Barron discusses cost-savings, shares strategies for new efforts

September 15, 2017

UNIVERSITY PARK, Pa. – Penn State has saved more than $400 million in the last 23 years by implementing cost-saving measures, while still continuing its focus on academic excellence and quality education, according to University President Eric J. Barron. 

The president, who presented his strategies for addressing budget challenges to the Board of Trustees today (Sept. 15), said that more than two decades of steady decline in state appropriations and increasing costs to fulfilling Penn State’s land-grant mission have necessitated a two-pronged approach to cover the funding gap. The University has focused on both reducing expenses and finding new sources of revenue.  

“The current fiscal environment is incredibly challenging,” Barron said. “Declines in the state appropriations are forcing the University to work harder to fulfill our mission as a land-grant university. If the state had kept up with inflation this century the University could have dropped tuition 13 percent. And if the University is unable to cut costs and secure new revenue, it will create a lot of pressure on tuition.” 

Penn State prioritized a larger ongoing effort to reduce costs in 1992-93. Since that time, the University has saved $403.8 million, including $21 million in 2017-18 alone. Continuous energy-savings programs have recovered or avoided energy costs in excess of $62 million since 2003. The recent Voluntary Retirement Program in which 587 eligible employees elected to take advantage of the plan created $14.4 million in savings for the Education and General Budget. In addition, switching to Aetna beginning Jan. 1, 2018, as a third-party administrator for the University’s medical benefits and CVS Caremark for prescription drug coverage is expected to save the University more than $70 million over the next three years. 

Another key strategy for balancing the budget relies on finding new sources of revenue to cover activities that otherwise would require funding from the Education and General Budget (which is primarily funded through the state appropriation and tuition.) For example, the new Big Ten Media Rights contract went into effect in July, and Intercollegiate Athletics has committed a portion of the increased media rights to fund university success. Specifically, Intercollegiate Athletics will be contributing to Penn State’s Counseling and Psychological Services (CAPS) for mental health services, the Blue Band, and incentives for philanthropy. Funding from that new contract will start at $1 million and is expected to rapidly increase to $4 million per year. Another example: the Penn State Research Foundation (PSRF) is contributing income to replace and augment general fund dollars as a means to drive economic development. 

Penn State also is leveraging industry partnerships, with industry-sponsored research growing two years in a row, including a 4 percent uptick in 2017. Corning, PPG, Morgan Advance Materials and RJ Lee have all partnered with the University, and their use of Penn State facilities allows for more efficient equipment use and faster pay down of the investment. In addition, these corporate partnerships have numerous benefits for Penn State faculty and students, including career opportunities, training for corporate scientists, and strengthened relationships between the university and corporation.  

The University also has multiple initiatives underway to save additional money. The Human Resources Transformation occurring across the University is expected to eventually save money through increased efficiency in service delivery and improved systems. The Information Technology Transformation is expected to lower costs by around $5.7 million over a five-year period through initiatives that will improve efficiency, security and storage capabilities. 

“More than two decades of across the board cuts in state funding have forced the University to find new ways to relieve the Education and General budgets,” Barron said. “We are committed to examining new cost-cutting measures and finding ways to increase income so that we can maintain our standard of excellence while we carry out our land-grant mission.” 

 To view President Barron’s full presentation, visit http://www.psu.edu/ur/newsdocuments/presidents_report_091517.pdf.

 

Last Updated September 15, 2017