Update on CSU’s Budget Planning for Next Year, December 7, 2010
Dear Colleagues and Students,
I’ve been thinking for some time that I needed to get an update out to campus on the basic status of the budget and our university. I started to work on it over the Thanksgiving weekend, but I became a bit unnerved when one of my daughters showed me a comedic article from “The Onion” about a “rambling 75,000 word e-mail” sent by President Obama to the nation. Of course, our President has a lot more to talk about than I do, but it did leave me with a question: Do some people really think 75,000 words is too long?
The university is doing very well by any of a variety of objective parameters in the face of the worst economy of our lifetimes; while significant budget challenges lie ahead, we’ve known these were coming and we’ve been collectively preparing to meet them for several years; our campus budget process will play out in an open, transparent and communicative manner over the next 4-5 months, there are many opportunities for you to be involved, we need you to be involved, and I can assure you we will do our best to prevent any last minute budget “surprises.”
Well, for those of you who do — and those of you who don’t want to devote too much of your holiday season to this e-mail — here’s the bottom line for this message: The university is doing very well by any of a variety of objective parameters in the face of the worst economy of our lifetimes; while significant budget challenges lie ahead, we’ve known these were coming and we’ve been collectively preparing to meet them for several years; our campus budget process will play out in an open, transparent and communicative manner over the next 4-5 months, there are many opportunities for you to be involved, we need you to be involved, and I can assure you we will do our best to prevent any last minute budget “surprises.” That’s the Cliff’s Notes version. Now you can skip to the last page.
For the half-dozen or so of you who are still here, is your holiday shopping done? Still here? OK … While most of this message will deal with the specifics of next year’s budget, using the past few years for context, I want to start by looking a little further down the road. There are reasons to start to have some optimism about the economy and, as we look past next year’s budget, I think there is good reason to be optimistic about our prospects for growth. When that time comes, we’ll keep our focus on the same principles that have guided us through these dark days — an unwavering emphasis on academics, excellence, and people. We’ll never lose track of the reasons we’re here — the education of our students, the discoveries of our faculty, and the improvement of the life of our fellow citizens across Colorado. We also know that salary increases and benefits are important and need to be part of our ongoing planning.
And CSU will always work hard to be the best at what we do — letting our actions and accomplishments do our talking for us.
But as tempting as it is to hold that focus on what we know will be a positive future, we need to acknowledge we still have a tough year ahead — and it will take all of our best planning and ideas to be successful. The next few months are key to our budgeting process for FY11-12, and so I wanted to take a few minutes and set the stage for the budget discussions that lie ahead.
Throughout this email, I’m going to refer to a basic draft incremental Education & General fund budget. This is the part of our budget funded by tuition, fees, and state support that covers our core operations and academic programs — and it’s the part of our budget that changes incrementally from year to year. If you want to see the budget, and some slides I used as context in presenting it, it’s posted to the President’s Office website. This presentation represents the current state of our budget — why we’re where we are, what we don’t know at this point in time, and what the choices are that we need to resolve as a campus community. The Provost, our Chief Financial Officer, and I have given this presentation to a number of groups on campus to brief them and get their feedback — including the President’s Cabinet, ASCSU, the Council of Deans, and the Faculty Council Committee on Strategic & Financial Planning (which includes classified staff, administrative professional, and student representation). Because this is the incremental E&G budget, it does not deal with the vast majority of the university’s budget, which is directed toward specific projects and under very limited discretion — including over $300M in extramural research funding.
For more background on the broader budget picture and how it has changed over time, I’d suggest our Financial Accountability Report. For more detail on the categorical line items in the draft incremental E&G budget, you can either e-mail me or inquire through your faculty, student, or staff representative who will be involved in the January 27 and 28 open Planning & Budget Hearings. You’re also, of course, welcome to attend the hearings yourself — they’re open to the public, with members of Cabinet, Council of Deans, the Student Fee Review Board and ASCSU Officers, Faculty Council officers and members of the Faculty Council Committee on Strategic & Financial Planning (including CPC and APC reps) participating in presentations and Q&A. A series of budget open forums will also be held in March to review and discuss our progress on drafting a budget for next year, and we’ll be collecting electronic and written input throughout the budget process.
But for now, back to the incremental E&G budget at hand.
Some of you will recall that when the economic downturn was in full swing and the federal government deployed ARRA (aka “stimulus”) funds to the states, the state of Colorado balanced its budget in part by cutting $30M of the $130M CSU received from the state and backfilling that amount for 3 years with ARRA funds. Our plan, in turn, was to reduce expenses slowly, banking a portion of our cut funds into a Future Revenue Contingency Reserve, and then drawing from that reserve for another 1-2 years after the ARRA funds were gone. The plan was designed to reduce expenses slowly, and since our greatest expense is personnel, this allowed us to contract our workforce largely by attrition with people retiring or moving or taking other jobs. In one sense, this plan worked very well — although we’ve lost over 5% of our workforce (around 312 positions), only about 45 people have been laid off involuntarily to date without finding an open position at the university that was not impacted by the layoffs. But the downturn was deeper than the state and federal government projected, and Governor Ritter was forced to deploy the ARRA stimulus funds more rapidly than expected. This meant that in the current fiscal year (FY10-11), we did not receive the full ARRA allotment we had planned around and so we had to expend the Future Revenue Contingency Reserve earlier than we had planned. This creates the scenario we face for FY11-12 – the need to balance a budget in one year when we thought we had 2-3 years of phased budgeting in front of us.
At this point, there are really only three lines in the draft incremental E&G budget that contain significant unknowns: the amount of state support, the amount of our tuition increase, and the amount we’ll cut from our expenses. The last two are within our control, but as we get into the legislative session in the spring, we’ll be actively involved in trying to make a good case for avoiding further state cuts as well. Of course, the various campus budget groups will continue to scrub each line of detail within the categorical line items of the budget — trying, for example, to hold down mandatory costs on utilities through energy efficiency enhancements and carefully re-examining our commitments and priorities. But, fundamentally, the story of this budget rests on those three lines: state support, expense reductions, and tuition.
There is both good news and concern here. The good news is that Governor Ritter’s proposed FY11-12 budget keeps funding for all of Colorado higher education at the current $555M level — the same level that has been supported by the Colorado Commission on Higher Education and the Governor’s Higher Education Strategic Planning Commission. This would mean that the only cut CSU would face next year would be the loss of the final $16.6M in ARRA funds — something we’ve been planning for as described above. However, many members of the General Assembly have expressed concerns about balancing the budget without additional, deeper cuts to higher education. Governor-elect Hickenlooper has not yet weighed in on the issue, and there is a lot of political baseball left to be played until we know what our cut will be. I think we’ll start to get a better sense when the Governor-elect weighs in and when the Legislature’s Joint Budget Committee does higher education figure setting, typically in February.
Because we don’t know what’s going to happen at the state level, we at CSU are planning for now on the assumption that higher education statewide could be cut to $500M. This would mean an additional $11M cut to CSU. In planning for this, we’re taking the exact same approach we’ve adopted the last two years: planning for the worst while hoping for and working toward the best. In that light, and knowing that there will be a lot of press coverage about potential cuts to higher education over the coming months, I want to reiterate the two cautions I make to campus every year at this time: None of this is over until the Legislature passes the Long Bill late in the session—typically late April/early May — and news that sounds too bad to be true usually is. I ask you to keep both these points in mind as you follow any news at the state level over the coming months, and my office will keep you as fully informed as we can as the legislative session moves forward.
Now, in an ideal world, we’d pull this budget together without tuition increases and without cuts to the units (academic colleges and vice presidential divisions). (Actually, in an ideal world we’d have world peace and the Cubs would still be celebrating their World Series sweep, but those are stories for another day… .) But if we were to take that approach in the face of our anticipated state reductions, we’d have a draft budget that would be over $40M in deficit — and that brings us to the next two stories of this budget.
Starting in FY08-09, we began to reduce our expenses, instituting a freeze on salaries and a commitment to make only those hires that were absolutely critical to the institution.
To date (including this year — FY10-11), we have cut about $30M — around 23% — from our expense budgets.
But perhaps the best way to tell the story of our expense reductions is to answer the three questions I’m most commonly asked by critics of the university’s budget: What are you doing to cut expenses before you raise tuition and ask for more state funding? Have you had to lay off any employees? And are you still giving salary increases? In each case, our answer is a solid one. We have tightened our belts like most other businesses in this economy, and I’m proud of how we’ve managed that. The employees of Colorado State University have taken a very strong stand to work together to get through these hard times with the least impact on the quality of the university and the education of our students. With the 23% state budget reduction I just mentioned , less than 12% of our funding now comes from state taxpayers. We’ve eliminated about 5% of our workforce, which was already lean at the start of the recession, and it’s likely that our employees will be facing their 4th year without a salary increase — some of our employees have actually seen salary decreases because of changes to the PERA retirement program.
I’m proud of how we’ve managed our expense reductions so far, and I’d like nothing more than to tell you that we are done cutting budgets. Unfortunately, however, we will need to plan for more reductions next year, and we’ve asked Deans and VPs to develop “what if” plans for 5%, 7.5%, and 10% less E&G support. We’ll review those plans at the January Planning & Budget Hearings. We won’t do across-the-board cuts, and we’ll try to spare academic and off- campus programs that serve the citizens of Colorado, but likely everyone will take some reduction. The figure shown on the slide in the budget presentation I referred you to above is $21.2M – an approximate 10% reduction scenario. We have not settled on that figure; it’s purely there to demonstrate the parameters under which we’re developing this budget.
I’m often asked if there are more layoffs ahead. We don’t know for sure at this time, but if the plans that are accepted by the administration after the P&B Hearings include layoffs, we’d announce those not later than March to provide 3-4 months of time for people affected by the layoffs to explore other options.
Commonly suggested budget solutions
Let me add a couple of thoughts on other budget solutions that are commonly suggested.
- What about furloughs? We can consider furloughs and we’ll do so via the P&B Hearings. Keep in mind, however, that furloughs simply save money for 1 year while the state has reduced our recurring, or base budget funding. Furloughs thus are either a bridge to some future return of revenue or they must be continued until other base budget cuts can be found. Furloughs also disproportionately affect our lowest paid employees, many of whom are already struggling in this economy.
- What about salary reductions? This is an option, but one I have not supported. On average, our faculty members are paid between 2- 9% less than comparable peers. Our administrators are well below that level. I have worried that reducing salaries, unless we were forced to do so, could have the effect of driving our best, brightest, and most mobile faculty members to other institutions, thus losing one of our greatest resources. And we compete for good employees at all levels of the organization: One of the custodians in our building — a reliable, hard worker — just took a more attractive job at another local agency. These sorts of losses at all levels over time do impact our overall performance as a university.
- What about vertical cuts — closing a college, for example? These are things we have considered and will continue to weigh. But keep in mind that we have a responsibility to complete the degrees of students who are already enrolled in a program, and this makes decreasing expenses via closure a slower, longer term process. Further, all of our programs are either generating significant enrollment revenue, significant research revenue, or are the only program of their type in the state, so identifying substantial vertical cuts is not, in my experience, as simple as it appears from a quick glance.
That brings us to the final story of this budget — tuition. Tuition is a complicated subject at a public university — especially at a Land Grant. We have families at CSU for whom our current $6,985 resident tuition and fees is a ridiculous bargain for a great education at one of the world’s leading public universities, and any increases we discuss are well within their budget. But we also have families who are stretched to the limit to afford our current price, and any increase creates a very real crisis for them. For these families, the fact that we are 44% below the average of our peers in terms of tuition and fees simply isn’t relevant. For these families, data showing that Colorado generally has lower in-state tuition and higher per capita incomes than surrounding states don’t matter. For these families, the fact that CSU is in a good spot from a business model or pricing perspective (in that most public universities are facing larger cuts than CSU and are planning on bigger tuition increases to offset the cuts — added to tuition that was already much higher), isn’t really good news in that the good business model that raises revenue for the university creates unpalatable choices for them.
And let’s not forget, as a Land Grant University, we share a core belief in Lincoln’s idea that all of us, as a society, will be better off if everyone with ability and motivation is able to attain their potential through education. We’re better off if the young boy from the eastern plains who can be an engineer has that chance; we’re better off if the young girl from the urban corridor attains her dream of becoming a doctor. We’re better off because they’ll pay nearly $10 in taxes on their college-related salaries for every $1 taxpayers invested in them, but we’re also better off because we need education to compete in today’s global knowledge economy, and we need educated citizens who can make wise and responsible choices for our world and our future.
It’s for these reasons that the state of Colorado has generally mandated that 20 cents off of every tuition dollar be spent on need- based financial aid. We’ve also been working hard to repackage that aid, along with increased federal funding for Pell grants and the private funds raised through The Campaign for Colorado State University, to assure that as our tuition increases, we’re not pricing people’s dreams out of reach and turning our back on both our heritage and our future as a critical element in the success of our state.
I should add an aside here that I often hear from people that they paid their way through college without financial aid. They wonder if we’re not spending too much in this area. It’s a fair question. I paid my way through veterinary school at the University of Illinois.
But, although I didn’t realize it at the time, I “paid my way” only after the taxpayers of Illinois had all chipped in to cover the first 80% of the cost of my education. Although we educate a student at CSU for 4% less (inflation adjusted) today than we did 20 years ago (quite simply, we have controlled the costs of educating a student), tuition now covers 2/3 of that cost (slide3 in the budget presentation shows this graphically). This is not a situation unique to Colorado — it’s a national phenomenon and it’s something we all need to be talking about as a society. Do we want to be the only industrialized country in the world with declining education rates when education is a leading area of investment in countries like China and India? Perhaps that bigger problem is best left for another day, but it’s a question that underscores every conversation we have during the budget process about whether to raise tuition and how much to invest in financial aid.
What are our tuition plans?
So what are our tuition plans? We don’t plan to increase the price to a non-resident undergraduate/graduate student more than 3%. All of our analyses tell us this is a good price point for CSU in a competitive, out-of-state market. We don’t plan on increasing resident graduate tuition by more than 7.5% — much of that is covered by grants and university fellowships, so increasing graduate tuition doesn’t really have much impact on the bottom line of our budget. But we are modeling base tuition increases, for Colorado undergraduate residents of up to $1,051 more a year.
We’re looking at this in the form of eliminating discounts for students taking more than 10 credits — in essence charging the full price of our product (up to 12 credits) as do most of the universities in the country. But let’s be clear on this: even if we call it “closing the credit hour gap,” or “eliminating discounting,” or “coming into line with national norms,” the student or parent writing the check will see the cost go up. The $1,051 increase we’re modeling represents a 20% base tuition increase. This is what we’ve disclosed to CCHE and our Board, ASCSU and our faculty, and it’s what the newspapers have been covering as a “20% tuition increase.”
In the end, we need to bring those three stories of our budget — state support, expense reductions, and tuition — into alignment.
First, we’ll continue to plan around various scenarios while we wait for the state to determine, sometime this winter, next year’s level of higher-education funding. Once we know that number, we’ll then turn our attention to determining the right mix of additional expense reductions and additional tuition increases. The draft budget (slide 4) shows that if the state cuts an additional $11M (total $27.6M) and we raise tuition as described above (raising $18.7 M) and if we cut 10% from our expenses ($21.2M), we’d be at a break-even point. However, if the State reduction is less than the $27.6M included in this plan, we’d have excess resources given this scenario and as a result we’d examine smaller tuition increases and smaller cuts at that point. We know we can’t cut our way to excellence — and quality is what people pay for in a CSU degree.
That’s why we’ll also examine some differential tuitions specific to programs where the funds would go directly back into the academic programs in question to help offset budget cuts. But we also know we can’t just balance the budget on the backs of our students, so we’ll be working hard to find the best, balanced solution. All of these are the sorts of negotiations and trade-offs that will be part of the public budget process, in which I really hope you’ll actively participate.
I would do us all a disservice if I ended this epic message by focusing on the uncertainty of next year’s budget. Even now, there is great reason to be positive. Unlike so many programs across the nation that have responded to state cuts with contractions in services and programs, we’ve taken a different approach at CSU — arguing that as we demonstrate our value and quality, we make our best case for funding. Our approach has generated significant good will across our state and within, I hope, the Capitol. It’s certainly been embraced on this campus where we’re in our 4th year of record enrollment with increasingly high student and parent satisfaction; where we’ve maintained our position as one of the top two most productive research faculties in the country at public universities without a medical school; where we enjoy extraordinary community engagement by our staff and students — in our community and via our off-campus programs; and where we receive numerous accolades every day for the quality of our programs, faculty members, students, and staff. We are at the 70% mark of our half- billion dollar Campaign for Colorado State University, and the new buildings funded by our students and donors continue to transform our campus.
There is so much to be proud of — so much you are all accomplishing during these difficult times — and I look forward to seeing what our university will do when the economy turns around and we can build on our foundation with new investments.
So, time to close this tome/epistle/manifesto as I near that watershed 75,000 word mark…
To our students: Good luck on your final exams. afe travels home and enjoy your time with your family. Be smart and be safe — we want you back here in January so you can send me e-mails when I don’t close the university when it snows.
To our faculty & staff: Thanks for another great semester and for all you do for Colorado State. It’s an honor to represent you.
Happy holidays everyone!
Dr. Tony Frank