On October 15, 2007, Steve Curley, University Budget Officer, discussed the University budgeting process and provided an overview of the major elements of the Penn State budget, the budget cycle, and the Appropriation Request to the Commonwealth. The annual total budget for the University is $3.4 billion and consists mainly of tuition and fees (33 percent), the state appropriation (10 percent), income from Hershey Medical Center (26 percent), income from other self-supporting units like Housing and Food Services and Intercollegiate Athletics, and restricted funds, such as research grants and contracts and earnings from endowments. ( View Mr. Curley’s slide presentation.) Curley explained that Penn State is a “tuition-driven” institution: the largest portion (72 percent) of the $1.4 billion general funds budget comes from tuition and fees. For 2007-08, only 22 percent of general funds is state appropriations, a large decrease from the early 1970’s when state funds represented 62 percent of general funds. Even in the past several years, the state appropriation has not kept up with inflation. If the state appropriation had been maintained at the rate of inflation for higher education just since 2001-02, the 2007-08 appropriation would have been $73 million higher.
What we are trying to do is … come up with the right balance between things that you have to do and the expenses you have to cover to try and keep tuition as low as you can.
Steve CurleyWithin Pennsylvania, the state appropriation per full-time equivalent (FTE) student at Penn State is lower than that at Temple, Pitt, and the State System of Higher Education schools. Although enrollment has grown at Penn State since 1977 compared to these other schools, funding has not kept pace and Penn State has fallen behind the other state-related schools. This is one reason for the increases in tuition, and Penn State having high tuition costs. Penn State’s Commonwealth Campuses, in particular, face stiff competition from the lower cost community colleges and State System schools.
Penn State also has the highest tuition in the Big Ten. Again, part of this is due to other schools receiving greater support from their states. At other Big Ten schools, the percent of the budget funded by state appropriations exceeds that at Penn State. Penn State is last in state appropriations per student. In 2005-06, Penn State received $3,900 per FTE student, while Iowa, with the highest funding per student, received $11,500. Other states are now beginning to face budget crunches and other Big Ten schools may see their tuitions rise.
Generally, Penn State’s budget cycle begins twelve to fourteen months before the start of the budget year when the Budget Task Force develops an Appropriation Request for submission to the state government in September. The strategic planning process helps to identify strategic priorities for inclusion in the University budget. In February of the next year, the Governor’s budget is released and legislative hearings are held in February and March. The appropriation for the University is generally approved in May or June. During the time between the submission of the request and the appropriation approval, the Budget Task Force is considering various budget scenarios.
Salary and benefit costs represent about 70 percent of Penn State’s expenditures, and these are two of the four major cost drivers in the 2007-08 operating budget. (The other two are maintenance and improvement of facilities and program needs.) Higher education is a much more people-intensive sector of the economy than other areas, such as manufacturing or construction. Thus, any increases in costs associated with employees, like benefits or salaries, can drive budgets dramatically upwards. For instance, according to Curley, for the 2007-08 budget, a 1 percent increase in salaries results in a cost of approximately $8 million. It would require a 3 percent increase in appropriations to cover this 1 percent increase. Along with salary costs, the costs of health care, retirement, and social security are also increasing. Penn State’s health care costs alone are projected to increase by 12.5 percent in 2007-08.
Budget recycling has been necessary to help Penn State meet increasing costs. In 2007-08, $10.1 million in budget recycling was included in the budget, and over the last five years, recycling amounts have averaged about 1 percent annually. Since 1996-97, for every $1 of recycling over $3 has been returned to the academic units. Thus, funds have been shifted to academic units for their program needs.
The University also has undertaken an exhaustive examination of cost-saving initiatives. A recent example of these efforts is the review of 101 cost saving tactics published in an educational business journal. (See the April 10, 2007 Quality Advocates summary for a listing of these at /advocates/2007/04/.) The University has found that it is ahead of the curve on many of the strategies, but has also found several areas for improvement.
The Quality Advocates Network meets several times each semester to share ideas and examples of improvement and change. To join the Quality Advocates Network mailing list or to learn more about the meetings scheduled, contact the staff at email@example.com.
The Quality Advocates Network is open to all Penn State faculty, staff, administrators, and students.