President Schill announces $4.5M in budget cuts

Dear University of Oregon campus community,

Over the past few months, I have spent a lot of time in Salem talking with lawmakers about the urgent need for additional state funding for public higher education. Elected officials tell me they understand the critical importance of higher education to the future of the state, but Oregon’s challenging political and fiscal realities—specifically a $1.6 billion budget shortfall in the next two-year budget cycle—make it difficult for them to meet all of the state’s needs, including those of public universities.

It is with a significant level of uncertainty that we must move forward with budget planning for the 2017–18 fiscal year that starts on July 1. The UO must take steps now, some of them difficult, to prepare for this uncertain future. As we move forward, I am committed that we minimize the impact on our academic core.

To recap developments from the last few months, the state is proposing flat funding for public higher education, which in practical terms is a $2.5 million cut next year given the way state appropriations are distributed over the biennium. In addition, the university is forecasting significant cost increases—largely created by salary growth tied to collective bargaining agreements and unfunded retirement costs—equaling approximately $25 million in additional expenses next year, putting the total gap we need to close at $27.5 million.

With the shortfall in mind, in March the UO Board of Trustees approved a conditional 10.6 percent tuition increase for resident undergraduates and a 3 percent increase for nonresident undergraduates. I believe this tuition increase is too high, but it is necessary given our financial position. Public universities in Oregon have calculated that it would take at least an additional $100 million in biennial state support for most public higher education institutions to keep tuition increases to around 5 percent and preserve core student services next year. This is why the UO’s tuition increase is conditional. For every $20 million in additional state support, we are committed to reducing our in-state tuition increase by roughly 1 percentage point. However, we will not know where state funding will shake out until July, when lawmakers will likely finalize the state budget.
With decades of shrinking state dollars, tuition has become our primary source of funding. We have adopted an enrollment strategy for next year that aims to attract a strong incoming class and modestly increase the number of new students, which would help manage rising costs.

The bottom line is that tuition revenue and state support make up 94 percent of our general education budget, and there is a tremendous amount of uncertainty in those areas with three months left until the start of the new fiscal year. Given what we know at this time, we estimate the UO will still face a budget gap of approximately $8.8 million next year that must be closed with either new revenue or budget cuts.

It is my judgment that it would be imprudent to wait until the late summer to take action. Therefore, I am taking steps now to reduce the projected shortfall by roughly one-half, or $4.5 million, for the fiscal year beginning July 1. Those steps include the following:

A 1 percent reduction in administrative general fund spending. I have asked each vice president to provide a budget reduction proposal to me by May 22. Given that labor costs account for about 80 percent of the university’s general education budget, it is likely that some of these cuts will require hiring freezes and layoffs. I will review the proposed budget reduction plans and they will be vetted by the Office of the General Counsel and Human Resources. We anticipate being in a position to communicate any reduction decisions by July 1, with an October 1 implementation date. Schools and colleges will be exempt from this budget cut.
Estimated savings: $1.5 million

Eliminating the strategic investment fund. In the past, the university has set aside about $2 million a year for strategic investments and asked a budget advisory group composed of students and members of the faculty and staff to review, assess, and award funding to various proposals submitted from campus stakeholders. One million dollars of these funds have already been precommitted to tenure-track faculty hires related to the cluster initiatives. As was announced earlier, we are not running the strategic investment process for the remaining $1 million this year. Any new initiatives for FY 2018 that would normally have been funded under this program will have to be supported with dollars reassigned from within individual units.
Estimated savings: $1 million

Ceasing the distribution of graduation incentive grants. The university launched a program in 2016 to provide $10,000 grants to juniors and seniors at risk of not graduating. While this program, funded by state appropriations, is promising, it is something we must halt—at least temporarily—given the absence of adequate state funding.
Estimated savings: $1.4 million

Ceasing distribution of interest on auxiliary and designated operation funds. Many auxiliary and designated operations funds have been allocated interest when fund balances are positive. Going forward, we will suspend those interest payments and reallocate them to our general fund to help with the budget gap. Interest will still be distributed to grant funds, plant funds, internal bank funds, and restricted gift funds.
Estimated savings: $600,000

While I would like to write that the savings achieved from this $4.5 million of budget reductions would be enough for this year, that is unlikely to be the case. As all of you know, I have assembled an ad hoc Budget Advisory Task Force made up of faculty members, students, and staff members that is looking more closely at additional strategic steps that could be taken to either raise revenue or reduce expenses over the long term. My expectation is that any recommendations that come from this group will be more targeted than the initial steps I have outlined here and will be announced later this summer.

Despite these painful financial realities, I remain very optimistic about the trajectory of the University of Oregon. As we move forward, we will work diligently to protect our academic and research programs, and accelerate our recent progress in enhancing excellence in teaching and research. We will continue to invest in faculty hiring, research infrastructure, and support for student access and success programs. While today’s budget challenges will make this harder, we cannot and will not stall our pursuit of excellence at the UO.

By working together, we will be able to weather challenges that are ahead of us.

Thank you.
Michael H. Schill
President and Professor of Law

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30 Responses to President Schill announces $4.5M in budget cuts

  1. So is the right way to interpret this... says:

    …is to infer that there’s a lot of administrative cruft that can easily be reduced?

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  2. honest Uncle Bernie says:

    Schill doesn’t mention that the Governor last week stated that she doesn’t want tuition hikes on in-state students of greater than 5%. UO is proposing a 10+% tuition hike. I believe anything over 5% has to be approved by the state higher education board, whatever it is called now. No, UO is not “independent”!

    If the max allowed tuition increase is 5%, that will be another $4 million or so that needs to be cut (assuming that the “net” tuition after “discounts” aka scholarships remains at the same rate of about 2/3 of nominal tuition).

    I’ve been saying for quite a while that the 10+% tuition hike is going to be a problem, if only because of the danger of pricing UO out of its market. Now it also looks like a political problem, which is not a surprise either.

    So, get ready for a tussle between the state and UO over another $4 million budget cut.

    I suspect with a psych professor making $155K and suing over the unfairness of it all; and a pres making not too much less than $1 million, that the sympathy is going to be with the Gov, not the UO tuition hike.

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    • UO Matters says:

      The state sets its budget priorities on the basis of sympathy?

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      • honest Uncle Bernie says:

        Call it sympathy, call it political clout, call it naked interest group greed. I don’t think too many people out there are going to think UO should be asking for 10% from Oregon students and their parents. Especially not to pay for PERS and salary raises. Especially when OSU is only asking for something like 7%. I’m not saying they’re right or wrong, I’m just saying what (I think) it is.

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        • Fishwrapper says:

          According to press reports, OSU is asking for 4% in-state and 2% out-of-state increases. The Trustees meet telephonically tomorrow to finalize the proposal, an earlier meeting having been disrupted by tuition-increase protesters.

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          • honest Uncle Bernie says:

            Fish — interesting — earlier reports had said 7% for instate, I believe. Maybe Ed Ray and the boys and girls on the OSU board see which way the wind is blowing. To mix metaphors, maybe they have a better collective ear than some people down south.

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            • Fishwrapper says:

              According to the very local Barometer and on up to US News & World Report (and many in between), the Finance and Administration Committee put forth a recommendation for a 4 percent resident undergraduates and a 2 percent non-resident undergraduates increase.

              My hunch is that they got this number from the agenda materials, specifically the FY2018 Tuition Rates, Mandatory Fees and Student Incidental Fees
              and Operating Budget Outlook
              . Quoting from page 2: “In the end, a majority of the committee preferred a recommendation of a 4% increase in resident undergraduate rates (with 1% – or 25% of the recommended increase – allocated entirely to need-based financial aid) and a 2% increase for non-resident undergraduate rates (with 0.5% being allocated to need-based financial aid).” It is true that discussions of options included higher rates of increase, but the committee determined that, pending state funding, a 4/2 increase was doable, and preferred as it was lower than what other campuses were contemplating.

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            • Fishwrapper says:

              Sherm Bloomer, OSU’s Director of Budget & Fiscal Planning, made a very candid presentation to the March meeting of the OSU Faculty Senate explaining the thinking behind OSU’s planning for the next few fiscal years, with an eye toward how to minimize, where possible, the impact on tuition. Quite a bit of water has flowed under the dam since early March…

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        • Dark Wing Duck says:

          Doesn’t the state mandate how much UO has to contribute to PERS cost increases? On that basis, how do they expect we’re supposed to come up with the money, if they won’t contribute and tuition increases are capped? Pan the millrace for gold?

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          • UO Matters says:

            Oh fine, now everyone knows about the millrace gold. Thanks a lot.

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          • honest Uncle Bernie says:

            I think they expect that we could work harder or do without salary increases.

            You would rather they don’t make UO pay for increased PERS costs?

            Well — some people in the legislature are working on cutting PERS costs by doing things like ending the 6% “pickup” — in essence making us pay for it, in effect a 6% pay cut — or similar schemes. A way to “eliminate increased PERS costs.”

            Be careful what you wish for.

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      • Salty says:

        No, but many Oregonians vote and form their opinions based on sympathy. No university is an island, mind you.

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      • bold leadership says:

        Bold to double the Pres salary, blow 16 million you don’t have on a football coach, then complain about rising labor costs and fire the teachers.

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    • Inquiring Minds says:

      I thought that when UO pushed for independence that a bunch of donors were just lining up and waiting so that they could support us. A few big ones for sure have come in, but not enough to substantially endow the UO as predicted.

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  3. good plan says:

    Step one, better get that football coach contract locked in for over 3 million per year. Step two, we’re broke better fire everyone else saving 4 million per year.

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  4. LArdman says:

    So does the statewide hiring freeze Gov Brown just announced affect the UO?

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  5. honest Uncle Bernie says:

    Here’s a secret plan to deal with the UO deficit. The legislature passes a bill to screw PERS faculty members. Say by decoupling the annuity rate from the assumed rate. Don’t worry about what that means, what it means in reality is a new Tier retiree would face a 30% or so cut in pension if that person worked past a certain date, say Jan. 1 2018. There are real proposals in the Legislature to do just that, and about a dozen other similarly dastardly proposals to screw you whether you are Tier 2, Tier 3, ORP, whatever.

    So, you get a bunch of panic retirements from Tier 1 faculty and staff near retirement. Deficit solved!

    How do you cover the classes taught by said Tier 1 retirees? Well, a lot of them will be on TRP, and teaching at reduced cost.

    For classes that still need to be covered, hire adjuncts! Maybe even hire some of the ones who were just fired.

    Use the savings to hire more TTF.

    Problems solved!

    It’s a wonder they aren’t conspiring on this in Johnson Hall with the Legislature and Governor right now.

    They aren’t, are they?

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  6. Old Grey Mare says:

    And here is the old question one more time: has anyone ever decisively proved that a modest tax on donations to athletics affects donor generosity?

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    • ODA says:

      What about a modest tax on ALL donations with strings? Perhaps every donation should have a requirement that at least some amount, say 7%, go to unrestricted foundation. Also, since all these buildings cost money to keep up and repair over time, or even to fix the design and engineering errors just a few years down the road, perhaps we should have another 5-10% or so go to a building maintenance only fund for all buildings and infrastructure donations.

      If we can’t keep the water out, the heat in, the lights on, and the floors from buckling under foot then the donation aint worth shit.

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  7. honest Uncle Bernie says:

    Don’t want to beat this dead horse to death too often — but Fishwrapper is right, OSU is now asking for only a 4% tuition increase. How do they do this? Maybe the UO flagship should talk to the blokes on that cargo ship and find out how they do it.

    I know this, if UO asks for 10.6%, and OSU for 4%, we will look like a bunch of jackasses.

    And don’t think we are “independent,” we’re not.

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    • Fishwrapper says:

      It’s official – OSU’s board voted today for the 4% in- and 2% out-of-state tuition rate increases. In a letter to the OSU community, Ed Ray wrote:

      I did not propose larger tuition increases despite pending budget shortfalls because I realize that many students are heavily burdened already with student loans and other concerns. Our students should not bear the brunt of covering an anticipated shortfall in state funding for higher education. In fact, students must remain Oregon State’s first priority for support so that they can continue to pursue their studies, graduate and prosper in life and career.

      He also announced a new budget website for folks to, “…keep the OSU community up-to-date on fiscal matters facing the university,” and added,

      I remain deeply disappointed that state leaders have no meaningful plan to manage the budget challenges we face in Oregon — other than by hunkering down and waiting for better times. I have been in Oregon for 14 years. I note that the absence of a state strategy that provides for investment in a better future for all Oregonians during both good and bad times has persisted for too long. The state’s current approach of hoping for better times is not a strategy.

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  8. Widget#298 says:

    SEIU is currently in economic bargaining. Is it any surprise the prez is pointing fingers at wages of employees?

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    • Max Powers says:

      Somewhere between SEIU’s initial offer on the table and the 4.5 million in cuts is reality. Will either side see it?

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  9. Plain Interested says:

    So, the state “picks up” the employer and employee shares of retirement contribution, and that fair? Why not also have someone else pick up FICA, medicare, state income tax on retirement and every other potential retirement cost. It’s senselessly unfair, and that is why there is a health debate about government efficiency and the use of taxes.

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    • UO Matters says:

      You should read up on tax incidence before making statements like this. It’s covered in every microeconomics principles text.

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    • New Year Cat says:

      It was originally proposed by the state, in lieu of salary increases, because it would cost the state less.

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