Stewarding Excellence@ Illinois

Campus PresentationsFebruary, 2010

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?

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!

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

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

State of Illinois

Longer-term Financial Issues

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

FY02-09 excludes health insurance re-direction to CMS.

1.4 to 1 1.3 to 1 1.2 to 1 1.1 to 1

We have become increasingly self-reliant for direct operating costs.

UIUCFY00 - FY10

General Revenue Funds and Payments on Behalf

0

100

200

300

400

500

600

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Amou

nt in

Mill

ions

GRF Payments on Behalf GRF + POB

“Payments on Behalf” are state contributions to pension system and health insurance.

State pension “catch-up” is consuming all new revenue.

Direct appropriation is flat in recent years

State support for benefits now exceeds direct funding of operations

In Constant 2008 Dollars (CPI)

Human Services

Elementary/Secondary

Higher Education

All Other

State Average

12.0%

3.7%

-24.1%

-32.0%

18.6%

State Tax AppropriationChanges by Agency

FY02 - FY09 exclude $45 million from higher education for Health Insurance payment to CMS.

Higher Education has done poorly compared with other state agencies

State of Illinois Debt(Dollars in Billions)

$0

$20

$40

$60

$80

$100

$120

GRF Debt

$71.3

Pension Debt

Bonded Debt

Page 10

The state is faced with a significant amount of pension and bond debt compared with the size of its budget

Real Gross Domestic Product by State

1997 – 2008(Millions of Chained 2000 Dollars)

*Average of top five performing states. Source: U.S. Bureau of Economic Analysis.

The decline of manufacturing has held back growth in Illinois compared to the nation

Stimulus Funding:Short-term help; Long-term

riskOperating• $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 coverStimulus Grants• Research funds provide 2 year opportunity• Federal deficit may not allow indefinite

funding

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!

Campus Financial Challenges

UIUC Year-End Operating Fund Balances (millions)

($100.0)

($50.0)

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

FY04 FY05 FY06 FY07 FY08 FY09

Total Balance Institutional Total Institutional Total (Excluding Utilities) Self-Supporting Total Gift/Endowment Total

Dramatic increase in utility costs ate into campus cash balances

How Do We Respond?

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

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!

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

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

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

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