A Question-and-Answer on Penn State's budget and tuition

July 10, 2009

Facing a proposed cut of $61 million in its state appropriation and a number of financial challenges in the 2009-2010 year, Penn State answers additional questions about its budget process and the need to increase tuition.


Q: What has caused the uncertainty about Penn State's tuition this year?

A: Penn State cannot set final tuition rates without knowing what its appropriation from the state will be. This year, the state faces an unprecedented dilemma because of the difficult economic climate and a $3.2 billion shortfall. The General  Assembly and governor have not yet reached agreement on appropriations. The nearly $61 million in cuts proposed by Gov. Rendell is so dramatically different from what had been originally proposed that two budget scenarios have been developed with the hope that the more favorable scenario will be ultimately adopted by the Legislature.

Q: Might tuition still be set at a lower level?

A: Yes. In order to continue operating without potential interruptions or serious problems, Penn State's Board of Trustees approved tuition increases with the understanding that if the state adopts a budget by July 17 that does not cut the $61 million in the governor's recent proposal, the board would set tuition to previously planned levels of 3.9 percent for all students at campuses other than University Park, 3.7 percent for University Park students from out of state, and 4.5 percent for University Park in-state students.

Q: What is the possibility of a mid-year tuition decrease?

A: If the state Legislature agrees by Nov. 9 on a budget in line with earlier proposals, then there will be a mid-year tuition decrease, commensurate with the final appropriation. Seniors graduating in December would not benefit from such a reduction, unfortunately, since the University will have already incurred the added costs of operating without an appropriation for the fall semester. These costs include the additional expense of having to borrow money to pay our bills given the delay in the monthly allocations that normally arrive from the Commonwealth.

Q: Why must tuition go up at all?

A: There are two primary sources of funding for Penn State's instructional budget — one is tuition and the other is the state appropriation. Over the last decade, the state appropriation has remained stagnant. The most recent proposal from the governor would return us to the appropriation level from 1997. Cuts in appropriations can only be made up with tuition increases. Since 2000, the University has experienced five rescissions in funding from the state, forcing Penn State to absorb more than $38 million in unexpected cuts.

Q: Why is this proposed percentage increase so high?

A: In our worst-case budget scenario, tuition increases range from 4.9 percent at campuses other than University Park to 7.9 percent for out-of-state students at University Park to 9.8 percent for in-state students at the University Park campus. The governor's $61 million proposed cut for this year amounts to 18 percent of Penn State's initial appropriation — a substantial amount of our income and an integral part of our operating capital that cannot be made up except through the tuition increase that has been proposed. In addition, the University faces increasing costs on many fronts — health-care benefits, an expected spike in the mandatory employer retirement contributions, fuel and utilities costs, and the costs of maintaining a cutting-edge technological environment.

Q: Is the University trying to control costs?

A: Yes. The University has been a good steward of the money it receives both from the state and from students. In fact, Penn State receives less funding per student than any other public institution in Pennsylvania, and it is well below its peer institutions in the Big Ten in per student state support. This year's budget includes $50 million in cuts and savings, with about $30 million of that saved from freezing wages. Earlier this year, a decision was made to forgo pay increases in the coming year. This year's budget also includes internal reductions of $17.8 million. In addition, dozens of positions at the University have not been filled. Some segments of the University will be eliminating additional positions.

Q: Will the latest budget proposal from the governor allow the University to prevent more layoffs?

A: No. The latest figures from the state will mean that more than 200 layoffs will be required in agricultural research and Cooperative Extension alone. Other units, such as Public Broadcasting, have already seen layoffs because their funding source from the state has been cut.

Q: Does this increase in tuition mean fewer low- and middle-income students attending college?

A: We are painfully aware that a tuition increase is likely to put more strain on low- to middle-income families. This has been a difficult, but necessary decision. We will continue to make financial aid available to all qualified students. Deans and chancellors have been asked to step up their efforts for raising funds for scholarships. In the early phase of our new fund raising campaign, more than $150 million in new commitments have been secured for scholarshipos, plus many more millions in support of student-oriented programs and services.

Q: If students are having difficulty making ends meet, what should they do?

A: If students find that they will need additional financial assistance, they should see a financial aid staff member on campus as early as possible. Staff in our Student Aid offices are mobilizing to assist students in putting together financial aid packages that best meet their needs, especially if their needs change.

Q: How can you keep building facilities when the state economy is so bad? Does this drive up tuition?

A: We have had to slow down our building plans due to the economy. We have cut back on the amount of money we have budgeted for deferred maintenance, and some construction projects, such as the Children's Hospital, Moore Building and Henderson Building, have been delayed due to financial concerns. Yet new construction and renovations are essential to the mission of the University as we seek to provide our students and faculty with up-to-date facilities for learning and research.

Q: How are facilities funded?

A: At Penn State, construction costs are supported by a combination of state dollars that come from an appropriation separate from our operating budget, from private gift funds, from self-supported auxiliaries that do not rely on tuition or taxpayer dollars, and from internal borrowing. Only a small portion of tuition, just 3.5 percent of the total, goes toward the debt service for facilities. Penn State has about 13 million square feet of educational and general space, and 9 million of it is more than 35 years old, so improvements and new facilities are necessary to provide a quality education and to remain competitive.

Q: Why have I heard that Penn State is not a public university?

A: The federal government passed the American Recovery and Reinvestment Act to provide stimulus funding for the nation. A portion of the federal stimulus money has been allocated to the Commonwealth, which must allocate the funding based on federal guidelines. The law requires that the stimulus money be used to help mitigate tuition increases at public universities for the next two years. Initially, Penn State was slated by the governor to receive $20 million in stimulus funding. However, his most recent proposal eliminates that funding by claiming that Penn State is not a public institution. Since its founding in 1855, Penn State has consistently been regarded as a public institution. In the 1960s, the state designated Penn State as a state-related institution and set the guidelines for it being an instrumentality of the Commonwealth. Penn State is arguing that the governor cannot arbitrarily determine that Penn State is no longer a public institution, and we have asked the U.S. Department of Education to reject this aspect of Pennsylvania's application for federal stimulus funding.

(Media Contacts)

Last Updated July 10, 2009