Apr 8, 2011
Pam Benoit and Stephen Golding
On Friday, Ohio University Executive Vice President and Provost Pam Benoit and Vice President for Finance and Administration Stephen Golding sent an e-mail to the entire OHIO community regarding planning unit reduction targets.
Dear Ohio University Students, Faculty and Staff:
In light of information received from the Ohio Board of Regents (OBOR) on Friday, we have recalculated the budget gap created by reductions in the State Share of Instruction (SSI). From that recalculation we derived the Athens campus planning unit budget targets that we are announcing today.
To provide context for the targets, this message will explain information on the changes in SSI, our recalculation of the budget gap, and the derivation of the planning unit targets. This message, lengthy as it is, cannot fully address all of the factors involved in the current stage of our budget planning. For additional information and explanation, we encourage you to attend the budget forums. The first will be held on Monday, April 11 from 4-5:30 p.m. in the Walter Hall Rotunda (it will be webcast at streaming.cns.ohiou.edu/provost/ and questions can be sent to firstname.lastname@example.org). The second forum will be held on Tuesday, April 12 from noon-1:30 p.m. in the Walter Hall Rotunda.
STATE SHARE OF INSTRUCTION
As the budget process for FY 2012 began in May 2010 we knew little about the level at which SSI would be funded in the upcoming biennium budget. All we knew with certainty was that the state had an $8 billion budget shortfall, that $5.3 million of our FY 2010 subsidy was going to be deferred until FY 2011, and that a gubernatorial race was underway. Since a difficult budget year appeared to be in the offing, we built the final budget for FY 2011 as conservatively as possible. We constrained our enrollment estimates and did not count on the deferred FY 2010 SSI payment remaining in the budget.
A similarly cautious approach drove the development of the estimates for SSI and enrollment that we used over the past 8 months to construct our FY 2012 budget gap calculations partially because of the announcement in October of the possibility that we would not receive our last subsidy payment this year. This lapsed payment was supposed to occur in FY 2012, but we built our projections to take into account that it could turn into an actual cut.
With the announcement of the Governor's proposed budget on March 15, OBOR moved ahead with developing SSI projections. We learned on Friday that the level of projected SSI support for Ohio University is greater than we anticipated for two primary reasons. The Regent's projection indicates that the lapsed payment from FY 2011 will not occur and that we can more safely budget the full projection of our subsidy that includes additional revenues. Those revenues are largely due to increased enrollments in the R.N. to B.S.N. program.
In addition, the OBOR calculation of how the $18 million in stimulus funding will be removed from our SSI calculation indicates that $5.3 million of that will be counted against the FY10 deferred payment that is part of our budget this year. This makes the reduction to the budget $13 million across the Athens subsidy allocation. After this reduction, the Governor's budget also rolled numerous line items into the main subsidy allocation resulting in a 2.7 percent increase in that category. Once this reallocation is taken into consideration and the Athens subsidy is divided between the Athens budget and the College of Medicine, the final impact to the Athens budget is a loss of $5,329,593.
It is important to note that even in our estimate of the recalculated deficit, we have maintained a conservative approach. OBOR SSI calculations are still subject to change as they are dependent upon continuing stability in the state's economy. Nevertheless, it is clear that the impact of the SSI reduction on planning units can be mitigated.
We understand that the budget process to date has generated anxiety across all of our campuses, particularly given our original estimates of a much larger reduction, but in approaching a complex fiscal problem erring on the side of caution promotes responsible stewardship. Our attention must now turn to solving our overall projected budget gap that is smaller that anticipated but still represents a significant loss of funding.
RECALCULATING THE BUDGET GAP
The new SSI estimate changes our overall projected budget gap. What follows is an account of our recalculation simplified for the sake of brevity. We plan on going into greater detail on this topic at the budget forums.
The components of our budget gap are:
SSI shortfall: $5,329,593.
Additional expenditures on fixed inflationary costs for utilities: $600,000
Additional expenditures on fixed inflationary costs for health care and benefits: $2,140,000
Building the previous AY 2010-2011 faculty raise into the budget base: $872,000 ($750,00 in salary + $122,000 in benefits)
Additional employee compensation: $2,657,502
These calculations include a proposal that the university cover the expected increases in health care and an employee parking fee through a compensation pool that would result in covering benefit increases plus an actual raise pool of 1.66 percent.
All of these estimated costs create a budget deficit of $11,599,095.
Placed against the deficit is $1,959,115 in estimated enrollment growth income for Athens programs and Athens programs offered on the regional campuses.
Revenue subtracted from expenses leaves a budget gap of $9,639,979. It is this gap that must be covered by base budget reductions in planning units.
EXPLANATION OF PROPOSED BUDGET REDUCTION TARGETS
A copy of the proposed planning unit budget reduction targets can be found in a spreadsheet available at:
www.ohio.edu/provost/upload/budget_targetsFY2012.pdf. The targets are based on a variety of sources. One important source was individual meetings with planning unit heads where information was shared about a number of factors including buyout potential, potential shift of activities to other funding sources, increased instructional efficiency, and administrative restructuring. We explain these factors below as well as defining the key terms of total reduction and base budgets. This section concludes with some observations on the differential nature of the cuts.
Buyout potential is an estimate of the potential savings from the ERIP and VESP programs based on the number of employees eligible for those options in each planning unit. This estimate assumes that 18 percent of faculty and 25 percent of eligible staff will take these options and that there will be replacement at a rate of 60 percent at 75 percent of the original salary. It is understood that these are estimates and that the actual savings within each unit will vary based on the number and type of employees who participate.
Potential shift of activities to other funding sources is an estimate of unit costs that can be shifted to tuition revenue earned from off-campus programs [referred to as Resource Distribution Program (RDP) income] and from additional endowment income generated by strengthening markets. Use of such income to support important planning unit activities reduces reliance on the general fund budget. The figures given are not exact. Some units may have the ability to shift costs over and above the amount indicated.
Increased instructional efficiency reflects the fact that the state is providing less funding per student thereby requiring us to deliver our curriculum more efficiently. Currently the distribution of resources across colleges and the efficiency of instruction (as indicated by factors such as enrollment trends, credit hour production per Group 1 faculty member, etc.) are not uniform. Some colleges have experienced more enrollment growth than others and have become more efficient in using their existing resources to deliver credit hours. Information gathered through academic planning unit meetings, and work done on the balance between revenues and direct college expenses in preparation for building the RCM-OHIO budget model contributed to setting the allocations in this column.
There are multiple ways for academic units to increase efficiency including factors such as workload, section sizes, numbers of electives available, composition of faculty, etc. Each unit will develop the approach to efficiency that is best for the delivery of its curriculum.
Administrative restructuring is designed to promote efficiency in academic support units, in free-standing academic units that are not colleges, and in colleges. The goal is to encourage all of these units to become more efficient in the delivery of their functions.
Total reduction is a combination of the factors assigned to each unit. Units are not required to meet their reductions in strict accord with their listed factors. Savings can and should be achieved through procurement, new revenue generation, reductions in travel costs, fleet reduction and other strategies originally incorporated into the budget scenario. Planning units sought flexibility in how to meet their targets and that request has been met.
Base budget numbers are taken from the FY11 Budget Book (www.ohio.edu/finance/bpa/book.cfm). These numbers are spending authorizations for planning units in a particular year and are therefore aggregations of many items. In colleges these include the base operating budget, fee waivers, technology fees and even occasionally one-time funds. In support units the number includes one-time funds, some scholarships and debt service. The percentages listed on the spreadsheet were calculated by comparing the proposed reduction target to Budget Book base numbers. Please note that these percentages are sensitive to what is included in the base budget number. They provide a rough comparison as opposed to a precise measure of the impact of the reductions on a unit's base budget.
As you examine the spreadsheet, you will note that there are some omissions and anomalies.
WOUB does not have a reduction target. It is receiving a reduction in state subsidy but its subsidy is not part of the standard SSI pool.
The Graduate College is not being cut. It is experiencing increased application workload, and its staffing is critical for helping schools and departments manage graduate enrollment and other graduate student services.
The Office of Enrollment Management, which includes Admissions, Financial Aid, and the Registrar, is being prioritized. Enrollment, be it through tuition and fees or SSI, is the primary source of revenue for the entire institution.
OIT is not receiving a separate reduction. It will partner with Finance and Administration to achieve efficiencies that will not jeopardize the critical transition to PeopleSoft currently in progress.
The reduction to Advancement is a shifting of activities from general fund support to the endowment, which has experienced solid growth with the return of the market. This action makes the unit's percentage calculation disproportionately high and also affects the overall percentage for the academic support unit group.
The Office of the Vice President for Research and Creative Activity is not listed on the spreadsheet because a significant part of its budget will be shifted to a non-general fund source: Indirect Cost Recovery (IDC) revenue. Only a small fraction of its budget remains on the general fund and it was therefore not reduced. The advantage in making this funding shift to IDC is that the research operation will be able to manage research revenues more efficiently and thereby enhance the university's research mission.
While general fee revenues are not decreasing, the units funded by the general fee will participate in the overall budget reduction effort by making cuts within their units to redirect resources to cover their inflationary costs, including any increases to employee compensation.
In addition, there will be two important alterations made to the Intercollegiate Athletics (ICA) budget. First, the funding source for ICA scholarships for student athletes will change. Currently the general fee covers those scholarships. In the future, ICA scholarships will be placed on the general fund. The reason for pursuing this change is to lessen the need to increase the general fee in order to cover tuition increases for student athletes on scholarship. It should be noted that the shifting of ICA scholarships will not compete with or in any way change the availability of funding for scholarships currently covered by the general fund. Second, a five-year plan to reduce ICA reliance on the general fee will begin. Through fundraising activities, ICA will raise $150,000 per year beginning with FY 2012 with an equivalent reduction being made each year in its general fee funding.
The average percentage reduction (using Budget Book base numbers) between the three types of units is differential. General fund supported academic units have on average a 4.47 percent reduction target; general fund supported academic support units (excluding Advancement and the Library which are anomalies) a 3.62 percent reduction target; and general fee support units a 3.03 percent reduction target. There are two primary reasons why the academic unit reduction targets are larger than those of academic support units.
The distribution of personnel costs (salaries and benefits) is 30 percent to the support units and 70 percent to the academic. Many of our savings strategies are personnel based, as are many of our inflationary pressures like health care, and therefore the reduction targets take into account the proportional impact of these personnel costs. In addition, this proportion reflects the fact that the remainder of the reduction is in SSI, which directly decreases the revenue for academic activity and indirectly effects support functions.
The last five years of cuts have reflected a strategy of assigning higher percentages of base budget reductions to academic support units with the goal of protecting academic units. In the present budget cycle, we are not able to continue with this strategy. Larger cuts on academic support units would exacerbate conditions that faculty and students have deemed unacceptable such as further cutbacks in custodial services; a less stable IT environment and longer waits for IT assistance; reductions in disability services; loss of capacity in Institutional Equity; difficulties in maintaining health and safety protocols; slowdowns in admissions work; a diminished ability to conduct academic marketing; greater delays in processing HR and financial matters; and the scaling back of diversity programming. We are running out of options for reductions on the support side and therefore must look at higher reductions on the academic side in order to provide basic services that are essential at a large, multi-faceted public university.
We are grateful that our projected SSI numbers mean more manageable budget reduction targets. However, we recognize that it will still be difficult to make the changes necessary to meet our overall budget reduction target of $9,639,979. Many difficult decisions and much hard work lie ahead. However, given our conservative planning approach and the gains that can be realized by implementing revenue generation, personnel, and non-personnel strategies we are optimistic that we will be able to do more than cut. We hope that indications of an economic turnaround, prudent financial management, and increasing budget flexibility will mean we can again invest in institutional priorities.
Executive Vice President and Provost
Vice President for Finance and Administration
The e-mail that went out to the Ohio University community on Friday incorrectly stated:
“These calculations include a proposal that the University cover the expected increases in health care and an employee parking fee through a 3% compensation pool for benefit increases plus a raise of 1.66 percent."
It should have read:
“These calculations include a proposal that the University cover the expected increases in health care and an employee parking fee through a compensation pool that would result in covering benefit increases plus an actual raise pool of 1.66 percent."