Budget update at start of 2017-18 academic year
This message by President Matthew Wilson was sent to faculty and staff on Aug. 23, 2017.
Before the fall semester officially kicks off, I wanted to reach out to you about several important budget-related topics raised at the August Board of Trustees meeting last week. I invite you to spend a few minutes reading and digesting this information. Please excuse the length of my e-mail, but I feel it is worthwhile to provide you with this update.
From the outset, I want to express my heartfelt gratitude for the resolve, optimism, and outright enthusiasm of the UA community in tackling our challenges this past year. As you have often heard me say — when we focus our efforts on student success and constantly strive for excellence, everything else will fall into place. In fact, positive results have started emerging with our renewed focus. New freshman enrollment has increased; student retention appears to be improving; and, we made some strong initial progress on our finances last year.
Despite this encouraging news, we have neither finished our work nor reached a resting point. Patience is required as we still face an uphill climb — including a projected deficit this year. We need to continue addressing our challenges in very short order. Collectively, it is imperative that we double-down on our efforts to innovate, attract students, and retain students while controlling expenditures.
Although much work still lies ahead on all fronts, I believe that we are headed in the right direction. I encourage you to embrace positivity regarding our progress and prospects, while continuing to spread encouraging messages about the University throughout the community. In addition, as I hold town halls and other meetings with colleges and units around campus this semester, it will provide an ideal chance to discuss our progress, challenges, and planned measures in even greater detail. I look forward to these interactions.
As you know, the 2016-17 academic year budget contemplated a $30 million General Fund operating deficit that would be addressed, in part, by an $18 million draw from our limited savings. Not only were we facing the ramifications of an 8% one-year enrollment drop at this time last year, but we also were struggling to adequately address the realities associated with a five-year enrollment decrease (22% decrease, dropping from 29,699 students in FY2012, to 23,152 students last year in FY2017). At the same time, continuing obligations — such as University debt service ($35 million per year), pension obligations ($28 million per year), medical benefits ($28 million per year), facilities maintenance, utilities, and other fixed costs – continue to exert additional budgetary pressures.
In October 2016, Ernst & Young (EY) independently and separately confirmed our financial predicament, including the $30 million General Fund budgetary gap. EY also assessed our future challenges and projected an even greater deficit for the 2017-18 academic year if actions weren’t taken. You can reference EY’s assessment together with other materials on our budget website. EY confirmed that immediate and sustained countermeasures were needed to ensure our long-term viability, while simultaneously avoiding short-term major cuts and reductions in personnel.
Countermeasures and Progress
Based on significant planning and discussion among all UA constituencies, we rolled out our Stabilize, Invest, and Grow plan to address a multi-year budgetary challenge. We also announced plans to engage everyone in longer term strategic planning upon the conclusion of our HLC accreditation visit this past spring semester. Both short-term and long-term measures are critical to help us survive and thrive in the environment currently facing UA and higher education in general.
Over the past year, we collectively executed Phase I of the Stabilize, Invest, and Growplan. Without question, we made significant progress. Not only did we eliminate the projected $30 million budgetary shortfall, but we even added $12 million to our savings account. This one-year surplus will help in addressing future anticipated shortfalls during the current or future fiscal years. This amazing progress resulted from our extraordinary efforts, growing optimism, fiscal conservativism, pragmatism, and several strokes of good fortune.
Let me explain our progress in greater detail. Keep in mind though that many of the measures taken last year will not be available again. Other factors that impact our budget (such as investment income and bad debt) are too fluid to rely upon. At the same time though, more permanent measures have helped us narrow a projected $45+ million budgetary deficit this academic year down to under $30 million. Because we cannot afford to withdraw this large amount from our savings account, we will continue to plan and reassess this year’s budget.
So, more concretely, how and where did we make progress last year? Here is the general breakdown:
- Tuition, fees, and miscellaneous income. $6.40 million over budget (within 2.7% of projection -- made up ground on enrollment after July 2016.)
- Athletics. $1.1 million (greater than anticipated revenue, MAC conference membership, etc.)
- Bad debt. $1.75 million collected over budgeted amount.
- Investment income. $1.30 million over budget (robust stock market).
- State Share of Instruction. $2.1 million over budget. (More UA graduates and state increase in SSI).
- IDC and departmental sales. $1.57 million less than budgeted.
- Hiring frost. $13.6 million in savings (salary/fringe benefits) from eliminating vacant positions, consolidation of positions, slower hiring, etc.
- Refinancing of debt (one-time). $7.2 million in savings.
- Operating budget and department sales savings. $3.4 million in savings by the departments and colleges.
- Scholarships. $673,000 less than budgeted (Making a Difference Moving Forward campaign).
- Capital investment. $2.23 million not spent on the campus infrastructure that was originally planned for in the budget.
- Draw from savings account. Zero (instead of budgeted $18 million).
Because we added $12 million to our savings account this year, you might be tempted to say “Does UA really even have a financial problem?” or question “Why doesn’t UA simply use this money to pay higher wages or hire new employees?” Hopefully, these questions haven’t arisen, given all of the information that has been disseminated over the past year about our multi-year challenges. However, here are a few things to keep in mind.
With respect to the first potential question, please remember that general fund revenues for FY 2017-18 are projected to be $340 million, while expenditures are projected to be $369 million, leaving a $29 million general fund gap. While new freshman enrollment is up and our residence halls are full (both very important achievements), our overall enrollment is still projected to drop by 5% this year due to the size of the incoming class and the large graduating pool last year. Hopefully, our efforts to provide the best experience possible to new and continuing students will help minimize the anticipated drop. Once we have the official enrollment results this fall, we will re-evaluate the current year’s budget.
As for the second potential question, while UA realized fantastic fiscal results during FY 2016-17 and we hope to keep the momentum going, we need to proceed cautiously while addressing our budgetary deficit this year and strategically plan for the future. As previously announced, we intend to address the General Fund budgetary deficit this year through Phase II of the Stabilize, Invest, and Grow plan by a combination of increasing revenues, continuing to aggressively control expenditures, and other measures. I fully anticipate that we will need to reduce departmental operating budgets this fiscal year, cautiously approach any hiring (including replacements), and we may need to alter traditional practices or even stop doing certain things. If necessary, we may also need to withdraw what is needed from University reserves (including the $12 million surplus from last year) to cover the difference. As I noted earlier, we have fewer options available this year to attack our projected shortfall. For these and other reasons, we need to find ways to be creative and innovative as well.
I am convinced that we will continue to see measurable progress. This is an outstanding University with excellent faculty, committed administrators and contract professionals, and incredible staff. We have wonderful students who come to us to pursue their dreams, and who help shape our futures. Although we face some difficult decisions ahead to further stabilize our finances, we can continue working together to overcome the challenges before us through collaboration, creativity, patience, and understanding. Fortunately, we have the opportunity to stabilize, invest, and grow. We also have the chance to strategically plan for a successful future. I invite you to help me in continuing our spirit of collegiality, pride, commitment, and family on our campus. Let us make the 2017-18 academic year another memorable one.
Again, thank you for all the work you have done for this University. Thank you for helping foster creativity, for rising above a demanding year, and for remaining part of our University family. I look forward to working with and supporting you during the upcoming academic year.
Matthew J. Wilson
A PLAN TO STABILIZE, INVEST AND GROW
Board approves budget for new fiscal year
Posted June 14, 2017
After hearing a review of the results of the Fiscal Year 2016 – 2017 budget, which concludes on June 30, 2017, the Board of Trustees on June 14 adopted a budget for the upcoming Fiscal 2017-2018 year.
As has been reported previously, preliminary numbers for the current fiscal year show that the cost control measures that were put in place across the campus have yielded good results, enough that the anticipated withdrawals from University reserves will be significantly less than the $18 million that was projected originally. President Matthew J. Wilson said, “The Board and I very much appreciate the efforts that everyone made to be fiscally prudent, including restraints on hiring. While next year’s budget still is challenging, we are in a better position than we would have been without those collective efforts.”
Chief Financial Officer Nathan Mortimer outlined several assumptions that form the backdrop for the upcoming fiscal year budget. They include: a 5% decrease in total enrollment, due to large graduating classes the last two years and the significant drop in freshman enrollment last fall; a slight decrease in State Share of Instruction funding; and, no increase in tuition and general fees.
General Fund revenues for FY 2017 – 2018 are projected to be $340 million, while expenditures are projected to be $369 million, leaving a $29 million gap that is to be filled by a combination of increasing revenues, continuing to aggressively control costs and then withdrawing what is needed from University reserves to cover the difference.
Message from President Wilson: Update to the Transformation Plan
Posted March 14, 2017
President Matthew Wilson sent a message to faculty and staff about the proposed voluntary buyout plan, the Akron Guarantee Scholarship, the success of our cost-containment program and more.
Message from President Wilson: Introducing the Transformation Plan
Posted Nov. 21, 2016
We have had much good news to celebrate recently, and I anticipate even more to come. Donations to the University are climbing, there is a renewed sense of coming together, student applications are once again headed in the right direction, the media coverage has been positive, the focus on our students has redoubled, and just a few weeks ago we announced a $3 million Knight Foundation grant. Thank you to all who have participated in our numerous town hall meetings and informal conversations. I want to continue our dialogue in the months ahead.
President Matthew J. Wilson
As discussed, the University faces the financial realities associated with a downturn in enrollment. Over the past five years, we have experienced gradual enrollment declines resulting from the University’s move to more selective admission standards several years ago, demographics, the impact of large graduating classes and the turbulence of the last year, which resulted in a smaller entering freshman class this fall.
The smaller student body, combined with our efforts to provide an affordable education, require that we closely analyze and adjust our expenditures to ensure our future success. Naturally, we need to minimize the impact these adjustments might have on students – particularly in the areas of recruitment, access, diversity, academic quality, research opportunities, retention, success and ultimately, timely completion of degree.
Addressing budget realities
In recent months, we have explored various approaches to address these realities. I have solicited suggestions from the campus community on ways to increase revenue and reduce expenses. The tiger team focused significant time and effort on these important issues. The University leadership team (both academic and administrative) has continuously discussed possible options. We even enlisted outside expertise and assistance through UA supporters and, using a gift from an anonymous donor, engaged the services of the management and accounting firm of Ernst and Young (E&Y). E&Y has assessed our past financial activities, examined our current financial situation, and provided preliminary suggestions for ways to ensure budgetary stability going forward. I compliment the E&Y team on an outstanding job in achieving these objectives.
Based on ongoing discussions combined with E&Y’s objective and impartial assistance, we have formulated a two-year action plan to tackle our financial challenges and balance the budget in two years. We will continue to flesh out the details of this plan based on ongoing discussions across campus and expert advice. We need flexibility, creativity, and understanding. To date, I have outlined our financial reality and portions of the action plan in town halls and other meetings. We also have discussed these things with the leadership of Faculty Senate, University Council, the AAUP and other bargaining units, and the Board of Trustees. I believe everyone is working toward a common understanding of the situation, and appreciates the importance of maintaining positivity for this plan to succeed. We need to focus on UA’s many strengths while working to resolve our challenges. This means constantly championing the successes of our students, quality of our academic programs, and strengths of our faculty and research endeavors while we work on our fiscal challenges.
Because e-mail cannot adequately convey all the relevant information, we have outlined the two-year financial plan and posted it together with the E&Y report and an explanatory video at uakron.edu/budget. In short, I can summarize the key finding of the report – expenses still outpace our revenues despite a cut of about $20 million from our budget last year. In large part this stems from the 8% decline in enrollment this year. Absent meaningful adjustments now, this trend will continue and quickly raise even greater risks.
Stabilize, invest and grow
I remain encouraged and optimistic. Fortunately, the E&Y report, together with our ongoing discussions, have helped focus us on solutions to our financial realities. The plan we have developed to meet our challenges can best be summarized as Stabilize–Invest–Grow. We can further stabilize our institution with a variety of initiatives, including a voluntary buy-out program to reduce personnel expenses, enhanced retention and recruitment initiatives (international focus and enhanced evening/weekend/online offerings), increased fundraising efforts, remodeling of our scholarship system, updating of our graduate assistantship program, and enhancements to the efficiency of our systems and processes.
There is much to digest, and our initiatives still need to be fleshed out. We will continue discussions with University governance groups, other segments of the UA family, and community. If you have questions, comments, and suggestions, please do not hesitate to e-mail me at email@example.com.
I strongly believe this two-year plan will carry us forward. At the same time, please know that it will require everyone to work in unity to make it succeed. We have the talent, energy, and ability to overcome our current challenges. We need to believe in ourselves, talk positively, and demonstrate our belief in the long-term success of UA through our commitment and actions.
Thank you for all you do every day for our students, our University, and our community. We have been entrusted with a rich legacy and important mission to educate, empower, innovate, and equip a workforce highly trained in diverse disciplines. I look forward to working together to continue UA’s legacy and realize our mission.
Matthew J. Wilson