Short and Intermediate Term Financial Planning

January, 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?

Budget ContextScope of State Budget Problem

Without a tax increase, the State’s structural budget deficit is $5 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

Page 3Source: Commission on Government Forecasting and Accountability

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

FY 2010 Budget Outcomes

On the surface things look good: No GRF Reductions Cost Increases – 1.7% reallocation Significant growth in tuition revenue

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.

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

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.

State of Illinois Debt(Dollars in Billions)

$27.5

$71.3

Pension Debt

Bonded Debt

(Dollars in Billions)

Page 9

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.

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

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!

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

Deficits — Improved in FY09;Progress Still Required Utilities

University-wide funding hid size of deficits Annual budget now fully funded Cumulative deficit of $90m

Campus Reserves Long-term commitments use most of reserve Growth in utilities did not allow new funds to

be directed to reserve Annual commitments beyond funding

Unit Deficits

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

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!

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

How Do We Respond?

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

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

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?

Meeting the Challenge

Initial Steps

Through Dec.

Communicating scope of problem

College planning

Cost reduction

Forming Teams

Jan.– mid-Feb.

Broader Communicating

Review college plans

Identify areas for review

Review teams charged

Specific unit reduction targets

Brief reviews completed

Review revised plans

Bridge plan completed

Feb.- March

Identifying Opportunities

March-

Deploy Teams

Implement Plans

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.)

Formed central teams Steering Committee—4 deans, 1 VC, 1 faculty Campus Advisory Group—13 faculty & APs Implementation Team—9 campus admin. staff

System-wide Administrative Review Committee Exploring next steps for strategic procurement,

IT efficiencies & service centers Review administrative structure for possible

streamlining

Bob Easter Chancellor

Dick Wheeler VC Academic Affairs

Steering Team

Deans of LAS, AHS, ACES, Grad College; VC Student Affairs; VC

Academic Affairs; two faculty; staffed by Provost’s Office

Implementation Oversight Team

VC Academic Affair, VC Public Engagement, Dean of LAS, Assoc,

Chancellor Public Affairs, Chancellor’s and Provost’s Staff

Senate Budget Committee

Project Structure

Campus Advisory

Group

Steering Committee

Deba Dutta—Graduate College Bob Hauser—ACES Tanya Gallagher—AHS Linda Smith—GSLIS Ruth Watkins—LAS Tony Liss—Physics

Campus 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

Discussion