A closer look at our budget
With the end of the legislative session earlier this month, the University’s
financial picture for the upcoming academic year is much clearer. In this rather
lengthy note, I want to provide a few budget updates that highlight our current
commitments and general plans moving forward.
I have said several times during my tenure that we will be as transparent as possible
about our finances. One of the challenges accompanying this commitment is knowing that
sharing more information sometimes causes undue stress. Still, I believe that it is the
job of University leadership to provide you with the most up-to-date information possible,
as well as reasonable and effective solutions to fiscal challenges.
It is important to note two points that provide helpful context about our current financial situation:
Where are we today?
- The overall financial health of our statewide system is very good. I greatly
appreciate the careful stewarding of our financial resources demonstrated by all
of you—from our Regents to our department heads to our support staffs.
- Most of the challenges we face financially are rooted
in fiscal commitments affecting the Pullman and Spokane campuses. But it will require the creativity,
critical thinking, and commitment of the entire WSU community to fully restore our financial vitality.
In my May 2016 letter
to the campus community, I noted that the
University’s expenditures have been exceeding revenues for some time. This practice, in turn,
has been draining our reserve funds. It quickly became apparent after I became president that
reversing this trend was essential to the University’s overall financial health.
As detailed in my November 2016 letter
, in recent years we made financial commitments to several identified priorities, including new buildings and building renovations,
salary enhancements not funded by the state, research equipment and start-up packages,
and new faculty and staff positions. Reserve funds were regularly used to help fund these priorities. As a result, University reserves of primary operating funds have decreased about $115 million since 2013, a decline of 56%.
To address the situation, last year we instituted a budget review process and identified key
areas that required attention. Due to the extent of the overspending that occurred, units
that were deficit spending were required to develop recovery plans for achieving a balanced budget.
Annual deficits can be a fiscal necessity at times. Our deficit spending, in part,
reflects the need to fund some expenses with reserves or carry forward monies as
the University grappled with budget reductions during the Great Recession of 2007–09. But deficit spending is not sustainable on a long-term basis.
How did we get here?
Over the past several years, there have been a number of decisions and actions that have
contributed to our overall fiscal position:
- We constructed many new and needed buildings, including the digital classroom,
cultural center, police station, and the art museum on the Pullman campus to enhance
the educational and cultural experiences of our students, faculty, staff, and the public.
While important, these facilities were primarily debt financed, and the $5 million
annual debt repayment has been absorbed by the central budget. In addition, the
projected costs for maintenance, utilities, programming, and operations for the
new facilities will add approximately $2 million in annual costs.
- We significantly invested in personnel across all
campuses and units, adding about 745 positions in the past 5 years with a related
increase in payroll expense of approximately $96 million annually. These faculty and
staff are employed in all areas of the University. They teach, conduct research, support
our students, and provide community outreach.
- While well deserved, the University funded salary
increases for faculty, staff, and graduate students in excess of the amount funded
by the state.
- Startup costs for the Elson S. Floyd College of
Medicine were not provided by the state. The funding plan for the college includes
central budget support for the first few years of operation, until such time as a
full cohort of students is enrolled, accompanied by the commensurate state funding and tuition revenue.
- Cougar Athletics made significant investments in
buildings and personnel to remain competitive in the Pac-12 Conference. Doing so
required multiple years of deficit spending. We have put a recovery plan in place, and we are currently making commendable progress
toward our goal of balancing annual revenues and expenses.
- Other factors that contributed include campus and building maintenance and operational costs that are not covered by state resources, and unexpected expenses such as IT security costs and the settlement costs of Moore v. HCA regarding employee benefit eligibility.
- Several central administration internal fiscal practices needed to be
addressed. These include ongoing deficit spending, continued funding of maintenance and
operational costs no longer covered by the state without identifying new revenues, and
overuse of the central benefits pool, a central set-aside to cover benefit costs for employees paid from certain funds.
While these items would not present a significant challenge singly, when combined, they have
created a situation that demanded a multipronged solution.
New revenue and salary adjustments
For the 2017–19 biennium, we received new monies for several key areas. This includes biennial state appropriations
for salary increases for faculty and staff ($13M), base funding for the Elson S. Floyd College of
Medicine ($10M), and projected new revenue from 2.2% and 2% resident undergraduate tuition increases ($9.4M) for the 2017–18 and 2018–19 academic years, respectively. The salary monies are much appreciated, but they do not address the financial commitment the University made a few years ago to centrally fund pay increases for faculty, staff, and graduate students in excess of the amount funded by the state.
In addition to the classified staff salary and annual leave accrual increases previously announced by Human Resource Services, I have also authorized a 1% salary increase for faculty, administrative
professional staff, and graduate students on appointment effective January 1, 2018, and a second
1% increase, effective January 1, 2019. Instead of a salary increase, chancellors, vice presidents, and deans requested that an amount equal to their raises be invested in other university priorities.
Eligible faculty and administrative professional staff also will receive an increase in annual leave
accrual rates to 16.67 hours per month, effective September 1, 2017. For faculty, these actions
are subject to Faculty Senate approval.
To support the Drive to 25, we will increase the budget of the Holland/Terrell Libraries by
$500,000 to ensure our faculty, staff, and students can access the journal resources they need
to perform their scholarship. The investment will continue to provide critical resources across
all disciplines system-wide, ensuring uninterrupted access to these heavily used journals.
Similarly, we will provide additional annual funding to support the continued buildout of WSU’s high performance computing infrastructure.
We will work closely with University leadership and campus shared governance groups on the
details of the steps to be implemented to achieve long-term financial sustainability. Several
immediate actions will be taken, including the following:
- We will introduce a new process to carefully examine requests for new positions and the
filling of current vacant positions before recruitment begins and offers are made.
Justifications will be required to fill the most critical positions, with approval at
the executive level required. A draft of the proposed process will be shared and discussed
with our shared-governance partners. We anticipate that the system will be in place by the
start of the academic year.
- For the fiscal year that began July 1, all areas should plan
to spend within their current FY2017 permanent budget allocations unless otherwise authorized.
Areas anticipating annual expenditure
deficits and/or with existing accumulated deficits will work directly with the budget and
finance offices to determine ways to accelerate the reduction of these deficits. While we
do not expect all deficits to be eliminated in one year, a significant improvement is needed
during the next few years.
- We will set and implement specific goals for adjusting
tuition waivers and discounting to increase net tuition revenues while also meeting enrollment
and retention targets.
- We will continue efforts to identify revenue-generating
opportunities (e.g., new online programs, undergraduate enrollment growth, INTO, etc.)
and invest in those that demonstrate this capability. All
such proposed opportunities should include a business plan with outcome measures and
multiyear pro forma budgets, so that we can assess the investment needed and expected
outcomes to determine if and when the investment should be made.
- We will continue to place a hold on any capital projects
for which funding is not fully identified and in hand. Even projects for which funding
is available may need to be delayed to avoid further spending down reserves.
- We will change our hiring and funding practices to avoid
drawing down central reserves via overuse of the benefits pool.
Positions must be appropriately budgeted for salaries and benefits before hires are made.
- Finally, we will continue the effort to replace our aged
financial systems with tools that allow us to more effectively manage our budgets and track expenditures.
I want all of you to be assured that unit leadership, deans, vice presidents, and other academic
leaders are working hard to put in place a sustainable budget model that not only spurs strategic
creative investments in the future, but also propels the Drive to 25 initiative.
There are always great ideas throughout the campus community about ways we can work together
more effectively or use our financial resources more wisely. Please email me your suggestions, concerns, and questions
You will also have the opportunity to ask questions in person when Provost Bernardo and I
host town hall meetings for each college and campus in September.