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Information in Advance of the Oct. 13 Budget Forum

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Below are some of the questions it is anticipated will be raised at the budget forum, taking place Thursday, Oct. 13, at 12:45 p.m. in the Granite State Room. A glossary of terms follows the questions.

  • Why is our budget in such bad shape?

UNH lost nearly 50 percent of its state support—approximately $33 million. It was the largest percent reduction in public support for higher education in the nation.

  • Are there going to be more layoffs?

Yes. In order to absorb cuts of this magnitude we will need to do vertical cuts, which will result in the loss of jobs. Vertical cuts are cuts to entire departments, programs and functions. We won’t know the number of jobs lost until we know what those cuts will be.

  • When will we know what the final cuts will be? 

UNH cabinet members are working with their divisions to develop strategies to meet the target for FY12 and FY13 by Nov. 15, 2011. FY14 cuts will be determined after academic and administrative department reviews.

  • How will the academic and administrative reviews work?

This is still being formulated but all units in the university, including Athletics, will be part of the review. A team  led by Dick Cannon and Joanna Young, working closely with the Business Service Centers, is undertaking a systematic review of all administrative processes to find ways to measure what we do and how to achieve better results at lower cost. For the academic review, Provost John Aber will lead an effort to develop, in consultation with the faculty senate and staff councils, a set of criteria by which to evaluate programs relative to mission, efficiency, effectiveness and climate.  These should be in place by the end of January.

  • Will faculty and staff play a role in making decisions for FY12 and FY13?

Due to the obvious time constraints cabinet members will lead the analysis using the best evidence available in their unit. As time permits they will consult with members of the unit.

  • How much money does UNH need to “find” in order to break even this year?

At this time the figure is $2.5 million, which could change as a result of final enrollment figures and the number of SIP applications received by Nov. 1.

  • Why doesn’t the university increase tuition?

That is not a long-term solution. We have asked our students time and time again to shoulder the burden of increasing costs and state funding shortfalls. Tuition rates are already increasing at a rate that far outpaces increases to the average middle-class income. We simply cannot put it all on the backs of our students and their families.

  • Why not just increase tuition for in-state students if the state funding is supposed to subsidize it?

For FY12 we did ask our in-state students to pay more, an additional $650 on top of the initial increase voted on by the USNH Board of Trustees. If we had chosen to ask in-state students and their families to make up for the entire lost state appropriation they would have faced a $4,650 increase.

  • Why did the University System of New Hampshire recommend salary increases for staff if we need to make more cuts?

It is not reasonable to expect our hard-working staff and faculty to continue to work without any additional compensation. Approval for any increase will come from the board’s Financial Affairs committee, but only if we are successful in identifying the resources needed.

  • How much will the $500 payment cost?

Approximately $1.4 million, but the money was accounted for in FY11 and will not require any cuts to implement.

  • How much will the proposed salary increase cost?

If a 2 percent increase is approved for all non-unionized employees, it would cost between $1 million and $1.8 million, depending on whether it is given as a bonus or applied to the base in FY12.

  • Does the $500 payment and proposed salary increase apply to all staff?

The $500 payment applies to all benefits-eligible employees who are not part of AAUP.  No decisions have been made regarding salary increases. 

  • Will principal administrators receive increases as well?

No decisions have been made regarding salary increases. 

  • What is the status of the faculty contract negotiations?

UNH is in negotiations with the faculty union. Those negotiations are confidential.

  • If the University System of New Hampshire is making decisions you don’t agree with, what are you going to do about it?

We have representation on virtually all USNH committees.  We also have the ability to provide input to the full Board of Trustees. While we cannot change decisions unilaterally we can provide information and perspectives that can help shape outcomes.

  • How do you explain the more than $50 million in surplus funds the university had at the end of FY11?

The FY11 surplus was close to $60 million. That entire surplus except for $4.7 million was in areas that have restricted use – endowment funds, restricted gifts, grants and plant funds. Only $4.7 million could be used at the discretion of management. 

  • Are there going to be more changes to our benefits?

Those decisions are made by the USNH Board of Trustees. No additional changes are expected for 2012.

  • How much will our health insurance premiums rise for calendar year 2012?

That is still being worked on as USNH is moving to self-insurance.  The premiums are likely to rise anywhere between 3 percent and 7 percent.

Glossary of terms: Budget 101

How the state supports N.H. higher education:
The state of N.H. supports public higher education in a variety of ways:  1) operating budget funding, 2) capital budget funding and 3) grant and contract funding.  For the first two types of funding, state provides funding to the University System of New Hampshire, which in turn distributes it to four public higher education institutions, including UNH. The state’s contribution to UNH is a subsidy used to reduce tuition for in-state residents.  Grant and contract funding is provided directly to UNH as a result of approved proposals submitted to State agencies by UNH faculty and staff.

Operating budget:
To sustain its operations, UNH relies on support from these primary sources:
            State of N.H.: 7 percent
            Tuition and fees (net of financial aid): 35 percent
            Government and private grants and contracts: 26 percent
            Gifts and endowment income: 4 percent
            Auxiliaries – primarily student fee-funded operations: 28 percent

Some operating funds are restricted in how they may be used.
These funds may not be used to support the general operating budget. Use of these funds is legally restricted by external sponsor or private donors for specific programs and scholarships.  Government, private grants and contracts as well as restricted gifts and endowment income fall into this category.

Reductions in state support
Last year, the state provided 13 percent of the total UNH operating budget. This year, the state legislature cut its support for UNH nearly in half, and now provides about 7 percent of the university’s operating budget. This was the steepest percentage cut in the history of higher education in America.

State appropriations and the cost of attendance
New Hampshire ranks 50th in the nation in per capita and per $1,000 of income in state support for public higher education.  The amount of state appropriations provided to UNH has a direct impact on the cost of attendance for our N.H. resident students.  The state appropriations provide UNH with the funding to discount N.H. resident tuition well below the non-resident rate. Cost of attendance includes tuition, mandatory fees, room and board. 

Deferred maintenance
UNH maintains more than 6 million square feet of space in more than 300 buildings. These buildings plus grounds, roads and infrastructure must be maintained. To maintain our assets at their current level, UNH needs to be investing more than $60 million per year in the maintenance of its properties. Currently UNH invests an average of $15 million to $25 million per year from its operating and auxiliary funds, the deferred maintenance assessment, gifts and grants and state capital contributions.  If UNH does not increase its funding levels, assets will soon fall into disrepair—as has the New England Center—and will no longer be operable.

Structural deficit
UNH has operated for years with what can be termed a structural operating deficit.  That means that its basic revenue structure cannot cover its expenses over the long term. UNH has been able to grow revenue streams through increased enrollments and research; however, the reduction in state funding has negated much of that revenue growth. Looking out over the next few years, the core revenues of UNH fall short of core expenses.

PAU pass-through
In the state of N.H. budget, USNH funding is classified according to Program Appropriation Units or PAUs.  UNH has several PAUs in the state budget.  These are:  UNH-General, Agricultural Experiment Station, Cooperative Extension, UNH Manchester, Marine Program and NH-IRCC.  The PAU funding is at the discretion of USNH and UNH however the state funding to the PAUs other than UNH-General have traditionally been passed through USNH and UNH directly to those PAUs at the state budget funding level.

Vertical cuts
UNH has had to make expense cuts for years to balance its budget. These cuts have largely been horizontal or across the board cuts (every cut by the same amount).  Examples of horizontal cuts include the salary freeze, hiring freeze and benefits reductions.  In a few instances, UNH has made vertical cuts which would involve the elimination of a complete function or service of UNH. An example of a vertical cut is the closure of the New England Center.

Operating margin
Operating margin is the ratio of net operating revenue to total operating revenue.  It tells us how much operating revenue is left over to pay for fixed costs such as debt.  It is an important measure of fiscal health particularly to bond rating agencies that evaluate an organization’s ability to repay its debt.  UNH has more than $250 million of debt outstanding used to finance many construction projects such as the MUB, Southeast Residential Quad, EcoLine, Campus Recreation Center, Holloway and Mills Halls and many others. UNH must keep a strong operating ratio (at least 3 percent) to satisfy bond holders and the rating agencies that we can repay our debt to keep our cost of debt low and allow us to access additional debt in the future.

Unrestricted Net Assets
Unrestricted Net Assets or UNA is the amount of “savings” or reserves that are at the discretion of management.  UNA is typically measured at the end of a fiscal year and it tells us how much money is in our savings account that can be used for such things as one-time investments and short term emergencies. We must also keep a certain level of UNA to satisfy bondholders and bond rating agencies that we can repay our outstanding debt.  Two measures are used: UNA to outstanding debt and UNA to operations.  The UNA to outstanding debt ratio for UNH to maintain is a minimum of 35 percent while the UNA to operations ratio is at least 25 percent.