February 25, 2009
I am writing today to follow up on my letter of December 1, to provide additional information about the budget situation and our planning. I apologize for the length of this letter—I was warned by colleagues that it is way too long—but there are a number of things I want to share with you.
First, the good news—relatively speaking. Nebraska is still in better shape than most states, but when we’re faced with our own significant challenges, our comparative well-being provides little comfort. To date, we are aware of 28 states that have enacted budget cuts for public colleges and universities during the current fiscal year. While this has not been required in Nebraska, you are aware from the daily news that our state’s situation has also deteriorated. There almost certainly will be reallocations, if not budget cuts, required over the two years of the biennium beginning July 1, 2009, and maybe beyond. As is always the case, these will be very difficult. Nonetheless, I continue to believe that we are in a strong position, with positive momentum on many fronts and with experienced leadership in key positions across the University.
Although there is still much uncertainty about our budget beginning next July 1, we do have additional information since my last letter that informs our planning. First, regarding overall economic conditions, Nebraska has over the last couple of months seen more of the downturn experienced earlier in other parts of the country. State revenues have declined compared to projections, and this will have an effect on state government spending. Later this week the Nebraska Economic Forecast Advisory Board will issue new state revenue projections, and the consensus view is that the revenue estimates for the next two years will be lowered.
A key point in the development of the state budget was in mid-January, when Governor Heineman released his budget recommendations for the next biennium, which included an increase of 1 percent ($5 million) in the University’s operating budget in each year. To keep this increase in perspective, consider that a 1 percent increase in salary for the University requires about $5.5 million. When compared to the salary (2.5 percent proposed increase), utilities, health insurance and other items in the Board of Regents’ budget request, the Governor’s proposed general fund increase of $5 million for operations would leave the University about $29 million short in the next year alone.
Last week, the Appropriations Committee issued its preliminary budget recommendations, which included a 1.5 percent increase in our budget in each year of the biennium. The committee’s recommendation may change during the remainder of the session as it continues to receive new economic information and review state needs. The University’s budget hearing before the Appropriations Committee is next week, at which time we will formally present our case. We have been meeting with legislators frequently to discuss the University’s budget and, more fundamentally, the University’s impact on Nebraska and its importance to a vibrant Nebraska economy.
A bit of a wild card in the budget picture is the recently passed federal stimulus bill. While there is little in the funding provided to the states that will directly benefit the University, the new funds should, at a minimum, have some impact on overall availability of funds for state budget priorities. Nebraska should receive approximately $290 million from the State Fiscal Stabilization Fund, most of which will go to K-12 education, with some funding available for a variety of state purposes, including facilities renovation on our campuses. Staff in the State Capitol are trying to determine exactly how the funding may be used and what impact it will have on the biennial budget.
The stimulus bill also includes infrastructure funds which could be used for construction, renovation and deferred maintenance of research facilities, as well as significant new federal research funding, which will be available nationally on a competitive basis. A highlight of the legislation, in my view, is the significantly increased funding for Pell Grants, which will help make a college education more affordable for more Nebraskans.
Also last week, we received a ruling in our collective bargaining negotiations with faculty at UNO and UNK. Personnel costs represent almost 80 percent of our state-aided budget, and these negotiations have obvious implications for those two campuses. Nebraska’s bargaining law mandates comparability of salaries to established peer groups. Through arbitration with UNK faculty, the University’s recommendation for faculty salary increases of 2.9 percent in 2009-10 and 2.5 percent in 2010-11—the same as the agreement the Governor reached with state employees—was adopted. In the UNO arbitration, our position was rejected, and an average salary increase of 3.8 percent was awarded for each year of the biennium as well as a new, potentially expensive life insurance benefit. We have until March 15 to appeal this decision, and we are considering what steps, if any, we will take.
As we have done in most years, we may establish a salary pool to provide a common percentage increase for each campus. It is too early in the process to make this determination now. We do know that additional increases beyond the level of the pool, if any, will be the responsibility of each campus.
Budget principles and planning
The Chancellors and I have been meeting regularly to discuss University-wide and campus approaches to expected budget reallocations and reductions. As I announced in my December 1 letter, the first step in this process has been to conserve funds during the current fiscal year so they can be used to offset shortfalls until permanent reductions are in place for the next fiscal year. For both temporary and permanent reductions, we are guided by principles we believe necessary to maintain the quality of the University.
We have not instituted arbitrary measures such as hiring freezes, as have some of our peers in states with more severe economic conditions. Instead, I have asked that each hire receive an additional level of review to ensure that it is necessary to achieve our priorities. It is my view that we must continue to make strategic decisions, including in some cases making new investments and new hires, to advance our priorities and keep this University moving forward. While personnel expenditures are by far the largest part of each campus’s budget, each campus has also been asked to review non-personnel operating expenses, looking for opportunities for savings in travel, utilities and other areas.
The process for permanent budget reductions is necessarily deliberative, requires the involvement of many throughout the institution, and differs somewhat on each of our campuses. There are, however, common schedules, requirements, and principles that guide our planning and ultimate decisions.
I will submit a 2009-10 budget to the Board of Regents for approval at its June 12 meeting, and I will make allocations to the campuses shortly after that meeting. Following that, each Chancellor will make campus allocations, consistent with the Board of Regents’ budget and my allocation guidelines. Each Chancellor has been asked to follow a process now that will enable him to make, with appropriate involvement from the faculty and campus community, timely decisions on the 2009-10 budget.
Our decisions should adhere to priorities adopted by the Legislature, the Board of Regents in the University’s Strategic Framework, as well as campus role and mission and strategic plans. It is instructive to consider statutory language regarding our mission: “It is recognized that as the state’s land grant institution the University of Nebraska is engaged in instruction, research, and public service, and that these three parts of the university’s mission are interdependent. However, when viewed in its entirety, the university’s first priority shall be undergraduate instruction, the university’s second priority shall be graduate and professional instruction and research, and the university’s third priority shall be public service.”
The six major goals of the University’s Strategic Framework provide important guidance especially at a time when we are most challenged to sustain and advance our most important priorities.
- Our first priority is to ensure affordable access for Nebraskans to a quality university education, and budget decisions about tuition, fees, and financial aid will reflect this goal. As a general matter, we will not balance the University’s budget with high tuition increases—and particularly not for resident undergraduates. In addition, significant increases in course, lab, and general fees will be approved only to the extent necessary and only after careful review and justification. Finally, we will not only maintain our current level of commitment to financial aid, I fully expect we will have additional aid available from a number of sources.
- A second, integrally related goal is support for the delivery of high quality academic programs. This means first that academic programs generally have priority. It is highly unlikely, however, that all academic programs, which together make up approximately 75 percent of the state-aided budget, can be held harmless. To the extent possible, budget reductions will be targeted (i.e., vertical); cuts which affect all programs equally (horizontal) tend to weaken the entire University. Campuses should look to University and campus priorities and consult program reviews and other information such as numbers of enrollments and majors to help guide decisions. Ultimately, however, decisions must involve judgments about priorities for the University. Investments by the Board and President in University-wide initiatives such as Programs of Excellence, which are examples of such priorities, will not be reduced.
- The University will support its goal of developing a well-educated workforce for the knowledge-based 21st century economy. The first, fundamental element of this goal is to continue efforts to increase the college-going rate in Nebraska and specifically, increase enrollment across the University. Not only does this help achieve important state goals, but under the University’s budget allocation model, it increases campus revenue. Campuses should look for opportunities to increase revenue and increasing enrollment, including nonresident enrollment, is one important such opportunity.
- We will continue to support research that builds on our strengths, has the greatest potential to attract the best faculty and students to the University, and supports the development of an innovation economy in Nebraska.
- Public—and especially land-grant—universities have an important mission of engaging with citizens and communities across the state. We take this mission very seriously, but as with all areas of operation, we must continue to evaluate how successful and cost-effective we are in our methods of delivery. For instance, technology and distance learning programs may in some cases provide the most efficient ways of serving the state.
- Finally, and especially important at times such as this, we must operate the University in a way that is efficient as well as effective, transparent and accountable. Nebraskans make a great investment in this University, and we must spend those funds wisely. In addition, savings in areas that are not central to our mission will allow us to invest more in areas that are. We are a system of four unique campuses; our differences should provide opportunities for us to have complementary programs and activities and avoid unnecessary redundancy, while our similarities should provide opportunities for common business and support operations. We have made some progress in this regard in recent years, but we are still far from a leadership position. The goal is not consolidation for its own sake, but cost savings in order to meet the preceding goals. To be able to invest more in classroom instruction, in research, and in faculty and student support, we must take more seriously efforts to consolidate and streamline and eliminate some business and support functions. I understand that it might be desirable—all things being equal—to have responsibility for every function reside on each campus (and I understand also that each activity has a constituency), but that is a luxury I do not think we can afford.
Schedule and future updates
These are some key milestones that will impact future communications and decisions:
Feb. 27: Forecasting board meets to update revenue forecast
March 3: University budget hearing
March 15: Deadline for appeal of special master’s ruling in collective bargaining
Late April: Final revenue forecast before budget is adopted
By April 29: Budget bill required to be reported to the floor of the Legislature
By May 18: Anticipated final action on state budget
June 12: Board of Regents meeting at which University budget is adopted and tuition rates set for 2009-10
June 19: Campus allocations made by President
I recognize that everyone affected wants to know as much as possible, but at this point there are still many uncertainties. I will try to keep the University community informed, primarily through my frequent discussions with the Chancellors who are leading budget efforts on their campuses and occasionally through communications such as this.
I remain optimistic about the future of the University of Nebraska. This is an outstanding institution, and it is that way because of so many people who have devoted their considerable talents to it. I recognize that you are as committed to this University as I am, and I thank you for all you do.
James B. Milliken