Short and Intermediate Term Financial Planning
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Transcript of Short and Intermediate Term Financial Planning
Short and Intermediate Term Financial Planning
January, 2010
The Perfect Storm
A worldwide financial crisis and an already weak state
Significant long-term financial challenges for the state
An overextended institution with limited cash Facility and other costs that can not be
deferred
How do we best move forward in a way that protects our institution?
Budget ContextScope of State Budget Problem
Without a tax increase, the State’s structural budget deficit is $5 billion or more.
Tax revenue continues to decline State has mandates (debt service, Medicaid) &
costs that grow in economic downturns (unemployment, health care, social services)
State has backlog of unpaid bills lead some to characterize State budget problem as an $11 billion shortfall
Page 3Source: Commission on Government Forecasting and Accountability
Budget ContextStatus of FY10 State Budget
Short-term solutions will get us through at least part of year. Super-majority required to approve revenue increases now.
Stimulus funds ($45.5m) used in University appropriation.
Risks to campus: indirect appropriations ($30m+), growth since FY08 ($11m) & benefits($$$$)
The State is 150+ days behind on payments – a great risk to our institution
FY 2010 Budget Outcomes
On the surface things look good: No GRF Reductions Cost Increases – 1.7% reallocation Significant growth in tuition revenue
However, significant mid-year risks: State revenues continue to decline Shortfall may require action at any time Possible passing of benefit and other costs on
to campus.
State of Illinois
Longer-term Financial Issues
State Support Per Tuition DollarFY 1970 to FY 2009
12.8 to 1
8.6 to 1
4.5 to 1
2.9 to 1
1.5 to 1
FY02-09 excludes health insurance re-direction to CMS.
1.4 to 1 1.3 to 1 1.2 to 1 1.1 to 1
In Constant 2008 Dollars (CPI)
Human Services
Elementary/Secondary
Higher Education
All Other
State Average
12.0%
3.7%
-24.1%
-32.0%
18.6%
State Tax AppropriationChanges by Agency
FY02 - FY09 exclude $45 million from higher education for Health Insurance payment to CMS.
State of Illinois Debt(Dollars in Billions)
$27.5
$71.3
Pension Debt
Bonded Debt
(Dollars in Billions)
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Real Gross Domestic Product by State1997 – 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 $45.5m shortfall in FY10 University budget
funded with stimulus funding State can’t cut FY10 operating below FY08 These stimulus funds gone in FY11; state
must have new revenue to cover
Stimulus Grants Research funds provide 2 year opportunity Federal deficit may not allow indefinite
funding
Summary of State Financial Issues
Uncertainty regarding taxes
ISAC funding cut by > 50% Restored but not funded
State is 180+ days behind on payments to the University
Stimulus funding runs out this year
Rumors of benefit charges to university
Pension system dramatically underfunded
Total risk to campus is many tens of millions of dollars!
Campus Financial Challenges
UIUC Year-End Operating Fund Balances (millions)
($100.0)
($50.0)
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
FY04 FY05 FY06 FY07 FY08 FY09
Total Balance Institutional Total Institutional Total (Excluding Utilities) Self-Supporting Total Gift/Endowment Total
Deficits — Improved in FY09;Progress Still Required Utilities
University-wide funding hid size of deficits Annual budget now fully funded Cumulative deficit of $90m
Campus Reserves Long-term commitments use most of reserve Growth in utilities did not allow new funds to
be directed to reserve Annual commitments beyond funding
Unit Deficits
Planning Constraints Revenue
State Funds—declining industrial base; significant unfunded retirement costs
Tuition—One of the highest cost publics; cost growing beyond capacity to pay
Expense Personnel—80% of total costs Utilities—significant cost growth in recent
years. Facilities still require investment Financial Aid—major investment required
Planning Constraints (cont.)
Buildings/ Maintenance State stopped supporting facilities in 2002 Campus stepped up to cover desperately
needed remodeling and facilities Deferred maintenance of $550 million! Below average $ per square foot to
maintenance—and it shows!
Planning Issues (strengths)
High quality faculty, students & staff Improving financial control & health Fee support for facilities & Library/IT Stabilized utility costs—both price &
conservation Good state capital budget Aggressive pursuit of stimulus grants
How Do We Respond?
First Steps: Unit Financial Control
Eliminate Deficits—we need to move quickly. Most recurring deficits resolved this year.
Raise Cash—delay hires and purchases. 4.5% of college budgets set aside in special accounts
Some Actions Taken Centrally
Hiring plans required again this year; hires must be limited
Initiatives stretched over a multi-year period; a review of funding for all recent initiatives
Increased vigilance regarding unit finances
Administrative reduction program goes forward: > $1.2m this year
Establishment of advisory groups
These steps will not be enough . . .
. . . We need to move beyond belt-tightening and take a deep look at
our institution
How do we move forward in an era of declining resources?
Meeting the Challenge
Initial Steps
Through Dec.
Communicating scope of problem
College planning
Cost reduction
Forming Teams
Jan.– mid-Feb.
Broader Communicating
Review college plans
Identify areas for review
Review teams charged
Specific unit reduction targets
Brief reviews completed
Review revised plans
Bridge plan completed
Feb.- March
Identifying Opportunities
March-
Deploy Teams
Implement Plans
What We Have Done So Far
Communication and Planning Kickoff meetings with all colleges to outline
scope of problem College planning efforts to address reductions
Aggressive cost reduction First stage of administrative reductions—
$1.3m in savings Accelerated energy conservation efforts—
millions in annual savings Increased financial oversight and reduced
deficits
What We Have Done So Far (cont.)
Formed central teams Steering Committee—4 deans, 1 VC, 1 faculty Campus Advisory Group—13 faculty & APs Implementation Team—9 campus admin. staff
System-wide Administrative Review Committee Exploring next steps for strategic procurement,
IT efficiencies & service centers Review administrative structure for possible
streamlining
Bob Easter Chancellor
Dick Wheeler VC Academic Affairs
Steering Team
Deans of LAS, AHS, ACES, Grad College; VC Student Affairs; VC
Academic Affairs; two faculty; staffed by Provost’s Office
Implementation Oversight Team
VC Academic Affair, VC Public Engagement, Dean of LAS, Assoc,
Chancellor Public Affairs, Chancellor’s and Provost’s Staff
Senate Budget Committee
Project Structure
Campus Advisory
Group
Steering Committee
Deba Dutta—Graduate College Bob Hauser—ACES Tanya Gallagher—AHS Linda Smith—GSLIS Ruth Watkins—LAS Tony Liss—Physics
Campus Advisory Group Elabbas Benmamoun—Linguistics Ralph Brubaker—Law Deba Dutta—Grad College & Engineering Rayvon Fouché—History Scott Irwin—ACE Tony Liss—Physics Jim Lisy—Chemistry Edward McAuley—Kinesiology Curtis Perry—English Kim Shinew—Recreation Linda Smith—GSLIS Ginger Winckler—VM
Discussion