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 Context Scope 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 3 Source: Commission on Government Forecasting and Accountability

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

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 Dollar FY 1970 to FY to to to to to 1 FY02-09 excludes health insurance re-direction to CMS. 1.4 to 11.3 to 11.2 to 11.1 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 Appropriation Changes 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) 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 $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

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