The first color is coming into the trees, the nights are cool, the Cubs are busy preparing for next year, and the sounds of the Marching Band drift across campus in the late afternoons. All of that spells fall to me (well, perhaps the Cubs being out of contention is not as specific a seasonal indicator as some of the others) and that means it’s probably time for the first budget e- mail of the year. Our current budget for FY2011-2012 is set; the focus of this message is the budget we are planning for FY2012-2013, which begins next July 1 and will affect us in the next academic year.

Some of you may have read in various newspapers that the Colorado Legislative Council turned out the state’s first quarterly revenue forecast of the year. It was, at least by recent standards, pretty good news. At 82 pages, it’s a short (but riveting) read, by the standards of my e-mails, anyway. Students: Don’t attempt to read this late at night, we don’t need a rash of neck injuries as you nod off.

FY2010-2011 ended with the state having nearly $300M of revenue above budget, and those resources will be used to partially restock the State Education Fund and the State Public School Fund. The FY2011-2012 state budget looks to be in balance as of the end of the first quarter. Projections indicate that the state FY2012-2013 budget would, without considering inflation or caseload expansion, have nearly $300M of currently unbudgeted surplus. (Editor’s note: There is no shame in looking up ‘surplus’; it’s been some time since we used that word in these e-mails.) Of course, the uncertainty regarding the global economy makes such projections something to be viewed with a healthy amount of skepticism.

There are, not surprisingly, offsets to this somewhat promising news in addition to concerns about the general economic future. Colorado retains a $500M structural deficit moving into FY2012-2013. You may recall that this was a $1B deficit last year and during the current fiscal year (FY2011-2012), we all took budget cuts that allowed the state to reduce the deficit to $500M.

Some of you may be wondering how we avoided taking $1B in cuts for this year since Colorado has a constitutional requirement to balance our budget. The $500M shortfall for the current year was dealt with by a variety of single- year expense deferral mechanisms (lowering the statutorily established reserve limits, suspending certain tax rebate programs, etc.).

If the state elects to resolve this remaining deficit during FY2012-2013 through budget reductions rather than expense deferrals, the potential FY2012-2013 budget surplus mentioned above would be used up and, depending on inflation and caseload growth, cuts to higher education could well be in the $100M range. For those of you who track such things, a typical CSU share of such a cut would be around $20M. The state’s current reduction planning contemplates a different formula than they’ve used in recent years that places our potential cut closer to $15 million, and this is what we’ve been modeling in our budget to date — recognizing that there’s a lot of baseball left to be played before these numbers are final.

We currently receive $96M out of our annual budget of nearly $900M from the state. Keep in mind, though, that many large segments of the total university budget (research and the Campaign for Colorado State are good examples) generate revenue that is directed to a specific activity — to fund a particular research project or to endow a chair or scholarship, for example — and thus not available to help off-set cuts in state funding, which flow directly to the education and general (“E&G”) budget that supports the core teaching operations of the university.

The potential for cuts next year is, obviously, very disappointing news. On the up side, revenues appear to be slowly returning and the state will essentially have a completely balanced budget with restocked reserves. These changes position all of us in Colorado well as we move into the future. On the down side, significant economic uncertainty remains, and taking additional cuts beyond what we have been planning around and managing through over the past three years will be challenging for all public entities, including higher education and CSU.

The key point at this time, for me at least, is that we are very early in the state and university budget processes and there will be no shortage of twists and turns as we move through the year. You can rest assured (or perhaps dread) that I’ll do my best to keep you posted via these oh-so-very-popular-budget e-mails. I’d add a reminder from past years: There will be many juicy rumors throughout this process, and things that sound too good or too bad to be true probably aren’t. We’ll keep you posted as things play out.

So what does all of this mean for CSU and our planning for next year? Provost Miranda, VP for University Operations Amy Parsons and Associate VP for Finance Lynn Johnson have been joining me in presenting the early versions of the draft budget to various campus groups representing faculty, staff, and students. You can see the current draft budget online.

At this time, I’d highlight a few key items. Our revenues are basically limited to tuition and enrollment growth. We’re working around a planning assumption of 9% resident undergraduate tuition increases (an additional $284 per semester), 3% non-resident undergraduate tuition increases (an additional $330 per semester), 5% tuition increases for graduate students and the second of our three steps to phase-in differential tuition. These are planning assumptions based on the 5-year budget plan that the Colorado Commission on Higher Education approved for CSU last winter. On the expense side, we’ll be inflating our current financial aid budget, and we’re still working around a plan for a 3% (average) salary increase. Our employees have gone three years without a salary increase and we know how challenging this has been.

I need to point out that raises for our state classified personnel are not within the hands of the university — these raises are determined at the state level and we’ll follow that process closely. Let’s assume CSU’s share of the state budget reductions to be $15M — as I said, current discussions of the method by which the state might pass its cuts on to higher education make this a reasonable assumption, which would be better for us than previous models. Then the current budget is out of balance by $12.4M. There are, of course, several ways to bring the budget into balance (which we need to do by next May), and we’ll be discussing all of them as we move through the fall and into our Strategic Planning Retreat and our Planning & Budget Hearings in January. Options include dropping the salary increase (there are definite downsides to this approach); using one-time reserve resources as a bridge to revenues in FY2013-2014 (we’ve never wanted to be too aggressive in depleting reserves and gambling on future revenues, and it makes me nervous in the current economy); raising tuition higher than the above levels (I am very reluctant to head in this direction given the tuition increase we implemented this year, despite the fact that we remain “under-priced” in the national market); taking cuts in our units (a 5% cut to the entire university education and general fund budget would balance our budget without further raising tuition and would preserve the 3% salary increase, but another year of cuts is also a pretty unappealing option to units that have been trimming expenses for the past three years).

We’ll consider other, less traditional ideas as well and, as in the past, we’ll be open to your suggestions as we move through the planning process.

The one thing that we can count on is that we’ll enter FY2012-2013 with a balanced budget and a commitment to continue to improve our performance in teaching, research, and service despite the fiscal challenges — just as we have over the past three difficult years. I hope you all are very proud of how CSU is improving even in the face of these financial challenges — because it’s only been possible through your hard work. There’s simply no way I can say ‘thank you’ often enough to all of you who make CSU such a wonderful academic community.

The little program they installed on my computer to count the words of my emails has popped up a blinking red exclamation point in the center of my screen, so that’s probably a signal that it’s time for me to stop writing. Let’s have a fantastic Homecoming week — I’ll see you at the parade on Friday (I’m working on my wave) and on Saturday at Hughes, as we cheer our Rams on to another great win.


Dr. Tony Frank