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:  The UT System Administration, with involvement by the Faculty Council, will conduct a comprehensive review of the University’s established tenure and post-tenure review 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.

Tuition Freeze Bill Taken Off Notice in House Education Subcommittee

A bill seeking to freeze tuition at public two and four-year institutions of higher education was taken off notice in the House Education Subcommittee yesterday afternoon (HB2179 by Rep. Barrett Rich).  Taking a bill off notice means that it will no longer be heard in committee unless the sponsor of the bill re-calendars it.

The companion bill in the Senate, SB1683 by Sen. Dolores Gresham (R-Somerville), has not yet been calendared.

For more about the bill, an excerpt from one of our recent posts:

HB2179/SB1683 [would have] required colleges and universities to create a cohort-style tuition freeze program for in-state students that maintain a cumulative collegiate GPA of 3.0 or higher. The bill’s definition of tuition includes all fees that must be paid to attend an institution. As such, the bill encompasses not just tuition, but course fees, program service fees, student activity fees, registration fees, and matriculation fees. As drafted, there was no “end-date” to the proposed freeze program, meaning if passed as drafted, it would last for perpetuity or until repealed.

In general, cohort-style tuition freezes lead to exponential tuition increase growth from cohort-to-cohort. A simple (and hypothetical) example helps explain:

Say the cohort tuition freeze program goes into effect for entering freshman. During their tenure, if they meet the requirements of the bill, their tuition rate would be frozen.

The following year, rates for rising-sophomores would be frozen, so the institution—to be able to account for lost revenues, increased fixed costs, and operational needs—must significantly raise the tuition rate for the new class of incoming freshman. Instead of the increases being spread across two cohorts, they are spread across one. The effect continues from year-to-year, leading to large increases from cohort-to-cohort.

For a number of years, legislators have been concerned about the perceived “rising cost of higher education.”

It isn’t so much that the cost of higher education has risen, but rather that the party “footing the bill” has changed. As state funding for higher education has declined over the past ten years, students have picked up more and more of the cost burden. In reality, the cost of higher education has remained relatively stable.

The Truth About Tuition Discounts & Waivers

Three bills granting tuition discounts and waivers for various groups passed in the House Education Committee this morning.  Most of these bills will now go for hearings in the House Finance, Ways, and Means Committee.

While well intentioned, tuition discounts and waivers have the effect of unfunded mandates on public colleges and universities.  Since no state funding is typically provided to accommodate the proposed discounts and/or waivers, costs must be recouped through the institution’s tuition rate.  This ultimately places a larger tuition burden on the institution’s student population.

The bills that passed in the House Education Committee today include:

SB543/HB283: Allows the children of retired teachers’ who are under 24 years of age to receive a 25% discount at any state-operated institution of higher learning; provided, that the parent retired with 30 years of full-time creditable service in Tennessee public schools or received disability retirement after a minimum of 25 years of full-time creditable service in Tennessee public schools.

SB402/HB305: Allows children of the director of schools of any LEA in Tennessee to receive a 25 percent discount on tuition to any institution of higher learning.

SB1164/HB887: Permits retired state employees to take one class without charge per semester at public institutions of higher education. Allows a spouse of a state employee to receive a 25% discount on tuition at public institutions of higher education.

Updates will continue to be provided as these bills move through the legislative process.