Message from President Ramsey Regarding Budget
January 21, 2004
To the Campus Community
Many of you may have read of discussions last week between the presidents of the state’ s public universities and the governor concerning his proposed budget and its impacts on higher education. While this communication is long, it is important to provide you with an update.
As background, based upon what we knew of the state’s economic and financial situation, we took several steps in anticipation of a possible budget reduction in our general fund appropriations this year:
We asked all campus units to identify the impact of a 3 percent, nonrecurring cut on their activities, with the understanding that there would be no across-the-board cuts, allowing more time to plan carefully for permanent cuts next year.
We created five campus-wide committees to look at various aspects of the university’s operations to determine if there were further opportunities for efficiencies/additional revenue.
We engaged the services of one of the foremost higher education budget experts in the country, Dennis Jones of the National Center for Higher Education Management Systems, to review our expenditures and perform a comparison with the university’s benchmark institutions.
We began a long-term structural budget analysis by projecting revenues and expenditure patterns for five-years to determine the financial impact that recurring cuts in 2004 would have in the future.
We pursued these steps so the university could strategically make cuts that maintain its commitment to the Postsecondary Education Improvement Act of 1997 and our Challenge for Excellence. (You can find additional background in my Jan. 7 letter at www.louisville.edu/ur/budgetupdate/).
You’ll recall that as anticipated, the governor signed an executive order prior to the start of the General Assembly cutting higher education and other agencies would be cut by 2.5 percent on a recurring basis as part of a strategy to address the state’s current year revenue shortfall. In our case, this cut totals $3.4 million, or about 2.1 percent of the general funds we receive from the state.
Several days later, we learned that an additional one-time cut equal to 2.5 percent of funds from other sources would be included in the governor’s budget recommendation to the General Assembly, with a potential additional impact of $8.1 million in the current fiscal year. This proposed cut was needed to help provide a $100 million carry-forward into the 2005 fiscal year so that state agencies could be flat funded or funded at the same level with no additional cuts in 2005. Last Friday, after our meeting with the governor and representatives of the Council for Postsecondary Education, an adjustment was made to reduce this cut to $7.6 million.
If this additional cut is approved during the legislative session, we must make a combined cut of $11 million this year, $3.1 million of it permanent and the balance on a one-time basis. Although this would be extremely challenging given the other cuts and efficiencies we have made over the past two years, we understand the difficulty of the state’s fiscal situation and need to work closely with the governor and our legislators to help balance the state’s budget. Our goal is to do so in ways that will minimize the long-term impact of these cuts on our students, employees, academic programs and progress as a research university that contributes to the education, quality of life and economic progress of our state.
We are working on the following four strategies to make these cuts in the current fiscal year:
- Apply $1.4 million in tuition revenue available due to enrollments above and beyond those we had projected.
- Generate $6.4 million by reducing all campus units by 3 percent. Campus units were informed of the need for contingency planning in October of this fiscal year, so units are prepared for a 3 percent cut on a one-time basis. To identify these funds, many departments left critical faculty and staff positions unfilled for the current year. They have also reduced operating expenditures for academic and support programs. We are in the process of working with the units to finalize how these cuts will be made.
- We will apply $452,000 in realized efficiencies in utility costs and a reduction in the cost of the fringe benefit program for retired employees.
- We will "borrow" approximately $3 million from an as yet unidentified source, such as our budget reserves, encumbered but unexpended balances in other areas or other possible sources. It will be very important that make plans to reimburse whatever we borrow. For example, if we chose to borrow against our reserves, it will be important to rebuild those reserves, as they are critical to maintaining the financial integrity of the university and its bond rating.
These four actions will provide for the potential $11 million cut in the current fiscal year, although we will need to develop strategies for $3.1 million in permanent cuts for next year and to repay the $3 million we will borrow. Although we won’t know the final decision on the balance of the cuts until April 13, it’s important that we continue to plan for it at the same time we work with the state to identify alternatives. This planning will include analysis of our five-year, strategic financial models to evaluate ways we can best manage these cuts and preserve our progress.
This bridging strategy permits the University of Louisville to buy time to strategically analyze the impact of the recently communicated $7.6 million in nonrecurring cut in the current year, to have the opportunity to engage in campus discussion on strategic decisions about possible tuition increases as well as academic and support services that must be eliminated to help us stay on course during these challenging fiscal times. Again, it’s important that we work closely with our governor and legislators as we move forward.
James R. Ramsey