Media, Pa. -- Penn State's overall operating budget will just exceed $3 billion in 2005-06 under a plan approved today (July 15) by the University's Board of Trustees meeting at Penn State Delaware County.
The $3.04 billion budget illustrates the quickly growing economic impact the University is having on virtually every segment of the commonwealth - estimated at more than $6.1 billion annually. The impact is being fueled by increases in research dollars and jobs Penn State is attracting to Pennsylvania.
The budget also will continue Penn State's cost savings initiatives to the tune of nearly $11 million in reductions or reallocations in the 2005-06 budget year.
"This budget reflects the scope of our statewide reach and supports the high-quality educational experience we provide, despite an appropriation increase that was less than a third of our request," said Penn State President Graham B. Spanier. "The budget plan succeeds in maintaining quality, meeting escalating costs and keeping the tuition increase to its lowest level in a number of years."
The 2005-06 state appropriation provides a 2 percent increase for areas other than medicine.
As a result, the University budget includes a 5.9 percent tuition increase for resident students and 4.5 percent increase for out-of-state students to help offset inflation and rising costs specific to higher education, as well as other priorities and needs. Tuition now funds more than 70 percent of Penn State's educational expenses, as Penn State continues to rank last among all public universities in Pennsylvania and the Big Ten in the amount of funding received from the state per full-time equivalent student.
Although the appropriation eliminates more than $11 million for three medical operations at Penn State - medical education, the Central Pennsylvania Psychiatric Institute and the Children's Hospital - the state proposes to replace those funds with medical assistance funds through the Pennsylvania Department of Public Welfare. This would provide up to a $2.2 million increase in funding for the College of Medicine over last year, and result in total government support of $323.6 million, or a 2 percent increase over 2004-05.
This appropriation combined with medical assistance would be just below the level of support received by the University in 2001-02, which preceded four significant cuts totaling nearly $44 million. The funding package would constitute a record-low 10.6 percent of the University's operating budget.
Should medical assistance funds not be available, the state budget would provide the University with medical funding at the 2004-05 level - a zero percentage increase.
Expense changes in 2005-06 include additional funds for rapidly escalating health care and other benefits costs ($19.8 million), property and liability rate increases ($1.4 million), facilities and maintenance ($12.3 million), and modest salary adjustments for all employees and graduate assistants ($23.8 million).
Health care costs in particular are increasing dramatically nationwide - as are the costs of property and liability insurances. Health care premiums alone are projected to cost Penn State nearly $15 million more than last year, representing the largest additional investment by the University in benefits.
"Increases in employee-related items like health insurance have a greater impact on universities than most other businesses, because we have a larger percentage of our total budget in people," said Spanier. "In the end, students expect to have interaction with a faculty member, and that is something that simply can't be automated."
Accordingly, the University continues to place importance on salary enhancements due to the competitive pressures posed by peer institutions - public and private. The 2005-06 budget includes a 2 percent increase to the pool for merit-based raises and continuation of the President's and Faculty/Staff Excellence Fund, for a total of more than $23.8 million in additional salary funding.
Several new buildings are slated to go on-line this year, including the School of Architecture and Landscape Architecture Building and the Smeal College of Business Building at University Park, the Research and Economic Development Building at Erie, and the library classroom building at York. Maintenance and operation of these facilities, along with Penn State's capital improvement program and deferred maintenance, will require an increase of more than $12 million.
Strategic academic program support includes supplemental funding of initiatives to reduce the student:faculty ratio, development of K-12 education partnerships, creation of new programs in fine and performing arts, humanities and social sciences, and enhancement of distance education offerings and resident instruction learning opportunities and student services. Funds for these strategic priorities total nearly $6.3 million.
The budget also includes nearly $3.2 million in additional funding for other program commitments, $2 million for libraries and information technology and $1.2 million for need-based student aid.
The full Penn State budget may be accessed at http://www.budget.psu.edu
Aggressive cost savings initiatives have helped support budgetary priorities. Based on the work of the Cost Savings Task Force, the budget includes reductions and non-tuition income enhancements of $10.6 million - well in excess of the targeted goal of $5.9 million for 2005-06. The recommendations are equivalent to $180 per year in tuition for each full-time student. In its three years of operation, the task force has identified approximately $31 million in annual savings and income enhancements, avoiding a tuition increase of 5.5 percent.
"Higher education faces a myriad of financial challenges, and Penn State remains committed to finding new ways to reduce costs and enhance income from sources other than tuition," said Rodney A. Erickson, executive vice president and provost of the University and co-chair of the Cost Savings Task Force. "We will continue these efforts."
Penn State's operating budget is funded by seven sources of revenue, the largest in 2005-06 being tuition and fees (33.0 percent). Other income sources include: hospital and clinical operations (24.4 percent); restricted funding (17.6 percent); state appropriation (10.6 percent); auxiliary enterprises (8.9 percent); federal agricultural support (0.7 percent); and other sources (4.9 percent).