Planning in a Period of Uncertainty

1. Planning in a Period of Uncertainty April, 2010

2. The Perfect Storm • A worldwide financial crisis and an already weak state • Significant long-term financial challenges for the state How do we best move forward in a way that protect our institutions?

3. State Financial Issues • The state’s General Revenue Fund budget for operations is approximately $26 billion. • Started FY 2010 with $2.8 billion in unpaid vouchers. There is no revenue source to pay these past due bills. • One-time funds ($5.7 billion from borrowings, $2 billion stimulus funds, $300 million fund sweeps) used to help cover this year’s costs. • Even with 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 ~$400 million behind in payments – a great risk to our institution

5. 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 Stimulus Grants • Research funds provide 2 year opportunity • Federal deficit may not allow indefinite funding

6. 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 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 8

9. 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.

10. How Bad Will It Get? Probably see continued erosion of state’s competitive position (dropped from 4th to 15th in terms of per capita income in the last 15 years) Forecasts suggest loss of 150-170,000 more jobs over next 12 months

11. Summary of State Financial Issues • Uncertainty regarding needed tax increase • State is almost $400 million behind on payments to the University • Stimulus funding runs out this year • Pension system dramatically underfunded • Structural changes to Illinois Economy Total risk to Higher Ed is many tens of millions of dollars!

12. How Do We Respond?

13. 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 require investment • Financial Aid—major investment required

14. Covering the Anticipated 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

15. What We Have Done So Far

16. Cost Reduction • Administrative Costs • Already low costs; 4.75% of total costs compared with 6.25% avg. for peers • Aggressive cost reduction: First stage of administrative reductions—$1.3m in savings • Utilities • Accelerated energy conservation efforts—millions in annual savings (9.5% in last 12 mo.) • Millions being spent on rapid payback projects

17. Staff Reduction • Voluntary Separation and Retirement Programs • How people leave matters • A program to reduce staff levels in a way that protects our community • Protecting diversity of recent hires

18. Large Cost Reduction Efforts • System-wide Administrative Review Committee • Exploring next steps for strategic procurement, IT efficiencies & service centers • Review administrative structure for possible streamlining • Campus: Stewarding Excellence @ Illinois • Three interlinked processes: • Institutional transformation • Cost reduction • Revenue generation

19. Stewarding Excellence @ Illinois • Administrative reviews • VC Public Engagement • Graduate College • VC Research • IT@Illinois • Refocusing Scholarships • State funded units • Extension • Police Training Institute

20. Stewarding Excellence @ Illinois • Some examination academic organization • Small colleges • Teaching support • Library • Aviation • Most efforts to insure effective use of academic resources are in colleges

21. Stewarding EXCELLENCE @ Illinois http://oc.illinois.edu/budget/