1. Senate Budget Update Senate Budget Update Linda P.B. Katehi University of Illinois at Urbana-Champaign February 23, 2009

2. 2 Agenda Overview We are not Alone State of Illinois’ Finances State of the Campus Meeting this Challenge Planning for the Worse Capturing the Opportunity The Stimulus Package Looking Forward Q & A

3. 3 We are not Alone….

4. 4 4 National Slow-Down: At Least 44 States Face Budget Shortfalls FL IL HI ME NH VT CT NY PA RI MA DE MD WV VA NC SC GA OH MI WI IN KY TN AL MS LA AR MO IA MN ND SD NB KS OK TX WY MT UT NM AZ NV ID AK CA OR WA CO

5. 5 Economic Outlook There have been 10 recessions since WW II with an average length of ten months The longest two –1973 & 1981 – lasted 16 months. The shortest – 1957 – lasted six months Most economists believe that the current recession will be one of the longest since WW II – at least 18 to 24 months

6. 6 Budget Context Scope of State Budget Problem Without revenue measures, the state’s structural budget deficit is $2.1 to $2.4 billion Unprecedented instability in the economy may cause additional declines in state revenue Some expenditures may increase over appropriations: state mandates (debt service, public safety, Medicaid) and demands on Human Services grow in economic downturns (unemployment, health care, social services) State has backlog of unpaid bills lead some to characterize state budget problem as $4-5 billion Source: Commission on Government Forecasting and Accountability

7. 7 Anticipated Impact on Our Campus…

8. 8 What this Means for Illinois Current recurring state revenue shortfall is 7-8% of General Revenue and growing Since some expenditures are mandated by law or necessitated by public safety, other areas may face larger reductions Our minimum reduction is 2.5% called for by IBHE. Given the magnitude of state shortfall, a more realistic planning assumption is a 10% GRF reduction

9. 9 Illinois’ Tuition Increases Have Not Overcome Loss of State Direct Tax Support, FY89-FY09 (Changes in Average Expenditures Per Student) FY 2009 Difference = -$2,900 per student or $119 million in total! Tuition State Support In 2008 dollars $2,900 per student Excludes benefit payments by State

10. 10 Planning Constraints Revenue State Funds - declining industrial base; significant unfunded retirement costs Tuition - Significant growth in recent years; increases will be required to help offset declines in state support Expense - Growing faster than revenue Personnel - 80% of total costs; significant growth; losing ground on faculty salaries Utilities - significant cost growth in recent years. Facilities still require investment Financial Aid - major investment required

11. 11 FY09 Budget—$1.6 Billion Funds Are Not Interchangeable!

12. 12 Meeting the Challenge…

13. 13 A Values-Guided Process Protect quality of core programs Serve well students and others who depend on us Minimize adverse effects on our people

14. 14 Unit Budget Reductions Some one-time actions will protect units this year All units will contribute at least 1.5% GRF funded units will pay more, particularly those without student connection If cash rescission becomes permanent, deeper reductions will be required for FY10 Deficits can not be incurred

15. 15 Short-term Actions Only critical hires are allowed at this time (all colleges have been advised to limit hires) State funded travel is limited to that required for development and scholarship Purchases and new services will be deferred unless critical Make necessary investments to allow institution to compete for funding

16. 16 Meeting a 10% Rescission Capture natural gas savings—$2.5M Assess GRF funded units full share of reduction—$3.3M Capture unit set-aside—$5.0M Assess Academic Unit GRF—$1.6M Assess Non-tuition Units—$3.3

17. 17 Meeting a 10% Rescission (cont.) Delay some commitments and facilities projects—$2.5M Sweep selected admin. balances—$.8M Additional targeted reductions—$1M Borrow large balances—$2.5M

18. 18 Considerations for Next Year Cash rescissions often become permanent Personnel rules do not allow rapid response to changing economic environment Campus cash balances are low, providing less flexibility While long term actions can create efficiencies, short term actions are required to raise cash Deficits are not an option! Colleges need to limit expenditures wherever possible

19. 19 If FY09 Cash Rescission Becomes Permanent

20. 20 Long-Term Actions for Effectiveness and Efficiency IT@Illinois - a project to redesign how we support IT on campus Service Centers - finding ways to minimize what is spent on support services Process Improvement - using business methodology to improve quality and reduce cost of delivery of support services Energy Conservation - we are moving aggressively to reduce our costs

21. 21 Capturing the Opportunity….

22. 22 Stimulus Package 789.5B The American Recovery and Reinvestment Act 789.5B Significant funding for research agencies demonstrating that the Congress recognizes science and innovation as playing a role in the near-term and long-term economic health of the nation All the funds of the bill are available to expend between now and September 2010

23. 23 Distribution of Funds by Agency 10.4 B NIH : 10.4 B 3 B NSF : 3 B D of Energy : 1.6B Office of Science 1.6B 400M ARPA-E 400M 30B Energy Programs 30B 2.5B Energy Efficiency and Renewables 2.5B 4.5B Smart Grid 4.5B 10B Others: 10B

24. 24 Distribution of Funds by Agency D of Education : 53.6 B State Fiscal Stabilization Plan 53.6 B 15.6B Student Aid 15.6B 100M Teacher Quality Enhancement 100M 250M Institute of Education Science 250M 1 B NASA : 1 B 830M NOAA: 830M 580M NIST: 580M 140M Geological Surveys: 140M

25. 25 2.95B Department of Labor 2.95B 7.22B EPA: 7.22B 10B Other: 10B Distribution of Funds by Agency

26. 26 While times like these are unique in the their volatility and uncertainty…. we should not be immobilized by fear … but be energized by the opportunity to participate in an unprecedented reshaping of our future.