Dear IUP Community:
As we come to the end of another great academic year, I want to provide the university community with an update on where we stand with the budget planning process. As you know, we have balanced the fiscal year 2014–2015 budget with a combination of modest cuts to expenses, a modest increase to the Student Service Fee, and a payoff of the Kovalchick Complex debt. Over the last several months, I have worked closely with the University Budget Advisory Committee and senior leadership to develop a plan to balance the budget for fiscal years 2015–2016 and 2016–2017.
Because of continued reduced or flat support from the commonwealth, declines in high school student numbers in western Pennsylvania, and increased costs, IUP faces real budget challenges. But, thanks to the hard work this community has done since 2010 to reduce expenses and attract more qualified students, we are not faced with a crisis.
Generating increased net revenue, not further budget cutting, is the key to meeting IUP's mission and achieving the aspirations of our shared vision for IUP's future. It is also clear that the best way to increase revenue is to provide innovative, high-quality programs that are responsive to the needs of society and students by refreshing existing programs and developing new ones. While some additional cuts may be needed in the near future, large-scale program reductions and other drastic cost-cutting measures will harm morale and ultimately lead to a downward spiral in revenue.
On May 9, at the last University Budget Advisory Committee meeting of the year, I presented a draft conceptual plan to get IUP back on a sustainable financial path for continued success and to get beyond our recent experience that has often felt like death by a thousand cuts. The draft conceptual plan needs further development and refinement. Over the summer we will further hone the approach and be ready to start the new academic year by bringing the draft plan back to the Budget Advisory Committee and the university community for more discussion, with a hope of implementing a final version in time to affect fiscal year 2015–2016 and beyond.
The proposed three-pronged approach makes real changes in our budgeting model: adjusting expense allocations to more closely match actual expenditures; setting college-level expectations for tuition and fee revenue while providing seed funding for new program development and additional funding for those colleges that meet or exceed expectations; and using modest increases in the Student Service Fee to fill any remaining budget shortfalls.
Adjusting Expense Allocations to Reflect Actual Expenditures
Our personnel budget is roughly $150 million. At most universities, including ours, personnel expenses are budgeted assuming that all positions are always filled, when we know that is never the case. This means that we can reduce the amount of money allocated for personnel expenses without reducing the number of employees. By budgeting closer to actual expenditures, we can take advantage of the difference as we transition to a sustainable financial model.
Divisional operating budgets can be handled in much the same way—and can be reduced without divisions reducing what they actually spend. Thanks to frugality on the part of budget managers at all levels, our aggregate divisional operating carryover has increased from $2.3 million to $7.9 million in the last five years. Again, we can adjust budgets closer to actual expenses and successfully transition to the future.
Setting College-Level Expectations of Increased Net Tuition and Fee Revenue
We project that the university will take in about $130 million in tuition and fee revenue each year for the next few years. Increasing this a few percent without greatly increasing expenses will result in a significant increase in net revenue. Three key steps will help us leverage the strength of our academic units to grow revenue. First, we will collaboratively set specific college-level expectations for increased net tuition and fee revenue. Second, we will provide seed funding to help departments develop new programs or enhance existing programs for growth and quality. Third, we will return a large portion of the new revenue to units that meet or exceed expectations, helping them cover costs incurred because of growth. Since non-academic units will also see increased costs, they, too, will receive a portion of the new net revenue.
Increasing the Student Service Fee
We must take care not to overburden our students with excessive costs, but it is necessary that students carry a portion of the cost of their education in the face of flat and declining support from the commonwealth. We will use modest increases in the Student Service Fee to balance the budget as needed.
The Long-Term Outlook
The three concepts outlined here would enable IUP to balance its budget over the next several years and set the stage for long-term financial stability and success. It will be appropriate to periodically examine budgets and the budgeting model, perhaps in five years, to adjust any structural budget issues and to adapt to changing conditions. While we are in good stead now, we must continue to act to remain that way.
We have a great deal of work to do over the summer, but I look forward to further discussion in the Fall semester.
Michael A. Driscoll
President, IUP