Stewarding Excellence @ Illinois Campus Presentations

1. Stewarding Excellence@ IllinoisCampus Presentations February, 2010

2. The Perfect Storm • A worldwide financial crisis and an already weak state • Significant long-term financial challenges for the state • An overextended institution with limited cash • Facility and other costs that can not be deferred How do we best move forward in a way that protects our institution?

3. State Financial Issues • The state’s General Revenue Fund appropriation is approximately $26 billion for operations. • The state started FY 2010 with $2.8 billion in unpaid vouchers. There is no revenue source to pay these past due bills. • The state used one-time funds ($5.7 billion from borrowings, $2 billion stimulus funds, $300 million fund sweeps) to help cover this year’s costs. • Even with these one-time funds, the state slips further behind with its payments. The state will start FY11 with a minimum shortfall of $9 to $13 billion—or 35% to 50% of the state’s operating appropriation!

4. Budget ContextStatus of FY10 State Budget • Short-term solutions will get us through at least part of year. • Stimulus funds ($45.5m) used in University appropriation. • The State is 180+ days behind on payments – a great risk to our institution

5. FY 2010 Budget Outcomes • On the surface things look good: • No GRF Reductions • Significant growth in tuition revenue • However, significant risks exist: • State revenues continue to decline • Shortfall may require action at any time

6. State of Illinois Longer-term Financial Issues

7. State Support Per Tuition DollarFY 1970 to FY 2009 12.8 to 1 8.6 to 1 4.5 to 1 2.9 to 1 1.5 to 1 1.4 to 1 1.3 to 1 1.2 to 1 1.1 to 1 FY02-09 excludes health insurance re-direction to CMS. We have become increasingly self-reliant for direct operating costs.

8. State pension “catch-up” is consuming all new revenue. Direct appropriation is flat in recent years “Payments on Behalf” are state contributions to pension system and health insurance. State support for benefits now exceeds direct funding of operations

9. State Tax AppropriationChanges by Agency In Constant 2008 Dollars (CPI) Elementary/Secondary 18.6% 12.0% Human Services 3.7% State Average Higher Education -24.1% -32.0% All Other FY02 - FY09 exclude $45 million from higher education for Health Insurance payment to CMS. Higher Education has done poorly compared with other state agencies

10. State of Illinois Debt(Dollars in Billions) $71.3 The state is faced with a significant amount of pension and bond debt compared with the size of its budget Pension Debt Bonded Debt Page 10

11. Real Gross Domestic Product by State1997 – 2008(Millions of Chained 2000 Dollars) The decline of manufacturing has held back growth in Illinois compared to the nation *Average of top five performing states. Source: U.S. Bureau of Economic Analysis.

12. Stimulus Funding:Short-term help; Long-term risk Operating • $45.5m shortfall in FY10 University budget funded with stimulus funding • State can’t cut FY10 operating below FY08 • These stimulus funds are gone in FY11; state must have new revenue to cover Stimulus Grants • Research funds provide 2 year opportunity • Federal deficit may not allow indefinite funding

13. Summary of State Financial Issues • Uncertainty regarding needed tax increase • State is 180+ days behind on payments to the University • Stimulus funding runs out this year • Pension system dramatically underfunded Total risk to campus is many tens of millions of dollars!

14. Campus Financial Challenges

15. Dramatic increase in utility costs ate into campus cash balances

16. How Do We Respond?

17. Planning Considerations • Revenue • State Funds—declining industrial base; significant unfunded retirement costs • Tuition—One of the highest cost publics; cost growing beyond capacity to pay • Expense • Personnel—80% of total costs • Utilities—significant cost growth in recent years. Facilities still require investment • Financial Aid—major investment required

18. Planning Considerations (cont.) • Buildings/ Maintenance • State stopped supporting facilities in 2002 • Campus stepped up to cover desperately needed remodeling and facilities • Deferred maintenance of $550 million! • Below average $ per square foot to maintenance—and it shows!

19. Planning Considerations (cont.) Many Strengths: • High quality faculty, students & staff • Fee support for facilities & Library/IT • Stabilized utility costs—both price & conservation • Aggressive pursuit of stimulus grants

20. Covering the Shortfall • Cut the cost of our operations: purchasing, IT, space. • Reduce our footprint in a selective way: eliminate, downsize or reorganize some activities • Highly differentiated unit budget reductions based on a number of factors, such as: • Duplicative activity • Strategic need • Source of funds • Funds already set aside

21. What We Have Done So Far • Communication and Planning • Kickoff meetings with all colleges to outline scope of problem • College planning efforts to address reductions • Aggressive cost reduction • First stage of administrative reductions—$1.3m in savings • Accelerated energy conservation efforts—millions in annual savings • Increased financial oversight and reduced deficits

22. What We Have Done So Far (cont.) • System-wide University of Illinois (UA) Administrative Review Committee • Exploring next steps for strategic procurement, IT efficiencies & service centers • Review administrative structure for possible streamlining • Campus: Stewarding Excellence @ Illinois • Formed central teams • Steering Committee—deans, campus leaders • Campus Advisory Group— faculty, staff, students • Project Mgt. Team—campus admin. staff