 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?
State Financial Issues• The state’s General Revenue Fund appropriation
is approximately $26 billion for operations.• The state started FY 2010 with $2.8 billion in
unpaid vouchers. There is no revenue source to pay these past due bills.
• The state used one-time funds ($5.7 billion from borrowings, $2 billion stimulus funds, $300 million fund sweeps) to help cover this year’s costs.
• Even with these one-time funds, the state slips further behind with its payments.
The state will start FY11 with a minimum shortfall of $9 to $13 billion—or 35% to 50%
of the state’s operating appropriation!
Budget ContextStatus of FY10 State Budget
• Short-term solutions will get us through at least part of year.
• Stimulus funds ($45.5m) used in University appropriation.
• The State is 180+ days behind on payments – a great risk to our institution
FY 2010 Budget Outcomes
• On the surface things look good:
– No GRF Reductions
– Significant growth in tuition revenue
• However, significant risks exist:
– State revenues continue to decline
– Shortfall may require action at any time
State of Illinois
Longer-term Financial Issues
State Support Per Tuition DollarFY 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
We have become increasingly self-reliant for direct operating costs.
UIUCFY00 - FY10
General Revenue Funds and Payments on Behalf
0
100
200
300
400
500
600
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Amou
nt in
Mill
ions
GRF Payments on Behalf GRF + POB
“Payments on Behalf” are state contributions to pension system and health insurance.
State pension “catch-up” is consuming all new revenue.
Direct appropriation is flat in recent years
State support for benefits now exceeds direct funding of operations
In Constant 2008 Dollars (CPI)
Human Services
Elementary/Secondary
Higher Education
All Other
State Average
12.0%
3.7%
-24.1%
-32.0%
18.6%
State Tax AppropriationChanges by Agency
FY02 - FY09 exclude $45 million from higher education for Health Insurance payment to CMS.
Higher Education has done poorly compared with other state agencies
State of Illinois Debt(Dollars in Billions)
$0
$20
$40
$60
$80
$100
$120
GRF Debt
$71.3
Pension Debt
Bonded Debt
Page 10
The state is faced with a significant amount of pension and bond debt compared with the size of its budget
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.
The decline of manufacturing has held back growth in Illinois compared to the nation
Stimulus Funding:Short-term help; Long-term
riskOperating• $45.5m shortfall in FY10 University budget
funded with stimulus funding• State can’t cut FY10 operating below FY08• These stimulus funds are gone in FY11; state
must have new revenue to coverStimulus Grants• Research funds provide 2 year opportunity• Federal deficit may not allow indefinite
funding
Summary of State Financial Issues
• Uncertainty regarding needed tax increase
• State is 180+ days behind on payments to the University
• Stimulus funding runs out this year
• 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)
($100.0)
($50.0)
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
FY04 FY05 FY06 FY07 FY08 FY09
Total Balance Institutional Total Institutional Total (Excluding Utilities) Self-Supporting Total Gift/Endowment Total
Dramatic increase in utility costs ate into campus cash balances
How Do We Respond?
Planning Considerations • 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 Considerations (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 Considerations (cont.)
Many Strengths:
• High quality faculty, students & staff• Fee support for facilities & Library/IT• Stabilized utility costs—both price &
conservation• Aggressive pursuit of stimulus grants
Covering the Shortfall• Cut the cost of our operations: purchasing, IT,
space. • Reduce our footprint in a selective way:
eliminate, downsize or reorganize some activities
• Highly differentiated unit budget reductions based on a number of factors, such as:– Duplicative activity– Strategic need– Source of funds
• Funds already set aside
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.)
• System-wide University of Illinois (UA) Administrative Review Committee– Exploring next steps for strategic
procurement, IT efficiencies & service centers
– Review administrative structure for possible streamlining
• Campus: Stewarding Excellence @ Illinois– Formed central teams
• Steering Committee—deans, campus leaders• Campus Advisory Group— faculty, staff, students• Project Mgt. Team—campus admin. staff
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