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Meeting the State Budget Challenge

Sent to University faculty and staff

February 9, 2009

On January 27, Governor Pawlenty proposed a substantial cut to the University of Minnesota's budget for the 2010–11 biennium in order to help address a $4.8 billion state budget shortfall. It is important to recognize that the governor's budget proposal is the first step in a lengthy legislative process, and we will continue to make a strong case for reducing the cuts to the University and making higher education a long-term priority.

However, it is also essential that we respond quickly and deliberately to the serious financial challenges we face. The University's Board of Regents approved the University's operating budget in June 2008 and the 2010–11 biennial request last October. Since then, the financial outlook has changed in three significant ways:

• First, the state and nation experienced an historic economic downturn. While the University began preparing for the possibility of a state budget deficit last spring, few predicted an economic crisis and state budget shortfall of this magnitude.
• Second, the state responded to an immediate revenue shortfall by taking back $20 million from our appropriation for the current year.
• And third, the governor's budget recommendation for the 2010–11 biennium included a recurring reduction of $75.5 million to the University's base appropriation beginning in the 2009–10 academic year. 
• This is on top of a recurring $2.5 million base reduction passed in 2008. 
• Therefore, the total recurring base reduction to the University's appropriation beginning in 2009–10 is $78.0 million.

From a biennial perspective, the Governor's budget recommendation results in a reduction to the University's base of $156.1 million, or approximately 11 percent. This is a severe blow to the University's operating budget, and requires all academic and administrative units to model unprecedented levels of budget reductions. All units will receive current budget planning guidelines within the week, including specific expectations with regard to internal cost and program reductions, compensation, and tuition.

• Due to the significant reduction in state appropriations for 2009 –10, the level of cost and program reductions necessary to balance the preliminary budget is now targeted at 5 percent to 8 percent. These reductions will help to cover increasing costs and essential academic investments.
• The financial model now assumes no salary increases in 2009–10 and a modest 2.0 percent salary increase for 2010–11.
• Please note that this assumption is for budgeting planning purposes. The collective bargaining process determines compensation plans for unionized faculty and staff. 
• In addition, all such plans are subject to Board of Regents approval.
• We are modeling a range of possible tuition increases on top of the planned 4.5 percent increase—but additional increases in tuition revenue will only be considered after available cost reductions have been maximized.
• The University of Minnesota has been a leader in keeping higher education affordable for students and their families.
• We are aggressively pursuing creative ways of providing need-based financial support.
• This means that any tuition increase will be substantially moderated for students with need.

It is important to note that these are just three of the tools we will use to balance the University's budget, in keeping with our budget principles. We intend to use all available tools to address our long- and short-term budget and investment challenges, and we have already implemented a number of policy changes, including:

• a hiring pause, which has reduced University job postings by two-thirds,
• and the Retirement Incentive Option, which yielded 449 faculty and staff participants, many of whom will not be replaced, saving millions of dollars.

These actions are intended to help minimize the impact of state cuts on our colleagues and students, either through involuntary job losses or higher tuition. We are also looking carefully at opportunities for administrative restructuring; additional human resource initiatives; and a variety of University-wide cost reduction strategies.

These are not easy times—but demand remains high for the education and innovation that only we provide. The University of Minnesota fuels economic growth—so while we recognize our responsibility to help address the state's budget problems, we know our role is bigger than simply managing budget reductions. A strong University is an essential part of the economic solution, not just for the next biennium, but also for the next decade and beyond. We must protect the University's future—not for our own sake, but because our economy and quality of life depend on it.

Sincerely,

Robert H. Bruininks