UConn faces one of its most challenging financial years in recent history as it works to prepare its FY18 budget amid uncertainty about the amount of its annual state allocation, fringe benefit rates it must absorb, and the fate of a tentative statewide labor agreement.
Scott Jordan, UConn’s executive vice president for administration and chief financial officer, will be joined by other UConn finance officials Wednesday to present a 2017-18 budget proposal to the University’s Board of Trustees for its consideration.
Despite the challenges, the baseline budget is balanced and avoids deficits due to the tight rein that UConn has placed on spending over the past year, including delays in filling open positions and many other cost-cutting measures, Jordan says.
The budget proposal is a baseline plan created with the best financial information currently available, allowing the University to continue its operations uninterrupted while it awaits the new state budget. It will be updated and sent back to the trustees for another vote at a later date, once the General Assembly adopts the statewide budget for FY18, which begins Saturday.
The state’s final figures are needed before UConn can definitively budget the amount of its annual operating funds, the rates it will be charged to help cover fringe benefits, and its payment to help the state catch up with pension obligations statewide.
The FY18 budget proposal avoids raising tuition above the rate that had already been approved in the four-year plan that went into effect in fall 2016. And while enrollment growth has been a significant factor in increased tuition revenue over the last 20 years, enrollment across all campuses is expected to remain flat in FY18 and FY19.
The draft budget also assumes a $211.2 million state allocation to UConn for the coming year’s operating expenses.
Gov. Dannel P. Malloy had originally proposed that figure, but released updated information Monday that would provide $201.2 million in what he has termed a “resource allocation plan” that he proposes using through an executive order until a final budget is approved.
UConn hopes that its state allocation will be higher when the legislature passes a final budget, however.
The $1.34 billion proposed budget for Storrs and the regional campuses relies on tuition for 29 percent of its revenue, followed by about 26.7 percent of its revenue coming from the state’s operating fund allocation. As recently as the year 2000, state support comprised 43 percent of UConn’s revenue.
“UConn is currently at a crossroads …,” says UConn President Susan Herbst. “The decline in state support is causing UConn to shift from expanding academic and research strength in order to increase our contributions to the state’s economy to simply attempting to maintain our current position.”
Like other state agencies, UConn’s FY18 budget also will be significantly affected by the state’s tentative agreement with the State Employees Bargaining Agent Coalition (SEBAC), if labor units within the coalition approve the provisions.
UConn included those provisions as tentative assumptions in its budget draft, and would have to change the document significantly if the proposal is not adopted.
The SEBAC agreement includes savings for the state through increases in employees’ share of health care and pension costs, three furlough days in FY18 for those covered by the deal, a three-year wage freeze, and other factors.
Under university policy, non-contract UConn employees who are not covered by collective bargaining agreements receive raises similar to those in the unions and on the same schedule, so the wage freeze and furlough days would apply to them as well if the SEBAC agreement is approved.
That pact also avoids layoffs through 2021 for current state employees in addition to the other provisions on raises, co-pay and health care costs, and related items.
The provision would prevent UConn and other state agencies from achieving cost savings through personnel reductions, and the no-layoffs assumption has been included along with the other SEBAC provisions in the proposed UConn budget coming to trustees on Wednesday.
Salaries comprise about 37 percent of UConn’s budget and about 90 percent of its employees are covered by collective bargaining agreements.
Jordan said that while no one ever wants to initiate job reductions, the no-layoff clause would restrict UConn from making financial changes in a large segment of its budget, and therefore further cuts would have to come from areas such as capital projects.
The University also is consistently seeking more opportunities to create efficiencies when possible and practical, he says. UConn has also been identifying new revenue streams, such as millions of dollars in profit-sharing from new bookstore operator Barnes & Noble.
He added that any notion that UConn doesn’t have personnel costs under control is incorrect: The workforce hasn’t grown in any significant manner, nor have salaries, and managers are in their third year without pay raises.
In addition to the 37 percent of UConn’s budget that is allocated to salaries, more than 18 percent of overall expenses goes to fringe costs, which include retirement, health care coverage, FICA taxes for Social Security and Medicare, and UConn’s payment to help the state with its unfunded pension liabilities.
UConn lost $9.2 million in state funding in fiscal year 2017, receiving a state allocation of $220.7 million for operating costs – and then absorbing $6.3 million more in lost money from fringe rate reimbursement payments that are calculated based on the allocation, and which therefore dipped when that allocation fell.
The University’s fringe benefit costs have increased by $100 million since FY11, largely to help the state retroactively fix its unfunded pension liabilities.
In FY17, UConn will pay an estimated $57.3 million due to the unfunded pension liability – money that otherwise would have gone to other needs throughout the University. The amount for FY18 is not yet known.
“We would argue that our current students, faculty, and staff did not cause this,” Jordan said of the state’s pension issues when he outlined the draft budget to the trustees’ Financial Affairs Committee recently. “As we are forced to raise tuition to pay for this, we hope this is something the state will work out soon.”
In all, UConn has sustained almost $80 million since 2011 in state reductions, lost fringe, and “fund sweeps,” in which the state takes money out of accounts for projects that have not yet started.
However, the University’s situation is not all gloom and doom, as it remains very strong in the academic realm, an enterprise that University leaders have vowed to protect despite the budget difficulties.
It has remained in the U.S. News & World Report’s Top 25 among public universities for the past several years despite the funding cuts it has absorbed, and applications have reached record highs for the last several years – including from record-high numbers of valedictorians and salutatorians.
The University also has budgeted $122.4 million in university-funded institutional financial aid to award to students, which comes in addition to state, federal, and private aid for which they may qualify.
This year’s proposed number is $10.7 million above the FY17 figure, with about $70 million of the $122.4 million earmarked for need-based aid.
Interest in the new UConn Hartford campus and the new student housing at UConn Stamford is also strong; the number of class offerings has been increased by 33 percent in recent years; and the University just graduated more students than ever before in its history.
“We are not a business, but if we were to think of ourselves in the way a business does,” says Jordan, “it’s clear we have a tremendously loyal customer base.”
