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Short and Intermediate Term Financial Planning
December, 2009
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 $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 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
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)
Page 9
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
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?
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
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
Steering Committee
Deba Dutta—Graduate College Bob Hauser—ACES Tanya Gallagher—AHS Linda Smith—GSLIS Ruth Watkins—LAS
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
Discussion