1. Short and Intermediate Term Financial Planning December, 2009

2. 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?

3. Budget Context Scope of State Budget Problem Without a tax increase, the State’s structural budget deficit is $4 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 3 Source: Commission on Government Forecasting and Accountability

4. Budget Context Status 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

5. FY 2010 Budget Outcomes On the surface things look good: No GRF Reductions Cost Increases – 1.7% reallocation 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.

6. State of Illinois Longer-term Financial Issues

7. 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 FY02-09 excludes health insurance re-direction to CMS. 1.4 to 11.3 to 11.2 to 11.1 to 1

8. 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 Appropriation Changes by Agency FY02 - FY09 exclude $45 million from higher education for Health Insurance payment to CMS.

9. State of Illinois Debt (Dollars in Billions) $27.5 $71.3 Pension Debt Bonded Debt (Dollars in Billions) Page 9

10. 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.

11. 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

12. 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!

13. Campus Financial Challenges

14. 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

15. 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!

16. 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

17. How Do We Respond?

18. 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

19. 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

20. 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?

21. College Planning Initial work done in FY09. Some characteristics of the next step: Focus on protecting quality and reducing costs Plans needed quickly—initial unit plans by mid-December Bottom up effort with significant faculty & staff involvement Everything must be on the table

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

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

24. Faculty 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

25. Discussion