University budget increase below rate of inflation

The University of Illinois operating budget for fiscal year 2014 will increase 1.2 percent, below the national inflation-rate average and the smallest increase in more than two decades.

The university Board of Trustees unanimously passed the overall $5.6 billion university budget at its Sept. 12 meeting on the Urbana-Champaign campus.

Because of overdue state-controlled pension and benefits payments, the budget for all three campuses is up 3.9 percent and the state’s annual appropriation increased .02 of a percent to nearly $669 million.

That funding level is comparable to 1966 when adjusted for inflation, despite a student population that has more than doubled since then.

Tuition revenue is up more than $52 million, an increase of 5.2 percent. Last January, the board approved a 1.7 percent tuition increase for entering fall 2013 in-state freshmen — the smallest increase for UI tuition since 1994.

“The University of Illinois remains strong,” said University President Bob Easter.

“We are weathering our financial challenges thanks to sound fiscal management and our ongoing efforts to control costs and improve efficiency.”

The board also approved the university’s 2015 fiscal year funding request, which asks the state for $747 million, an increase of 4.5 percent, or nearly $79 million. A little more than half of that additional money is earmarked for salary and benefits.

Christophe Pierre, university vice president for academic affairs, said the university is in “solid” financial condition despite a recent bond downgrade by Moody’s Corp., an investment firm.

He said Moody’s was clear in its explanation that the downgrade reflects the state of Illinois’ dire financial condition, not the university’s, though other areas of concern include uncertain federal research funding, a virtual freeze on new tuition revenue, the funding vulnerabilities of the hospital and health system, and the inability to predict the impact of any future pension solution.

The current backlog in state funding owed to the university is $207 million, though that number last year went as high as $507 million, according to Walter Knorr, the university’s chief financial officer.

He said the university is still four “notches” above the state’s bond rating and that the state currently has a backlog of $6 billion in unpaid vouchers.

“We’ve had some improvement,” Knorr said of the state’s funding commitments, “but we have the same challenges.”

Pierre said the university can navigate its financial situation, but must dig deep to find solutions that attain cost savings and protect the core missions of the university without degrading the overall quality of the institution.

“It puts pressure on programs that produce a low amount of tuition,” he said. “We need to invest in the university and be strategic.”

All three campuses recently submitted strategic plans that will be used to review all university units as part of a resources “reallocation program.”

He said the program could lead to consolidating or eliminating units and programs that don’t line up with “emerging priorities” or the university’s core mission.

“Reductions are going to have to be made,” Pierre said. “Certainly, we need to be very careful and very deliberate about that.”

Trustee Edward McMillan, chair of the Audit, Budget, Finance and Facilities Committee, said his committee formed an audit group to develop better review mechanisms that will provide a more accurate snapshot of the university’s far-flung operations.

“It’s a challenge to touch all those,” he said.

One of the results of the audit group’s work is a new orientation process for deans, outlining their responsibilities and making them aware of their accountability in local fiscal decisions.

“The issue of efficiency becomes more and more important as we have less money,” said board chairman Christopher Kennedy.

Trustees heard an update on UI Labs, a nonprofit, university-affiliated research technology center based in Chicago, from Lawrence Schook, vice president for research.

Schook said administrators are submitting a final project proposal to the Department of Defense for a new digital manufacturing and design innovation institute.

The project would use $70 million in DOD matching funds, “creating an ecosystem” for high-tech research and job creation, he said.

The Illinois proposal involves universities, business, government and communities from 15 states.

DOD will announce awards in December and Schook said the “shovel-ready strategy” in the Illinois proposal means work would begin quickly.

Schook said he expects pilot projects will be running in the facility within three to five years.

“We’re excited about the national interest,” he said. “We’ve had a number of conversations (with industry leaders).”