Short and Intermediate Term Financial Planning December 2009

Short and Intermediate Term Financial Planning December, 2009

The Perfect Storm n A worldwide financial crisis and an already weak state n Significant long-term financial challenges for the state n An overextended institution with limited cash n Facility and other costs that can not be deferred How do we best move forward in a way that protects our institution?

Budget Context Scope of State Budget Problem n Without a tax increase, the State’s structural budget deficit is $4 billion or more. n Tax revenue continues to decline n State has mandates (debt service, Medicaid) & costs that grow in economic downturns (unemployment, health care, social services) n State has backlog of unpaid bills lead some to characterize State budget problem as an $11 billion shortfall Source: Commission on Government Forecasting and Accountability Page 3

Budget Context Status of FY 10 State Budget n Short-term solutions will get us through at least part of year. Super-majority required to approve revenue increases now. n Stimulus funds ($45. 5 m) used in University appropriation. n Risks to campus: indirect appropriations ($30 m+), growth since FY 08 ($11 m) & benefits($$$$) n The State is 150+ days behind on payments – a great risk to our institution

FY 2010 Budget Outcomes n On the surface things look good: n No GRF Reductions n Cost Increases – 1. 7% reallocation n However, significant mid-year risks: State revenues continue to decline n Shortfall may require action at any time n Possible passing of benefit and other costs on to campus. n

State of Illinois Longer-term Financial Issues

State Support Per Tuition Dollar FY 1970 to FY 2009 12. 8 to 1 8. 6 to 1 4. 5 to 1 2. 9 to 1 1. 5 to 1 FY 02 -09 excludes health insurance re-direction to CMS. 1. 4 to 1 1. 3 to 1 1. 2 to 1 1. 1 to 1

State Tax Appropriation Changes by Agency In Constant 2008 Dollars (CPI) Elementary/Secondary 18. 6% 12. 0% Human Services 3. 7% State Average Higher Education -24. 1% -32. 0% All Other FY 02 - FY 09 exclude $45 million from higher education for Health Insurance payment to CMS.

State of Illinois Debt (Dollars in Billions) $71. 3 Pension Debt $27. 5 Bonded Debt Page 9

Real Gross Domestic Product by State 1997 – 2008 (Millions of Chained 2000 Dollars) *Average of top five performing states. Source: U. S. Bureau of Economic Analysis.

Stimulus Funding: Short-term help; Long-term risk Operating n $45. 5 m shortfall in FY 10 University budget funded with stimulus funding n State can’t cut FY 10 operating below FY 08 n These stimulus funds gone in FY 11; state must have new revenue to cover Stimulus Grants n Research funds provide 2 year opportunity n Federal deficit may not allow indefinite funding

Summary of State Financial Issues n Uncertainty regarding taxes n ISAC funding cut by > 50% Restored but not funded n State is 180+ days behind on payments to the University n Stimulus funding runs out this year n Rumors of benefit charges to university n Pension system dramatically underfunded Total risk to campus is many tens of millions of dollars!

Campus Financial Challenges

Planning Constraints n Revenue n State Funds—declining industrial base; significant unfunded retirement costs n Tuition—One of the highest cost publics; cost growing beyond capacity to pay n Expense Personnel— 80% of total costs n Utilities—significant cost growth in recent years. Facilities still require investment n Financial Aid—major investment required n

Planning Constraints (cont. ) n Buildings/ Maintenance n State stopped supporting facilities in 2002 n Campus stepped up to cover desperately needed remodeling and facilities n Deferred maintenance of $550 million! n Below average $ per square foot to maintenance—and it shows!

Planning Issues (strengths) n High quality faculty, students & staff n Improving financial control & health n Fee support for facilities & Library/IT n Stabilized utility costs—both price & conservation n Good state capital budget n Aggressive pursuit of stimulus grants

How Do We Respond?

First Steps: Unit Financial Control n Eliminate Deficits—we need to move quickly. Most recurring deficits resolved this year. n Raise Cash—delay hires and purchases. 4. 5% of college budgets set aside in special accounts

Some Actions Taken Centrally n Hiring plans required again this year; hires must be limited n Initiatives stretched over a multi-year period; a review of funding for all recent initiatives n Increased vigilance regarding unit finances n Administrative reduction program goes forward: > $1. 2 m this year n Establishment of advisory groups

These steps will not be enough. . . We need to move beyond belttightening and take a deep look at our institution How do we move forward in an era of declining resources?

College Planning Initial work done in FY 09. Some characteristics of the next step: n Focus on protecting quality and reducing costs n Plans needed quickly—initial unit plans by mid-December n Bottom up effort with significant faculty & staff involvement n Everything must be on the table

College Planning (cont. ) n Plan for three levels of reduction: 7%, 10% and 15% n Plans must include short-term actions (to raise cash) & long-term actions (to reduce costs) n Plans should consider possible revenue growth and efficiencies n Plans should not be limited by organization. Look for opportunities across departments and colleges

Steering Committee n Deba Dutta—Graduate College n Bob Hauser—ACES n Tanya Gallagher—AHS n Linda Smith—GSLIS n Ruth Watkins—LAS

Faculty Advisory Group n Elabbas Benmamoun—Linguistics n Ralph Brubaker—Law n Deba Dutta—Grad College & Engineering n Rayvon Fouché—History n Scott Irwin—ACE n Tony Liss—Physics n Jim Lisy—Chemistry n Edward Mc. Auley—Kinesiology n Curtis Perry—English n Kim Shinew—Recreation n Linda Smith—GSLIS n Ginger Winckler—VM

Discussion