UT Board of Trustees Endorses Plan to Save Costs, Increase Revenue to Alleviate Unsustainable Business Model

UT President Presents to the Board of Trustees

The University of Tennessee Board of Trustees on Thursday endorsed a plan presented by President Joe DiPietro to allow the campuses and institutes to save costs and increase revenue to help efforts to change the University’s business model and address a projected $377 million funding gap over 10 years.

The campus and institute leaders will have latitude to use a variety of methods to make changes as long as they remain within several boundaries. These changes will be implemented over the next two budget cycles, starting with FY16.

The plan, using input from a budget advisory group, follows discussions the president has been having since June 2014, when he first presented the need to address the business model, which currently has the University increasing tuition to make up for declining or static state appropriations. The goal is to keep tuition increases as low as possible, this year being within the Tennessee Higher Education Commission’s recommendation between zero and 4 percent.

“We are not insolvent or in financial ruin. The only way to preclude tuition increases is to fix it ourselves. It is about maintaining quality and moving ahead. We will be a different organization in the next four to five years,” DiPietro said.

Gov. Bill Haslam’s proposed budget for FY16 is favorable to the University, but DiPietro noted it has been rare to have a strong or good budget.

“I have been in Tennessee for 10 (legislative) sessions now and recall two (years) like this one. It might seem obtuse to make this change, but we are not back where we were before the recession. We need to be ready,” DiPietro said.

Board Vice Chair Brian Ferguson told DiPietro the board approves of the plan. “We stand ready to support and provide our best advice,” Ferguson said.

The projected $377 million gap is an increase over a $155 million gap provided previously. The gap is based on average inflation of 3 percent, static tuition increases, operating expenditures increased by the inflation rate, salaries increased to address a gap of $153 million over five years and deferred maintenance of $25 million annually.

DiPietro’s action plan includes:

  • Program realignment and consolidation: campuses will address low-performing programs to fund program reinvestment and perform a feasibility analysis and develop a plan for program consolidations to save costs.
  • Allocation and reallocation plans: set aside 3 percent of base year’s total unrestricted E&G expenditures to address strategic initiatives, address deferred maintenance and identify cost savings from voluntary retirement and other workforce development options.
  • Unfunded mandates for tuition waivers and discounts: the UT System Administration will study these discounts, estimated to be $7.4 million annually System-wide.
  • Tuition structure review: Options include expanding differential tuition, increase enrollment of out-of-state students and the 15-4 tuition plan.
  • Non-formula fee structure: Non-formula units (Health Science Center, Institute for Public Service and Institute of Agriculture) will review whether outreach efforts are capturing actual cost of delivery and determine whether fees should be charged.
  • Tenure and post-tenure review process: To be conducted by UT System Administration and with involvement by the Faculty Council, to look at awarding of tenure, post-tenure compensation and enacting of a de-tenure process.

While choosing from these options, the campuses and institutes must stay within the boundaries of keeping out-of-state enrollment less than 25 percent of undergraduate total, remaining within the top five annually under the Complete College Tennessee Act formula, increasing research expenditures by 6 percent annually, keeping customers and clients of outreach services at this year’s level or higher and increasing the total number of gifts, pledges and bequests by 15 percent annually.

Governor’s Budget Proposal Includes Top UT Priorities

Governor Haslam delivered the State of the State Address last night, the first of his second term as Governor. The yearly address is an important part of the legislative process, formalizing the Governor’s budget and policy priorities and setting the tone for the next few months of legislative debate and action.

The Governor made clear that his focus will remain steadfast on education. UT Advocates may recall this post from December, when UT President Joe DiPietro presented UT’s top five funding requests to the Governor in his annual budget hearings.

Overwhelmingly, UT’s requests were honored in the Governor’s $33.3 billion spending plan. It is now up to the legislature to consider the budget proposal, a process that will take several months. We’ve provided a status update on each UT budget priority below.

icon of $9.7M funding with an approval checkmarkFULLY FUNDED: Request for full allocation of funds based on campus performance. The state’s funding formula for higher education has recommended UT schools receive $9.7 million in new funding based on performance. The Governor proposed full funding of the State’s outcomes-based funding formula in his State of the State Address and the budget document recommends a base budget increase– fully funding this budget request for UT campuses.

Why This Is Important: UT has worked hard to make sure its institutions are the top performers in the state in order for the campuses to be awarded funding. Last year, the University was awarded 34 percent less than the formula recommended. Recurring cuts in state funding for higher education are a main driver of tuition increases, and fully funding the formula helps mitigate the need for a significant increase in tuition.

icon of additional $7.3M funding with an approval checkmarkPARTIALLY FUNDED: Request for $7.3 million in additional funding for UT institutions that provide services to all Tennesseans. The requested funding would cover the Institute of Agriculture (UTIA), which has a presence in all 95 counties, Institute for Public Service (IPS) and Health Science Center (UTHSC). The Governor’s budget proposal recommends an operating increase of $4.9 million specifically for these UT non-formula units

Why This Is Important: These institutions provide services that benefit all Tennesseans. In 2013, UTIA, IPS and UTHSC provided outreach to more than 6 million people. And unlike our traditional campuses, these units have limited or no tuition mechanisms to increase funding.

icon of 4H and laboratory and capital projects with an approval checkmarkFUNDED: Funding requested for the West Tennessee 4-H Center and Knoxville-Science Laboratory Facility. The state’s higher education coordinating agency (THEC) ranked both projects in the top six for funding by the state, and they are both recommended for funding in the Governor’s budget proposal.

Why: Both projects are critical to moving the University forward. The West Tennessee 4-H Center would fulfill a key part of the University’s outreach mission, providing youth in west Tennessee with a camp experience in addition to serving as a conference center. The science laboratory will provide new facilities to educate students and produce groundbreaking research. The University has already raised matching funds for these projects.

icon of maintenance hard hat with an approval checkmarkPARTIALLY FUNDED: Funding requested for building safety and maintenance. The University requested $53 million for 11 projects that will improve building safety and upgrade some existing facilities. The Governor’s budget proposal recommends funding six of these projects, totaling $23.8 million.

Why This Is Important: This funding will go toward ensuring our campuses are providing safe learning and work environments for our faculty, staff and students. Projects included in the Governor’s budget proposal include upgrades for ADA compliance, fire safety upgrades, roof replacements, and security upgrades. There are maintenance projects for UTC, UTK, UTM, and UTHSC included in the Governor’s proposal.

icon of salaried employees with an approval checkmarkFUNDED: Salary increases requested for UT employees. President DiPietro requested, at a minimum, a cost-of-living salary adjustment. The Governor’s budget proposal authorizes a 1.5 percent merit pool increase for public higher education employees. Based on the Governor’s proposal, increases and compensation adjustments will be allocated based upon merit. They will not be across the board.

Why This Is Important: The University has a $150 million market gap in terms of employee pay that it is trying to close over time. As state employees, the University is asking the state to help fund increases for UT employees, as their work is critical to the state’s future. UT employees did not receive a cost-of-living adjustment in last year’s budget. Further, funding these adjustments will help UT remain a competitive employer in higher education.

FUNDED: UT Pediatric Research Initiative
The Governor’s budget proposes $3 million in matching funds for a joint pediatric research initiative of the UT Health Science Center, Le Bonheur Children’s Medical Center, and St. Jude Children’s Research Hospital. The initiative, ‘UT Peds,’ has helped reduce childhood obesity and asthma as well as assisted in recruitment of world-class staff, researchers, and physicians to treat Tennessee’s children.

This is year three of a five-year state funding commitment of $15 million.

We’ll keep you updated throughout the legislative session on these priorities and other issues that arise that impact the University of Tennessee. As always, thank you for your support of the University of Tennessee System.

 

Governor Delivers State of the State Address

Governor Bill Haslam delivered the State of the State Address tonight–the first of his second term as Governor.  The yearly address is an important part of the legislative process, formalizing the Governor’s policy priorities and setting the tone for the next few months of legislative debate and action.

The Governor made clear that his focus will remain steadfast on education.

“I truly believe that getting education right is critical to the well-being of our state – today and in the future.  We have to keep going full speed ahead.  We can’t afford to go backwards.  We’ve come too far to sell ourselves short. It would be an injustice to our students, to our teachers, to Tennessee families, and to ourselves,”  Haslam said.

Notable higher education investments the Governor mentioned include:

  • $260 million for capital projects, including the land acquisition for the UT Institute for Agriculture’s 4-H Camp and Conference Center and a new science facility at the University of Tennessee, Knoxville,
  • $25 million to fully fund the Complete College Act formula; and
  • $10 million for need-based scholarships for students;

The Governor also spoke of specific workforce development investments geared to helping achieve the Drive to 55 Initiative.  These include:

  • $2.5 million for statewide outreach efforts geared toward adult students, technical assistance to local communities that are finding ways to support adult learners, and a one-stop portal for adults;
  • $2.5 million to support the success of the SAILS (Seamless Alignment and Integrated Learning Support) program which addresses remediation in high school;
  • $1.5 million to provide last dollar scholarships to adults with some post-secondary credit to attend community college;
  • $1 million to establish competitive grants to 2-year and 4-year institutions to develop initiatives specifically designed for veterans; and
  • $400,000 to establish the Tennessee Promise Bridge Program, which will bring first-generation college students to campus prior to fall enrollment, which is one more step in making sure they have the best chance possible to succeed.

Other highlights of the budget include:

  • $48 million for state employee pay raises and compensation tied to performance and ongoing market adjustments; and
  • $36.5 million dollars for the Rainy Day Fund to bring it to $528 million.

We will send out a more detailed report on how the Governor’s budget proposal impacts UT’s budget priorities shortly.

State Revenue Update

The first three months of the State’s fiscal year, which began in August, held good news:  revenues bounced upward, a welcome trend after lagging revenues plagued the 2013-2014 fiscal year.

However, the most recently released figures from November mark the first point in the 2014-2015 fiscal year where revenues were less than the budgeted estimate:  $6.1 million less to be precise.  The gap is mostly attributed to a volatile situation surrounding the State’s franchise and excise taxes.

The State Funding Board released a consensus report this month showing that 2015-2016 fiscal year revenues are generally expected to grow at slower rates than in previous years.  They anticipate overall growth for FY 2015-2016 between 2.55 and 2.95 percent, with growth in the general fund ranging from 2.6 to 3 percent.

For contrast, final projections for the current fiscal year have overall total tax revenue growing in the range of 3.45 to 3.8 percent, and the general funding growing between 3.85 to 4.2 percent.

These revenue figures and projections are significant because they will, in large part, require the Governor and legislature to craft a more conservative budget than in years past (assuming the absence of any new revenue).

Several revenue measures have been publicly discussed by key legislators, including an increase to the gas tax and tightening loopholes in the franchise and excise tax structure.

We will keep you updated on the revenue situation as it relates to the State budget and the funding of public higher education.  Much more will be known once the Governor releases his proposed budget, which typically occurs after the State of the State address in late January or early February.

UT President Presents Top 5 Funding Requests to Governor

UT President Joe DiPietro attended Governor Haslam’s budget hearing on Friday to advocate for the University’s top funding requests. The Governor’s budget hearings are an important first step in the State’s budget process, as the Governor weighs testimony from these hearings to develop a spending plan typically presented to the legislature in late January or early February.

The proposed spending plan is taken seriously by the legislature.  Usually, very few major budget amendments are passed. In fact, the legislature did not pass a single substantive amendment modifying the Governor’s spending plan last year.

To put it frankly: Recent history suggests that if you want your major priorities to be funded, they typically need to be included in the Governor’s proposed spending plan. While any budget proposal will ultimately have to win the approval of the state legislature, the Governor’s budget hearings are a critical launch point to the budget process as entities compete for limited resources and other budgetary pressures begin to mount.

State funding for the University is essential.  It represents about 25 percent of UT’s total budget, and despite the decreases in state funding that have occurred since the 2008 recession, UT has continued to increase its performance outcomes, graduating more students and producing more research.

But UT’s current business model, which relies heavily on tuition increases to offset dwindling state funding and fill a growing budget gap, is unsustainable as a long-term plan to continue providing affordable education to students and services to all Tennesseans.

The University is doing its part to address this budget gap through analysis that will result in recommendations to increase the efficiency, effectiveness and entrepreneurship of its campuses and institutes. Read more about the University’s funding and performance metrics here.

What are the major state funding priorities for the University of Tennessee in 2015?

 

budget-01-9.7M-alt-151Full allocation of funds based on campus performance.The state’s funding formula for higher education has recommended UT schools receive $9.7 million in new funding.  President DiPietro is asking the governor to recommend that UT receive full allocation of this amount.

Why: UT has worked hard to make sure its institutions are the top performers in the state in order for the campuses to be awarded funding.  Last year, the University was awarded 34 percent less than the formula recommended.

 

budget-01-7.3M-alt-151$7.3 million in additional funding for UT institutions that provide services to all Tennesseans. The funding would cover the Institute of Agriculture (UTIA), which has a presence in all 95 counties, Institute for Public Service (IPS) and Health Science Center (UTHSC).

Why: These institutions provide services that benefit all Tennesseans. In 2013, UTIA, IPS and UTHSC provided outreach to more than 6 million people. And unlike our campuses, these units do not have tuition mechanisms to increase funding.

 

budget-01-capital-projectsFunding for the West Tennessee 4-H Center ($14.3 million) and Knoxville-Science Laboratory Facility ($83.7 million). The state’s higher education coordinating agency (THEC) has ranked both projects in the top six for funding by the state.

Why: Both projects are critical to moving the University forward. The West Tennessee 4-H Center would provide youth in west Tennessee with a camp experience in addition to serving as a conference center. The science laboratory will provide new facilities to educate students and produce groundbreaking research. The University has already raised matching funds for these projects.

 

budget-01-maintenance-navyFunding for building safety and maintenance.
The University is requesting $53 million for 11 projects that will improve building safety and upgrade some existing facilities.

Why: These projects will ensure that our campuses are providing safe learning and work environments for our faculty, staff and students.

 

budget-01-salaries-tealSalary increases for UT employees. President DiPietro is requesting, at a minimum, a cost-of-living salary adjustment.

Why: The University has a $150 million market gap in terms of employee pay that it is trying to close over time. As state employees, the University is asking the state to help fund increases for UT employees, as their work is critical to the state’s future.  UT employees did not receive a cost-of-living adjustment in last year’s budget.