Short and Intermediate Term Financial Planning

1. Short and Intermediate Term Financial Planning December, 2009

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. Budget ContextScope of State Budget Problem • Without a tax increase, the State’s structural budget deficit is $4 billion or more. • Tax revenue continues to decline • State has mandates (debt service, Medicaid) & costs that grow in economic downturns (unemployment, health care, social services) • State has backlog of unpaid bills lead some to characterize State budget problem as an $11 billion shortfall Source: Commission on Government Forecasting and Accountability Page 3

4. Budget ContextStatus of FY10 State Budget • Short-term solutions will get us through at least part of year. Super-majority required to approve revenue increases now. • Stimulus funds ($45.5m) used in University appropriation. • Risks to campus: indirect appropriations ($30m+), growth since FY08 ($11m) & benefits($$$$) • The State is 150+ days behind on payments – a great risk to our institution

5. FY 2010 Budget Outcomes • On the surface things look good: • No GRF Reductions • Cost Increases – 1.7% reallocation • However, significant mid-year risks: • State revenues continue to decline • Shortfall may require action at any time • Possible passing of benefit and other costs on to campus.

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.

8. 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.

9. State of Illinois Debt(Dollars in Billions) (Dollars in Billions) $71.3 Pension Debt $27.5 Bonded Debt Page 9

10. Real Gross Domestic Product by State1997 – 2008(Millions of Chained 2000 Dollars) *Average of top five performing states. Source: U.S. Bureau of Economic Analysis.

11. 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 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

12. Summary of State Financial Issues • Uncertainty regarding taxes • ISAC funding cut by > 50% Restored but not funded • State is 180+ days behind on payments to the University • Stimulus funding runs out this year • Rumors of benefit charges to university • Pension system dramatically underfunded Total risk to campus is many tens of millions of dollars!

13. Campus Financial Challenges

14. Planning Constraints • 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

15. Planning Constraints (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!

16. Planning Issues (strengths) • High quality faculty, students & staff • Improving financial control & health • Fee support for facilities & Library/IT • Stabilized utility costs—both price & conservation • Good state capital budget • Aggressive pursuit of stimulus grants

17. How Do We Respond?

18. First Steps: Unit Financial Control • Eliminate Deficits—we need to move quickly. Most recurring deficits resolved this year. • Raise Cash—delay hires and purchases. 4.5% of college budgets set aside in special accounts

19. Some Actions Taken Centrally • Hiring plans required again this year; hires must be limited • Initiatives stretched over a multi-year period; a review of funding for all recent initiatives • Increased vigilance regarding unit finances • Administrative reduction program goes forward: > $1.2m this year • Establishment of advisory groups

20. These steps will not be enough . . . . . . We need to move beyond belt-tightening and take a deep look at our institution How do we move forward in an era of declining resources?

21. College Planning Initial work done in FY09. Some characteristics of the next step: • Focus on protecting quality and reducing costs • Plans needed quickly—initial unit plans by mid-December • Bottom up effort with significant faculty & staff involvement • Everything must be on the table

22. College Planning (cont.) • Plan for three levels of reduction: 7%, 10% and 15% • Plans must include short-term actions (to raise cash) & long-term actions (to reduce costs) • Plans should consider possible revenue growth and efficiencies • Plans should not be limited by organization. Look for opportunities across departments and colleges

23. Steering Committee • Deba Dutta—Graduate College • Bob Hauser—ACES • Tanya Gallagher—AHS • Linda Smith—GSLIS • Ruth Watkins—LAS

24. Faculty Advisory Group • Elabbas Benmamoun—Linguistics • Ralph Brubaker—Law • Deba Dutta—Grad College & Engineering • Rayvon Fouché—History • Scott Irwin—ACE • Tony Liss—Physics • Jim Lisy—Chemistry • Edward McAuley—Kinesiology • Curtis Perry—English • Kim Shinew—Recreation • Linda Smith—GSLIS • Ginger Winckler—VM

25. Discussion