Frequently asked questions related to state funding for Penn State

March 31, 2011

March 31, 2011

Dear Colleagues:

Penn State is a university that has seen a tremendous amount of growth in both numbers and stature over the past decade. Student enrollment has increased by more than 14,000, our reputation as a university has grown significantly around the world, and we have stayed true to our founders' commitment of serving the citizens of Pennsylvania with great expertise and enthusiasm. I am proud of your efforts and what we have accomplished together.

Our success is a reflection of the collective efficiency and commitment provided by Penn State faculty and staff. As you all know too well, University employees had their salaries frozen in 2009 and will again for the coming year. Your departments, both academic and administrative, have reduced operating budgets by more than $200 million in recent years.

Cuts of that size have consequences, but we have coped with them and have found ways to increase grants and contracts, philanthropy and other revenue sources. As state funding has remained flat, we have increased tuition as we have had to, mindful of the impact that it's had on our students and their families. At the same time, we have raised hundreds of millions of dollars for scholarships.

The Governor's proposed funding cut of $182 million would have even more significant consequences for the University, its students and its employees. It can be frustrating listening to people claim they have better ideas for a leaner Penn State while knowing little about how we operate. We've heard ideas such as paying employees less, scaling back employee benefits, cutting funds from patient care so we can support undergraduate education, reallocating federal research grant money for other uses, ceasing construction and renovation of buildings, and cutting staff, programs and athletics.

So while the environment may be difficult at present, your work is critical -- caring for patients at our medical center; building stronger defense systems for our nation through our cutting edge research; creating new materials that will advance lives; discovering new energy sources; protecting the environment; teaching and graduating 18,000 students a year; and offering brighter futures to thousands of returning adult students who balance jobs and families along with college courses. These are just a few examples of your accomplishments that number in the thousands.

I write now to encourage you to not allow those criticisms and the misleading claims deter you from the important work we do. Penn State is one of the great universities in the United States and will continue to be a great institution regardless of the difficult challenges we face. There are in fact millions of people who fully appreciate the importance of what Penn State faculty and staff are doing every day in every corner of the Commonwealth and beyond.

Gov. Corbett has faced an incredibly large budget challenge since he took office in January. He must dig the state out of billions of dollars of deficits. Penn State is willing to do its fair share. We will work with members of the House and the Senate and the Governor's staff to help identify what a fair share is for the University.

Below are some answers to questions that have been raised in the past few weeks. I hope that they help you to understand the complexity of the University along with the commitment that we all share to support students, conduct research and serve the citizens of Pennsylvania.

Thank you for your contributions. I will continue to do everything possible to give you the resources to make a positive difference in the hundreds of thousands of lives you affect every year.

Sincerely,
Graham B. Spanier
 


FREQUENTLY ASKED QUESTIONS RELATED TO STATE FUNDING FOR HIGHER EDUCATION IN PENNSYLVANIA

What has happened?

On March 8 Gov. Corbett proposed a budget for next year that cuts state funding (appropriations) for public higher education in Pennsylvania by a total of more than $660 million for the 2011-2012 fiscal year. The cut proposed is the single largest percentage appropriation cut in the history of American higher education.

What does this mean for Penn State?

The proposal cuts Penn State's appropriation by 52.4 percent, a reduction of $182 million. This includes a 50 percent cut in Penn State's educational appropriation, a 50 percent cut in its Agricultural Research and Cooperative Extension appropriations, the loss of all federal stimulus dollars, a reduction of $1.4 million for the Pennsylvania College of Technology and the total elimination of medical assistance funding for the Penn State Hershey Medical Center.

How would Penn State handle such a cut?

This budget proposal will force the University to put every budgetary option on the table. Such actions in the broadest terms will undoubtedly include significant budget cuts to the University's academic and administrative units.

How will this affect employees?

University leaders don't like to consider layoffs, furloughs or eliminating units. During the start of the recent economic downturn, the University had to withhold pay raises and made significant cuts. Unfortunately, some targeted layoffs were necessary. In this coming round of budget cuts, layoffs will be necessary because a cut of this magnitude is impossible to shoulder while retaining all of the employees on the payroll.

As a university, Penn State is a very people-intensive business, which means that about 75 percent of the University's budget is dedicated to payroll, salaries and employee benefits. Naturally, then, a cut of the size proposed will affect that total. For this coming year, University employees (from the president on down) will have to take a pay freeze. As you all know too well, this is the second time in three years that budget issues have forced us to take this action.

How does this proposed funding cut affect students and their families?

Penn State's appropriation is mostly used to offset the cost of education for Pennsylvania residents, and the direct impact of these cuts would be to undermine the support of in-state tuition for Pennsylvania resident students. The University would accommodate most of the cut from its programs, facilities, staffing and salary support.

But under this proposed scenario, tuition would need to increase for in-state students at a rate higher than what University administrators had anticipated, which will push a greater financial burden on their family's shoulders. In-state tuition rates have been subsidized by state appropriations. Out-of-state students already pay the full cost of their education.

Current Penn State students -- as well as students who have been offered admission -- should not be expected to bear the lion's share of this cut. Currently, 80 percent of Penn State students receive some level of financial assistance, and more than 60 percent of students have loans as a part of their financial aid package.

I heard that campuses may close. Is this true?

All campuses are currently viable, but this proposal brings into question the current model and the resources needed to support 24 locations. We are committed to trying to continue to serve the areas where our campuses are located, just as we have historically. Under the current proposed cuts, we must look at every aspect of Penn State's operations.

The enrollments at the Commonwealth Campuses in aggregate have been growing and nearly all have been stable or increasing slightly in recent years. We are educating 20,000 more students today than we were in 1995 -- an increase of 25 percent.

It has only been a few weeks since these cuts were announced by the governor, and there are currently no plans involving any campus. Penn State will do everything in its power to keep education accessible to those in the region.

What has Penn State done to reduce its expenses?

Over the past 20 years, Penn State has made internal budget cuts of about $200 million and reallocated those savings to areas that focus on teaching and learning. Also, in the coming budget year, through this annual process it will cut at least another $17.3 million from its budget.

Why has tuition grown so much over the past decade?

During that decade the state appropriation remained stagnant -- no increases. We are currently at the same appropriation we received in 2000. At the same time, Penn State's enrollment increased by 14,000 students (or 17 percent). So the per student appropriation has continued to drop. Not only was there no increase from the state for educating more students, there also was no increase for costs that were rising, like technology, health insurance, utilities, property insurance and maintenance. Without an increase in our appropriation, more upward pressure was placed on tuition. Our state appropriation now covers about 18 percent of our instructional budget, compared with 62 percent in 1971 -- however, it is still a critical component in our ability to offer a substantially lower in-state tuition rate for Pennsylvania residents.

Has there been a proliferation of employees?

Our faculty to student ratio is 18 students for every one faculty member. But some are questioning why we have so many "employees" compared to students. Some confusion may have come from the "sound bite" that Penn State writes 47,000 paychecks a month. The numbers are a little more complex. Included in that 47,000 figure are all part-time and full-time employees, as well as what we call "casual" employees. (For example, those who park people during events on campus or work as ushers). This number includes hundreds of employees in agricultural research and Cooperative Extension; about 9,000 employees at the Hershey Medical Center; all employees in the self-supporting units (like the Nittany Lion Inn, Penn Stater Conference Center, Athletics, and Housing and Food Services). It also includes all research staff who are paid through grants and contracts; airport staff; police services and the list could go on. In addition, 25 percent of the total number of employees also is made up of part-time student workers.

As you can see, a large number of these positions are in units that bring in money to pay for those employees. So, without drilling down into the numbers, that statement has been misinterpreted.

Some officials have said this cut represents only a 4 percent cut to Penn State's budget. Is that so?

The proposed cut is more than half of the current appropriation, and about one-tenth of the instructional budget. It would reduce the appropriation to 4 percent of Penn State's total operating budget, which also includes funds from other activities, such as hospital revenues, patient care, federally awarded research grants, and self supporting activities -- these funds are not eligible to be used for instruction.

Penn State has two main sources of funding for educational programs: tuition and appropriations. Penn State's appropriation is mostly used to offset the cost of education for Pennsylvania residents, and the direct impact of these cuts would be to undermine the support of in-state tuition for Pennsylvania resident students.

Has Penn State contributed to the state's deficit?

Penn State has not contributed to the state's budget gap. Penn State's appropriation has remained flat in actual dollars over the last decade. While spending in the state has grown by 41 percent, the appropriation to state-related institutions has not contributed to the budget deficit that Pennsylvania is now facing.

Can Penn State spend from its endowment to make up the proposed shortfall or to lower tuition?

No. Endowed gifts are restricted by the agreements with donors. Such funds are held by Penn State in perpetuity. The initial gift is invested, and a portion of the average annual investment return is spent for the purpose designated by the donor. Any remaining appreciation is added to the principal as protection against inflation. Therefore, an endowed gift today is invested to preserve principal to provide spending for future generations.

More than half of the University's endowment is dedicated student aid, such as scholarships. The remainder is spent primarily on supporting specific programs and activities as identified by donors. Started in 2007, the current fundraising campaign, For the Future: The Campaign for Penn State Students, has as its first priority raising funds for student scholarships.

Why does Penn State spend so much on sports? Can't that money be used to reduce tuition?

Intercollegiate Athletics is an auxiliary enterprise, which is one of several completely self-supporting units at Penn State. No student tuition or state appropriations are used to support Athletics -- including the construction and upkeep of athletics facilities, which also are paid for by Athletics' budget -- so no money can be redirected from its self-contained budget toward other University expenses.

Why is there so much construction? Is that what's taking up the funding?

The University's operating budget contributes only modestly to capital construction. Only $3.50 of every $100 dollars of tuition and appropriation goes toward debt service. Construction dollars come principally from philanthropy, self-supporting enterprises, hospital revenues for clinical care, and special releases of capital construction funds from the state. We have the lowest space per student of any Big Ten school, millions of square feet of space that is more than 40 years old, and $700 million in deferred maintenance.

In addition, the uncertainty of the proposed appropriations cuts have forced the University to put a hold on new building projects and proceed with an abundance of caution (http://live.psu.edu/story/52105).

What will happen to support of agriculture?

The College of Agricultural Sciences would experience a decrease of $29 million of support that enables the network of county extension services in all Pennsylvania counties. (This would be in addition to the college's share of cuts in the academic operating budget.) It will be a significant blow to the support of agricultural research and the agriculture industry, the top industry in Pennsylvania.

How will other units be affected?

The Penn State Hershey Medical Center -- the only medical facility in Pennsylvania to be accredited as both an adult and a pediatric Level 1 trauma center -- will lose $13.1 million through the elimination of state medical assistance funding and the related loss of federal matching funds.

The Pennsylvania College of Technology in Williamsport, which manages the state's largest worker training program through its Workforce Development and Continuing Education unit, will see a reduction of $1.4 million.

What else do I need to know?

Independent economic development analysis shows that our universities are the principal engines of progress in the Commonwealth. Penn State contributes $17 billion dollars in direct and indirect economic impact. (http://www.econimpact.psu.edu)

While Penn State graduates almost 18,000 students per year, the University is also the largest producer of graduate degrees, performs $800 million a year in research, with most of that funding brought into our state from outside of the state. Included is $100 million per year in research partnerships with industry.

Penn State operates scores of service entities that in many other states would be provided by state government. One example is the Pennsylvania State Data Center, located at Penn State Harrisburg, which is the state's official liaison to the U.S. Census Bureau. Penn State provides many important services across the state and in the communities it serves:

Penn State serves as a backup location for state government in an emergency.
Penn State runs the Centre Region's backup 911 system.
Penn State provides Hazmat response for the Centre Region.
Penn State operates public broadcasting in northcentral Pennsylvania, which reaches 530,000 households in 29 counties of central Pennsylvania.
Penn State owns and operates the University Park Airport, which serves central Pennsylvania.
Penn State employees are not just disseminators of knowledge. Our faculty are the creators of knowledge and have led to discoveries that have made it possible to better feed the world, build our roads and highways, make steel, create faster computers, cure disease and improve the human condition. It is important to note that Penn State is one of the Commonwealth's largest employers, and this cut would undoubtedly lead to layoffs and add to unemployment in Pennsylvania.

What next?

The governor's proposal is just the first step in the state budget process. Penn State leadership has been in contact with legislators to discuss softening this proposed cut. I appeared March 16 before the Senate Appropriations Committee (http://www.youtube.com/user/PennState#p/a/u/0/mFIyb4C9ob4) and again appeared March 28 before the House Appropriations Committee to plead our case for state support (/video/159246/2013/02/09/video-no-title). It is my hope that these proposed cuts can be mitigated and/or our funding restored.

Last Updated August 29, 2011