Message From Chancellor Cantor on FY2011 Budget
Dear SU Campus Community Members,
This afternoon (March 3) there was a special University Senate meeting to provide the annual overview of our University budget for Fiscal Year 2011 and bring closure to the extensive campus discussion of our benefits plan revisions. Since not all members of the SU community could attend, I want to share the remarks I made at the meeting.
Good afternoon, today’s meeting has a dual purpose—to provide the annual overview of our University budget for Fiscal Year 2011 and bring closure to the extensive campus discussion of our benefits plan revisions. First, I will give a short overview of our proposed budget parameters and then address the benefits proposal.
It is worth taking a moment to place Syracuse in the broader context of what many are calling the “new normal” of fiscal constraints for higher education. Certainly, some of this “new normal” comes directly from the recent great recession, as universities face losses in endowment that translate to lower payout for expenses, higher costs to borrow for critical capital projects, and considerably greater pressure on financial aid budgets reflecting the tighter financial circumstances of students and families. But much of it derives from pressures on university budgets that have been growing for quite some time—the public has no appetite for the tuition increases of the last decade; the greatest growth in college-going populations is among families with more, not less need; universities have growing infrastructure costs around technology and safety; and like all organizations, universities face constantly escalating health care costs.
This “new normal” fits exactly our circumstances. Indeed, the pressures and demands on our budget have been escalating during the past decade in all of these areas—technology, safety infrastructure and health care costs. Our level of institutional debt has increased, for example, as we borrowed for key building projects for student housing and academic spaces enabling us to grow excellence. Our financial aid budget has grown significantly during this time because we made a strategic effort to retain our base of middle-income students and help students and families manage their loan burdens. We are and will be a tuition-driven institution for the foreseeable future, even with our success in fundraising and increasing sponsored research and new programs. Yet, as we move forward in this “new normal,” to be blunt, the days of 5%-6% tuition increases are over. Last year, we increased undergraduate tuition by 4.5%, the lowest increase in 43 years, and because we also increased undergraduate financial aid by 10%, to a total of $166 million, our net tuition revenue was substantially reduced over prior years. This coming year, we are proposing a 4% undergraduate tuition increase, continuing to reverse the trend of higher increases, and 4% in board with 3.5% in room rate increases. This will keep us competitive in total costs—at least 25th lowest out of the 32-institution peer group we use for comparison purposes. However the tuition increase, net of the financial aid we must provide to support our students and families (a budget of $178 million for undergraduate aid in FY11), will produce about $10 million less in new funds in the coming year than did the higher tuition increase from four years ago. Together, the tuition increase and financial aid discounting result in an effective undergraduate tuition increase of 2.8% for FY11. Tuition constraint and robust financial aid are hallmarks of the “new normal” for SU and for most, if not all, of our peers.
This comes at the same time as everyone works to recover lost endowment income from a decade that began with the peak market returns of the late 1990s-2000 and ended with the sharp fall and long tail of recovery from the great recession of the last 18 months. This translates for us into a 13% drop in distribution dollars from endowment to our FY11 budget.
As we turn from the constrained revenue picture to what we forecast spending next year, the budget challenges emerge. We are proposing a 2% salary pro-forma pool for next year. As I have noted in my recent messages, our fringe benefits pool is 12% of our operating budget in the current year, and it has of course been rising steeply in total dollars spent—34% in the last five years. This results partly from the fact that retirement contributions track salary increases and dependent tuition benefits track tuition increases, but also substantially from our health care costs escalation of 45% in the last five years. We are self-insured, so when our health care costs increase, as they have for the whole country, our costs rise accordingly. That is why the wellness initiative that we are proposing in the benefits plan is so important, as is the work that we are doing with a consortium of ten peer institutions to look for efficiencies in our current plan. These initiatives will no doubt pay dividends in the longer run.
More immediately, $3 million saved from benefits revisions will contribute to our solution to some substantial budget challenges in FY11 and beyond. This $3 million is a small part of the $32.7 million budget challenge we faced, as we added up the costs of the salary and fringe increases as well as steep increases in steam costs, debt service on our new buildings, and in the planned enhancements in safety and security. Yet benefits are an important source of recurring savings that will be complemented by other cost savings in FY11.
Indeed, as we face this “new normal,” we are working to manage costs in every major area of our budget, even, for example, in financial aid, which constitutes 22% of our budget. We are moving the tuition discount rate down by one percentage point in FY11 (saving $4 million over FY10), while still supporting students with aid packages that fit the pressures on families of this decade as compared to the last. Similarly, while annual debt costs comprise just 2% of our operating budget, we are closely managing our borrowing and limiting it to the most critical building projects on campus—such as the addition of a new vivarium and also the Life Sciences Complex and renovation of Bowne Hall for the Syracuse Biomaterials Institute, both of which have great potential for increased sponsored research. We are undertaking a major new analysis to generate savings in procurement, which comprises 20% of our operating budget. We are contributing at least $8 million toward our budget challenge from administrative and support unit budgets in FY11, including from several auxiliary units, from Athletics, and from the Network Master Plan in ITS. These contributions are over and above the $12 million in base reductions that occurred in FY10, and come after several years of frozen operating budgets in those units, with another flat year to come in FY11.
By managing our costs in these major areas, from financial aid and debt to benefits and administrative operations, while growing revenues in the schools and colleges through more sponsored research, fundraising, and new programs, we meet our challenge in FY11 with a balanced budget. Most importantly, we are doing this while still adding to our ranks with new faculty searches and the recruitment and support of a fabulous class of incoming undergraduate students from a record-setting 22,700 applicants. We are realistic about our budget constraints and yet steadfast in our momentum—and we will keep winning, in many arenas.
As we think about our budget challenges and our critical priorities, we can’t and shouldn’t ignore any substantial portion of our overall budget as an arena for cost savings. In that regard, let me turn to our benefits plan proposal, which, as you know, is broader than merely the $3 million in cost savings, but certainly must be viewed within the broader framework of the “new normal.”
I hope everyone read the revised benefits plan I sent to the campus on February 22nd. In opening our discussion of this proposal, I want to focus first on the process we used in shaping it.
As we began this exercise, we could have undertaken it in one of three ways:
• As most other institutions we’re aware of have recently done, we could have simply issued a memo to the campus from the Provost or CFO announcing changes in benefits.
• Alternatively, we could have had essentially an “open season” on benefits revisions by getting input from each of the many Senate committees and constituencies on campus, representing different interests—such as graduate students or union members or faculty—with different perspectives—from budgetary to equity and access to competitiveness. From that input, I could have then pieced together a proposal.
We chose instead a third route, which recognized the importance of all these multiple perspectives and interests without initially allowing any one group to drive the process. Benefits touch all of us and have a budgetary impact, a policy impact, and are important in building a rich, inclusive community. From the beginning, we recognized that the final outcome would be a compromise and no one committee or group would get everything it wanted, and indeed that is exactly what happened.
The Working Group process was structured specifically to bring every group to the table in a collegial and productive way. It allowed us to receive meaningful and informed consultative input and formulate a model that reflected the whole of the campus and then begin a period of campus feedback and input to fine-tune the basic proposal in the light of different reactions from individual employees and specific communities.
This worked just as we had intended, with a great deal of engagement across campus in open forums, Senate committees, and via the website, along with much sharing of data. It also produced the process of compromise we expected. For example, the revised proposal is responsive to the Senate Budget Committee’s concerns about maximizing university contributions to TIAA-CREF, although it does not endorse some members’ desire to jettison the proposals for access to health coverage for opposite-sex domestic partners and tax off-sets for same-sex partners. Likewise, the LGBT Concerns Committee did not get exactly what it had proposed in 2007 to make our plans more inclusive and responsive by fully offsetting the tax-penalty on same-sex partners and offering some offset to opposite-sex domestic partners. Similarly, I would have liked to have seen a Choice Dollar plan.
This was not only a compromise process among different Senate committees and administrative leaders, it also was a compromise among all of our constituency groups and no one group got everything it wanted. If we consider graduate assistants as a constituency, for example, we focused on health care and childcare over tuition benefits. We kept their employee contribution at 21.9% in the health plan and enabled their opposite sex domestic partners to have access to health coverage, while we moved away from coverage of remitted tuition for their spouses and partners. On dependent tuition benefits, we moved to recognize the real costs for the university of having an extremely competitive tuition waiver program, even after the new co-pays go into effect while trying to be sensitive to the value of this program for lower-paid employees, and to the importance of both ample grandfathering and additional financial aid for employees whose household income (as compared to salary) warrants help with a co-pay.
It has also been a process of finding a balance between savings and enhancements. For example, the opposite-sex domestic partner proposal recognizes that a progressive community does not ignore the need for access to health coverage of any family member of our employees. It is not a new benefit, it simply provides some employee family members access to a benefit that a majority of employees already have. Dictating to employees that they must alter their family status simply to obtain access to a benefit runs counter to the notion of an inclusive community, and puts us at a competitive disadvantage as we recruit the next generation of faculty, staff and graduate assistants.
Finally, let me say a word about sustainability, as it relates both to this benefits plan and to our larger “new normal” budgetary context and our institutional momentum going forward. I see sustainability as a multi-dimensional construct. For example, in my view it is not sustainable to continue to plan for substantial increases in net tuition revenue, especially in light of the new reality of what it means to ensure access to our college-going population. Therefore, we need to balance some new revenue generating plans with cost reductions and I have suggested how we are doing this across the University.
Similarly, when we consider our total benefits portfolio, we can think of sustainability in a micro-sense. We can do creative things to bring down costs—for example with intensive wellness programs—and we can share escalating costs with employees. This is why we are moving to a four-tier health contribution plan that realistically adjusts costs for coverage of adults versus children, and why we are increasing employee contributions toward health and educational benefits, moderated by employee-sensitive sliding scales.
We can also think of sustainability in a more macro-sense—making sure we continue to recruit and retain a diverse set of employees by offering benefits that they want. For some that means the professional development opportunities that remitted tuition provides; for others, it means reducing stress on their families with help in childcare, through the off-set of a unique tax penalty, or by simply providing access to health coverage under our plan, as for opposite-sex domestic partners. Of course, part of sustainability is also making sure that the plan as a whole works—for example, we modeled the projected cost of the opposite-sex domestic partner coverage based on other universities’ experiences.
There is no magic formula for sustainability, neither for the University nor for individuals in it, but our efforts here are aimed at looking carefully at trends, at diverse needs, at the portfolio of benefits and indeed at the full expanse of costs and revenues for the University as a whole. We want to keep moving forward, and we think we can with this proposed benefits plan and with this University budget for FY11.