Senate Budget Update Linda P.B. Katehi University of Illinois at Urbana-Champaign

1. Senate Budget UpdateLinda P.B. KatehiUniversity of Illinois at Urbana-Champaign February 23, 2009

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. We are not Alone….

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

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. Budget ContextScope 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. Anticipated Impact on Our Campus…

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

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

12. Meeting the Challenge…

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. 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. 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. 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. 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. 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. If FY09 Cash Rescission Becomes Permanent

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. Capturing the Opportunity….

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

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

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

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.