A Financial Update to the University Community from President Ann
Weaver Hart
April 6, 2004
We are currently working intensely to build a balanced budget for the coming fiscal year. This process has never been easy for UNH, but this year is the most challenging since the large budget cuts in the early and mid-1990’s, and it will set the stage for several years to come. For this reason, I am writing to thank all of you who have been involved in the process so far, to offer my view of the major financial challenges that UNH faces, and to describe the strategies we are employing to address these challenges for the short and long term.
Some units of the University are facing more extreme budgetary challenges than others, but none are immune. Overall, general fund revenue is projected to grow by four percent, optimistically assuming that we receive the three percent increase in state appropriations budgeted in the current biennium. Expenses, which are primarily driven by personnel costs, are projected to grow by five and one half percent. The dollar value of the difference between these two growth rates is $4.1 million. To resolve a deficit of this size, difficult decisions must be made.
Our Challenges
Our challenges stem from four basic realities. First, the cumulative effect of the weak national, regional, and local economies over the last several years has materially affected us. Second, the persistent double-digit growth in the cost of health care for faculty and staff has consumed an increasing proportion of the budget. Third, our commitment to ensure that faculty and staff salaries become and remain competitive in their respective markets is unwavering but not without cost. Finally, the historic underfunding of capital appropriations from the state has required ever-increasing contributions from the operating budget for repair and renovation of our aging buildings.
Economic forces have 1) slashed earnings on both short-term and long-term investments; 2) caused the cost of attendance to grow more rapidly than the rate at which families’ contributions have risen, substantially increasing the University’s commitment to financial aid; 3) suppressed the state budget and thus reduced the support we receive from the State of New Hampshire; 4) inflated the cost of energy; 5) challenged the ability of our alumni and friends to sustain the needed levels of private giving; and 6) exacerbated our competitive disadvantage in attracting out-of-state students due to our very high non-resident tuition rate.
The fringe benefits crisis has been growing for several years. We have taken numerous steps to contain expenses and have asked faculty and staff to pay a greater share of the cost. Still, the fringe benefit rate that is assessed against salaries to pay for benefits has grown from 34 percent in 2001 to 40 percent in 2004, an incremental cost increase of $9.2 million to the University. Current projections suggest that further rate increases, cost containment, and cost shifting to employees will be necessary.
When I assumed office,
I placed the highest priority on attaining and maintaining competitive
faculty salaries. I am extremely pleased that the AAUP and the University
reached a timely and fair agreement that is bound to make progress toward
that goal over the life of the contract. When we agreed to the contract
terms, we knew that we would be required to make difficult financial choices
in order to fulfill them.
To ensure that we are able to recruit and retain the best staff as well
as faculty, we must be attentive to staff salaries relative to the markets
in which we compete for talent. Because inflation is quite low, we have
an opportunity to bring average staff salaries closer to market in the
coming year. The Board of Trustees will make a final decision about the
salary increase pool for non-unionized employees later this spring or
in early summer, when the level of state funding for 2004-05 is known.
While we celebrate recent capital investments in Murkland, Mills, Holloway, and Congreve, as well as the enormously important project underway in Kingsbury, our urgent needs for additional capital and operating funds to renovate, expand, and maintain our buildings are huge. The portion of the general fund operating budget that must be dedicated to building renovation and repair has grown by an average annual rate of 9.2 percent over the last five years, and that pace is expected to continue.
Budget Balancing Strategies
Administration
To address projected budget deficits, we have tried as much as possible to reduce administrative costs but cannot entirely avoid academic and student service reductions.
I have decided for next year to flat-fund units that comprise General Administration and to permit no increase in the voice and data rates that Telecommunications charges to departments. These decisions will provide some budgetary relief for non-administrative units but will also lead to service reductions that you may well experience. I want to be certain that the service departments are not criticized for implementing decisions I made on the recommendation of the Central Budget Committee.
One of the administrative areas that must reduce or eliminate services to save money is Computing and Information Services (CIS). A full description of the changes will be posted on the CIS Web site, along with projected effective dates for the changes as well as advice about available alternatives. The changes that will be most visible to the community include the retirement of telephone calling cards, reduced directory assistance services, reduced frequency of on-campus mail delivery for any buildings that now have more than one delivery per day, elimination of the desktop loaner pool, closure of the Instructional Development Center Lab, and closure of the Hamilton Smith Teach/Learn Center. In addition, there will be a new fee for CIS services to manually install virus protection or to clean infected computers. An automated virus protection system will be available free of charge.
Other cost-cutting measures begun over the past several years will continue. Examples include the recent decision to build a Cogeneration Energy Plant, ongoing consolidation of business operations, and Web-based student billing. We will consistently try to develop and employ a broad range of options that could facilitate permanent shifts in our cost structure.
Academic Affairs/Academic and Student Services
In the area of academic and student affairs administration, support budgets will be reduced by $414,000 in order to live within a self-imposed academic affairs assessment growth cap of four percent. The resulting savings to schools and colleges will create an “equalization formula” to distribute more fairly the cost of faculty release time for academic program directors within Academic Affairs (e.g., Honors, CIE, WAC) and will provide a loan fund for new programs or initiatives that will generate future revenues.
In the schools and colleges, executive committees have been exploring opportunities for revenue generation, as well as reviewing such things as the elimination of some adjunct faculty positions, temporary or permanent suspension of faculty searches, program consolidation, restructured course schedules, and the elimination of services. Such decisions have painful human and curricular impacts.
I know the deans and department chairs are working very hard to accomplish cuts in the least damaging ways possible, but the decisions that face us require that we weigh relative benefits and forego some opportunities to preserve the progress we have made and focus on the future. In the process, we will be unable to avoid some undesirable outcomes.
Athletics
In our efforts to bring revenue and expenses into balance, every aspect of University life must be examined. The Director of Athletics is leading a comprehensive discussion of the role of Division I athletics in the overall life of the University and of the programs and services of the Department, in order to ensure that we are able to offer an affordable number and mix of intercollegiate athletic opportunities for our students.
Conclusion
Even as we take action to prepare a balanced budget, the revenue situation for next year remains uncertain. We will not know what our net revenue will be until we are further along in the admissions cycle and legislative deliberations. The budget deficit I have described will become worse if the legislature reduces or eliminates the three percent appropriation increase currently in place in the biennial budget for fiscal 2005, and we may not know the actual appropriation until well into the summer. As we work to develop a balanced budget, we must also remain flexible in order to respond to new information as it becomes available.
I want to express my deepest thanks to everyone who is working so hard to lead the difficult process through which choices must be made about the allocation of increasingly limited resources. I also ask that everyone at UNH recognize that particularly painful trade-offs will have to be made this year and in the next few years to preserve the core advances reflected in the Academic Plan for which everyone has worked so hard. In order to ensure long-term financial stability as we implement the plan, we will have to accomplish major structural changes over time. While this communication has focused primarily on next year, members of the Cabinet and the Deans Council have begun to discuss a number of structural changes. We are considering all aspects of our financial picture, including long-term capital commitments, financial aid policies and purposes, opportunities for attrition through reallocation and retirements, and the generation of new revenues through innovative credit and non-credit offerings. UNH has repeatedly found ways to survive and prosper in difficult financial times, and that gives me great confidence that we can do so again.
