The Urbana campus faces significant short-term and long-term financial challenges, which will be greatly compounded if the state doesn’t take action soon to rectify its budgetary problems, Michael Andrechak, associate provost for budgets and resource planning told the Urbana-Champaign Senate. Andrechak discussed the UI’s financial planning at the senate’s Dec. 7 meeting.
With a backlog of billions of dollars in unpaid bills - on top of a structural deficit of $3 billion to $4 billion - the state will enter 2010 "with an $11 billion budget problem unless legislators take action soon to dramatically reduce costs or increase revenue," Andrechak said. "Without a tax increase, the state has a real hurdle in filling the shortfall of funds."
The state is currently 150 days behind in appropriations payments to the Urbana campus.
"The cash-management staff members in university administration are doing an excellent job to make sure we meet our bills and are slowing down payments where they can. But if the state doesn't start to pay, we're at risk of being unable to pay basic operating costs by early spring," Andrechak said.
Month-by-month revenue projections for the state indicate that tax revenue continues to decline, "and we have not bottomed-out yet," Andrechak said. "We're still in a state of economic decline."
The state entered the economic downturn with several deficits that are exacerbating its financial problems now.
"There are certain costs - Medicaid, debt service and pension programs - that the state cannot defer, placing more pressure on all other appropriations," Andrechak said.
Likewise, the UI entered the recession with a cumulative deficit of $90 million in utilities costs, $550 million in deferred maintenance costs and units that had overextended themselves with financial commitments.
"We have turned a lot of this around - through aggressive energy conservation programs and by working with units that were overextended - but it is a burden as we go forward. ... It's going to require the full intelligence of our institution to move forward in a way that can protect the university," Andrechak said.
The university's Fiscal Year 2009 state appropriation includes $45.5 million in federal economic stimulus funds. However, that funding won't recur in FY11 unless the state finds a revenue source to replace the stimulus funds. The UI also is at risk of losing indirect appropriations that support activities in a number of units.
The UI is supposed to receive the federal stimulus payment by early 2010. However, it has not received $249.5 million in capital funding that was approved by the Legislature last summer.
Among the UI's long-term challenges is declining state support. In FY1970 the state provided about $13 in appropriations for every tuition dollar; that ratio decreased to about 1:1 by FY09.
Already one of the highest-cost public universities in the nation, the UI cannot depend on tuition increases nor can it rely on the state to fill an expected revenue gap of up to $60 million next fiscal year, Andrechak said.
In response to its financial challenges, the campus instituted energy-conservation programs and worked with unviversity administration and the campuses to stabilize utility costs by buying fuel for future years at significant price reductions.
Campus officials also have reduced administrative costs by $1.2 million during the current fiscal year.
College deans at the Urbana campus are developing multi-year financial plans that anticipate budgetary reductions ranging from 7 percent to 15 percent, that generate new revenue and create efficiencies across units.
The current economic crisis is similar to the challenges that the UI faced during the Great Depression of the 1930s, according to Andrechak. "But (the university survived) in a manner which helped set it up for great success after World War II. We are in a period very similar to that, and we have to make decisions that are not only going to get us through the next couple of years, but will help situate the university for success to ensure that the name 'Illinois' means something 10, 20 and 30 years from now."
Among the Urbana campus's strengths are superb faculty members, a decentralized budget process with units that are committed to controlling costs, and students who are willing to share costs to help maintain quality by instituting fees such as the Library Technology Fee and the Academic Facilities Maintenance Fund Assessment, which helps address the deferred maintenance backlog, Andrechak said.