A "basic clamp-down in spending" and tuition increases have left the UI in better financial shape than might have been imagined just a few years ago when the depth of the state's financial decline started revealing itself.
But plenty of challenges lie ahead, including an expected overall decrease in federal funding, according to UI officials reporting to the UI Board of Trustees at its Sept. 9 meeting in Urbana.
Chief Financial Officer Walter Knorr reported the state's ongoing fiscal difficulties continue to make the budgeting process difficult, though trustees approved a $5 billion proposed budget for all three campuses for fiscal 2012 - a 5 percent increase over 2011.
Trustees also approved a request to the Illinois Board of Higher Education for fiscal year 2013 asking for an additional 5 percent increase, or $83 million in additional state funding.
"We're firing on all cylinders except for dealing with state funding," he said. "It's still a very large number that's owed to us."
State government is still holding $7.4 billion in unpaid vouchers and it owes the UI $313 million, but Knorr said recent legislative changes had led to more timely payment of state obligations so far this year.
The UI's 2012 budget includes a $693 million direct state appropriation for operating costs, and an estimated $793 million in "payments on behalf" that the state will pay directly to agencies to cover employee health and pension benefits.
"That hangs over our heads as an area for concern," Knorr said of expanding university benefit costs.
The budget also includes $939 million from the University Income Fund, made up primarily of tuition dollars.
He said recent tuition increases, as well as projected annual recurring savings of $26 million from the Administrative Review and Restructuring initiative, is helping guide the university's improving financial picture. By 2014, the university hopes to achieve $60 million in recurring annual savings as a result of the ARR initiative.
In addition, UIC's hospital operations have shown a $32 million profit last year and research-related activities realized a profit of $20 million.
"Sound budgeting, cost-cutting efforts and prudent spending have enabled us to preserve and advance our standing as one of the world's elite universities, despite historic financial challenges," said UI President Michael J. Hogan.
Board Chairman Christopher Kennedy said while trustees reluctantly have approved annual tuition rate increases, last year tying rates to an inflation index, not doing so would have left the university in a dire financial situation.
"Had we not raised tuition, the educational mission would have been destroyed," he said.
Knorr said the university's income side reflected tuition increases enacted over the past six years and the fact that 10,000 more students were enrolled at UI's three campuses in that same period. The new budget also includes an increase in financial aid of $6 million, raising the total offered for student assistance to $51 million.
Knorr cited several areas where university administrators were working to shore up expenses and maximize resources. He said new investment and endowment strategies are being considered, new purchasing efficiencies already had been enacted, and the university had formulated a plan to cut its nearly $2 billion debt in half.
In addition, Knorr said officials are hearing hopeful signs that legislators might consider funding projects that have appeared in the state's capital projects budget but had gone unsupported in recent funding cycles.
"We just have to continue to live with the uncertainty," he said.
Hogan said university administrators continue to revisit and revise overall performance metrics and are studying ways to make each campus's "dashboard report" more relevant to future planning.
He said cost-cutting initiatives such as the ARR program also would continue.
"It's put us well on our way to our three-year goal of $60 million in savings," he said. "I believe we can go well beyond that."
David Merriman, a professor and associate director of the Institute of Government and Public Affairs, said in his report to trustees that the state's financial condition continues to be troubling and directly related to the country's general economic malaise.
"It's more like we're tunneling out of recession rather than roaring back," he said. "We have a long way to go."
He said proposed recent cuts by Illinois Gov. Pat Quinn "will go part of the way but will in no way balance the consolidated budget."
Declines in federal assistance to states, minimal job-growth prospects and a recent state credit-rating downgrade will make a financial comeback more difficult, though Merriman said, "Illinois still has a lot of capacity to borrow.
"But we still don't have a long-term plan to bring us back to fiscal balance."