OHIO UNIVERSITY 
President's Message to the University Community
February 23, 2007

Dear Ohio University Faculty and Staff:

The purpose of my message is to brief you on the current budget situation and the outlook for next year for the Athens Campus. I am very committed to ensuring full transparency and to fostering an honest dialogue about our finances. I encourage you to get the facts about our financial picture by speaking with your representative on the Budget Planning Council (BPC). The complete membership roster and the work of the council can be viewed at http://www.finance.ohiou.edu/budget/.

Information about our current fiscal situation is being presented to each of the five senates and has been shared with the news media and the Ohio University Board of Trustees. Listed below are the answers to the most frequently asked questions regarding our budget picture.

What created the budget shortfall for the current fiscal year?

When we developed our budget plan, we forecasted a growth in enrollment. Unfortunately, that growth did not occur. We did make our goal of 4,100 entering freshmen; however, an analysis of fall quarter data showed that we retained fewer freshmen. That increase in attrition is only a fourth of our enrollment issue. We fell short of our goal for transfer-student enrollment. We also retained fewer continuing students. Part of that is due to more students graduating than we expected and other students stopping out, or leaving temporarily. We expect those individuals to return to the University because our data show that we continue to have very strong graduation rates. Further evidence of that trend is that our winter enrollment has rebounded to a certain extent.

All told, we have about 400 fewer students than we had projected when we built the budget. This enrollment shortfall is the primary cause of the anticipated $4.3 million budget shortfall. The situation of fewer students means less tuition income and less general fee income. In addition, students taking Education Abroad, OPIE, and online courses resulted in a higher than anticipated amount of tuition and fees being deposited directly into departmental accounts, rather than the General Programs budget.

How are we addressing this shortfall?

This shortfall has been covered by three sources. In July, the University received $2.3 million from the Board of Regents in "extra" subsidy funding. We applied $1.9 million of this windfall toward closing the gap. In addition, income that the University earns from its investments will provide another $1.8 million. Thanks to recent improvements in the stock market, our investment income is running better than budgeted. Finally, the remaining $600,000 will be taken from central reserve funds.

We have not spent the $6.3 million strategic investment fund we created last year through the realignment process.

How are we confronting these challenges for the next fiscal year?

The State of Ohio's budget outlook is unclear. Gov. Ted Strickland will introduce the state's budget in mid-March. The state's budget director has already said she expects to see very little in the way of revenue growth over the next two years.

Last year, a 15-member Ohio University Budget Planning Council was formed to make recommendations on budget matters. Recently, I charged the BPC with bringing me a recommendation to balance the FY08 budget for the Athens Campus. The heads of all five Senates serve on this group. Provost Kathy Krendl and Vice President for Finance and Administration Bill Decatur serve as co-chairs of the council.

What is the basis for the budget scenarios created by the BPC?

The Budget Planning Council is working with staff in the Provost's Office and the Office of Finance and Administration. As a starting point, the group is looking at a budget model that makes certain assumptions about revenues and expenditures next year.

It is important to remember that we are still relatively early in the budget process. As this process proceeds and additional information becomes available, these assumptions will undoubtedly change.

The revenue assumptions include no significant growth in enrollment and no significant growth in state support next year. Because the Board of Trustees has not yet determined next year's tuition, the planning scenarios are based on tuition increases of zero percent, 3 percent and 6 percent increases.

The expenditure assumptions include 3 percent growth in wages and salaries; 10 percent increases in health care; and an 11 percent jump in utility costs. The scenarios also assume that our other costs will remain about where they are now.

What is the budget process?

The BPC is working with three scenarios. In each, the assumptions are held constant and the only variable is the size of the tuition increase. At zero percent, the model forecasts a deficit of $11 million; at 3 percent, a deficit of $9 million; and at 6 percent, a deficit of $6 million.

The BPC is authorized to examine the planning assumptions. All aspects of our budget are on the table for discussion and revision. One strategy for avoiding a deficit could be to use some or all of the $6.3 million in the strategic investment fund. Provost Krendl and I strongly support the idea of using part of this fund to invest in our faculty and strategically improve faculty compensation to enhance the quality of our academic programs. However, we are open to the recommendation of the BPC on this, other strategic priorities, and all other budgetary matters. I will review the BPC's recommendation and bring a balanced budget proposal to the Board of Trustees at its meeting on June 28-29.

What is the current status of the Porter Hall expansion?

Last week, after reviewing the budget information I have shared with you, the Board of Trustees decided to defer a decision on the plan to expand Porter Hall, tear down Anderson Hall, and construct a roadway connecting Richland Avenue to Oxbow Trail. The Board expressed concerns about the uncertainty of the budget situation and about the use of operating funds for capital improvements. Board members stressed that they are not opposed to this project and that they will reconsider it at a later date. I plan to bring this project back to the Board for reconsideration after the budget situation has been clarified.

What are the administration's next steps in ensuring transparency of the University's budget?

The senior leadership team will continue to update you on the situation and will continue to work closely with the BPC. It is important that our stakeholders realize they have a voice. I strongly encourage you to speak with your BPC representative so that your voice and creative ideas are heard. It is very important that we all have the benefit of your input in these very important discussions.

Realistically, what level of continued support are we expecting from the State of Ohio?

The relatively flat funding provided to higher education, coupled with growing enrollments has led to a significant reduction in the funding per student. In addition, the legislature has placed imposed caps on tuition and fee increases. The administration and the Board of Trustees do not foresee any significant changes to this situation. Therefore, it is important that all members of the University work together to adapt to this new reality. We must find ways to accelerate the growth of our revenues and to slow the growth of our expenditures. I invite every member of the Ohio University community to support the BPC as it engages in this important planning activity.

Cordially,

Roderick J. McDavis
President