State Appropriations and the Budget Situation at UTRGV
June 2, 2017
Memorandum
TO: UTRGV Faculty and Staff
FROM: Guy Bailey
SUBJECT: State Appropriations and the Budget Situation at UTRGV
DATE: June 2, 2017
The 85th Legislative Session ended on May 29, 2017, and the state budget for FY18 and FY19 was certified on June 1. After a careful analysis of the state budget, we now have a clear picture of what our state appropriations will be for the next two years. The purpose of this memo is to summarize those appropriations and their implications for our budget. I apologize for the length of the memo, but I want to provide you with as much factual information as possible since the current state budgetary situation provides an ideal context for unfounded rumors. I should also note that the budget is subject to the Governor’s veto until June 29.
Some Background
First, it is important to recognize that state appropriations account for only part of the revenue (42%) used to support the general operations of the university. Tuition is equally important, and it is the combination of state appropriations and tuition dollars that comprises most of our budget for basic operations. Second, some areas of the institution such as student organizations and athletics are funded solely by fees, sales, and other revenue streams and are not affected at all by reductions in state appropriations. Third, state appropriations are of two types: allocations made through the funding formulas and allocations made for Special Items. The funding formulas work the same way for all institutions, but universities vary significantly in the amount of revenue they receive through Special Items. Because the Texas Senate is working toward the elimination of Special Item funding, universities that rely heavily on them fared much more poorly this legislative session than did universities with fewer Special Items. Finally, the School of Medicine (SOM) is funded independently from the general academic portion of the university; however, because it is a start-up operation that currently relies on Special Item funding, the SOM did not do as well as we hoped.
UTRGV’s Appropriations
As you probably have heard by now, UTRGV had a significant reduction in its state appropriations: once the increase in tuition revenue bond retirement is removed from the totals, the reduction in revenue available for general operations (including the SOM) is $24.5 million, or a decline of 10.8%. This is one of the largest reductions in the state and happened even though we had strong advocacy by our Valley Delegation and Sen. Juan “Chuy” Hinojosa and Rep. Oscar Longoria, in particular, who both served on the budget conference committee. The reason for the size of the reduction is threefold. First, for many years UTRGV and its legacy institutions have relied more heavily on Special Item funding than most institutions. During the 84th legislative session almost 11% of our total state appropriations (excluding the SOM) came through Special Item funding; during the 85th session that funding was reduced by 37.8%, or more than $10.6 million dollars. Second, because it is a new entity and is funded primarily as a Special Item for the time being, the SOM also had a significant reduction in funding – roughly $7.1 million, or 11.2%. Finally, the remainder of our reduction in state appropriations is due to a decrease in our formula funding. The formula funding reduction is the result of the decline in graduate enrollment that UTRGV experienced during the 2016-17 academic year.
The Impact of these Reductions
The reduction in state appropriations presents significant challenges for UTRGV, but we have been preparing for this possibility since last Fall. These preparations will significantly mitigate (though certainly not eliminate) the impact of the reductions. The most important thing we did was to implement a soft hiring freeze. We will continue the soft hiring freeze next fiscal year, and the judicious filling of vacant positions will help cover some of the revenue shortfall. Further, over the past year we have been going through a process of administrative streamlining and reorganization. While not directly connected to the reductions in state appropriations, this process has and will continue to create savings that will mitigate some of the revenue shortfall. Finally, we anticipate significant enrollment growth this fall, fueled in part by the recovery of graduate enrollment and by an increase in undergraduate retention rates. The revenue generated by strong enrollment growth (i.e., both tuition and formula funding) will also be important in addressing any future reductions in Special Item funding.
As a result of these efforts, the impact of the reductions in state appropriations will not be as severe as they might have been. Faculty who have been hired for the Fall will be brought on board as usual, and the equity, compression, and other adjustments in salaries for both faculty and staff that were begun last year will be continued. Further, we anticipate no reductions in workforce related to decreases in state appropriations with the possible exception of areas funded through Special Items. As indicated above, the funding for these Special Items was drastically reduced, and each of them will need to be examined carefully. The School of Medicine is the one exception to these comments about Special Items. We are currently looking for other sources of funds for the SOM and are hopeful that we will be able to cover the funding shortfall through these other sources. The SOM is at a critical point in its development, and we intend to move forward with it as planned. Finally, as indicated above, the soft hiring freeze will continue through the next fiscal year.
Given our reductions in state appropriations, merit pay increases for Fall 2017 aren’t possible. However, if the enrollment growth for Fall is as strong as it seems to be and if enrollment growth is equally strong in the Spring, we may be able to do some type of mid-year pay adjustments. While it is disappointing not to be able to do merit increases this Fall, the fact that we can even think about mid-year pay adjustments in the face of a 10.8% decrease in state appropriations speaks to the careful budget planning that has taken place at UTRGV.
While the reduction of $24.5 million in our budget has clearly created some challenges for us, the fact that we are not contemplating general reductions in our faculty and staff and the fact that we are looking for ways to continue giving pay increases speaks to the overall financial health of the institution and is a reason for optimism amidst an otherwise disappointing situation.
What We Need To Do Going Forward
There are some important lessons to be learned from the 85th legislative session. First, it seems clear that Special Item funding will continue to be a legislative target. In the future, we may well be faced with either eliminating the activities funded through Special Items or finding other funding sources for them. Second, the funding formulas are the most stable source of state revenue, and our focus must always be on enhancing revenue through the formulas. We cannot afford to have enrollment declines such as we had during 2016-2017. Had we not had the decline in graduate enrollment this past fall, our state appropriations for FY18 and FY19 would be significantly better. Over the next two years we need to continue to look for other funding sources for the SOM. The SOM is crucial to our future and to that of the Rio Grande Valley.
Finally, I will be visiting our academic and administrative units this Fall to do a more detailed presentation on the issues outlined above. While we have our current budgetary challenges, there are many reasons for optimism as we go forward.