Budget Outlook Sees Tight Finances Ahead

Toward the end of June, the UC Board of Trustees will be asked to approve a budget for Fiscal Year 2002 (running from July 1 of this year to June 30, 2002). That budget should balance – expenses and income should be approximately equal.

As February winds into March, UC’s Fiscal 2002 budget outlook is moving toward balance, but it is not there yet. The road to a balanced budget will require a tight rein on new programs, a massive effort to enroll and retain students, as well as budget cuts larger than the university has seen in recent years.

Among the variables still in motion are the state budget, tuition income, the cost of salaries and benefits, and the need for new programs. Added to this mix for the short term is UC’s enrollment situation.

State Budget

The Ohio budget process got moving in December when the Ohio Board of Regents proposed a budget to Gov. Bob Taft. That budget called for significant increases in state spending on higher education. The governor moved the budget into the next stage by proposing a state-wide “executive” budget in January.

“The governor’s budget proposal is a good one for research universities,” said UC’s Vice President for Governmental Relations and Communications Greg Vehr. “Among other things, the governor recognizes the role of research universities like UC in the state’s economic development, but general state support continues to be low.”

The Ohio General Assembly is reviewing the governor’s proposal – which includes a much smaller increase for higher education than that proposed by the Regents – in preparation for a three-step approval process. First, the Ohio House develops its own version of the budget, then the Ohio Senate, and finally a conference committee of the two houses irons out an agreement.

It is unlikely that the General Assembly will be motivated toward generosity. The state is facing a June 15 deadline to come up with a court-mandated solution for funding elementary and secondary education.

“At this stage,” said Vice President for Finance Dale McGirr, “ we are budgeting as if state support will be flat or just slightly increased over last year.”

McGirr expects that the state will not begin to cover inflation, currently running nearly 4 percent. Current budget projections show the state increasing UC’s subsidy by a tenth of a percent or two.

Tuition

Tuition increases spread the cost of inflation to the students. For some years, the state legislature has limited tuition increases to 6 percent a year. In practice, UC has never increased tuition by the maximum allowed. That will probably change in next year’s budget because, without a larger increase in state funding, inflation will nibble away at the budget.

Ohio has a long history of minimal support for higher education. Ohio ranks 41^st in the nation in per-student support for higher education. Consequently, Ohio students pay a larger share of the cost of instruction than most other states.

The governor has proposed lifting the tuition cap for Ohio State University, allowing OSU to raise tuition by 9 percent each year. Other state universities – not including UC – have suggested lifting the cap for all schools.

Salaries and benefits

In recent years, managed care has been good to the university budget. The university’s benefits package – very competitive nationally and regionally – has been assembled with significant cost savings. That situation is changing as health care costs rise across the United States.

“Our medical plan has great value,” said Paul Michaud, director of human resources, “but with healthcare costs one of the fastest rising components of the cost of being an employer, we have far greater exposure than most employers.”

Salaries are under pressure, too, particularly among the technical fields now in demand throughout the university. Although the university has held salary increases to around 3 percent in recent years, increasing requests for reclassifications and additional workload adjustments have been pushing individual salaries upward.

New programs

Once state subsidy is calculated, enrollment and tuition calibrated, and salaries and benefits managed, the university may have a balanced budget, but only for its current activities. Balancing the major budget components only solves inflation. It costs more each year to do what the university has been doing.

To do anything new, the university has to find another source of funding. This is usually accomplished by reallocating funds from current programs to new programs. In other words, a budget cut.

At this stage of the budget process, President Joseph A. Steger and the university’s vice presidents are reviewing a list of new programs that would add more than $6 million to the university’s budget.

Among the new programs under discussion are increases in stipends for graduate students, new faculty in several areas (including nursing, biomedical engineering, University College, and Education), improvements in online and information technology services, and global initiatives.

Neither state subsidy nor student tuition growth will fund these programs. The funding comes from existing programs by cutting existing budgets and reallocating the funds. It is expected that a cut of around 3 percent to general funds budgets will be necessary next fiscal year.

Enrollment

In addition to the budget factors listed so far, enrollment at UC’s central campus has been dropping for several years. This decline hits the budget twice – by decreasing the income from tuition, and by decreasing the amount of state subsidy earned, which is largely based on enrollment. (The enrollment outlook is better at the branches, which are budgeted separately.)

In part, the enrollment drop is due to smaller freshman classes from past years working their way through the system. This year’s junior class, for example, is 12 percent smaller than last year’s. In part, the decline can be attributed to retention, with more students dropping out or stopping out (taking a quarter to a year off before returning). Enrollment for winter quarter 2001 is more than 1,400 lower than winter quarter a year ago.

A large freshman class in the fall of 2000 has helped the situation, and a university-wide effort to push central-campus enrollment back toward 1997 levels will help more, but the budgetary impacts of the recent enrollment drop will be felt for years to come.

“The enrollment situation is temporary, and not contributing to the ongoing permanent budget situation,” McGirr said.

Temporary budget cuts enacted to resolve the enrollment situation will be rescinded once enrollment regains historical levels. This fiscal year, for example, the university called back a large portion of unspent year-end funds, and may do so again in the future.

Other efforts

There are other activities that will help balance the budget, most of them invisible. They include refinancing university bonds when the market is agreeable, redistributing the interest earned on the university’s short-term investments (the university equivalent of a checking account) and more efficient energy conservation. Some activities are short-term solutions within a budget year, while others have longer-term effects.

“Ultimately, the only way we can really solve the budget situation is to do more with less,” said President Steger.