With continued reductions in state financial support and rising fringe benefit costs, UConn’s proposed new FY19 budget represents a delicate balance of seeking efficiencies while working to protect the University’s academic mission, officials say.

Members of the UConn Board of Trustees’ financial affairs committee got an advance look Monday at the proposed FY19 budgets for Storrs, the regional campuses, and UConn Health, and the full board will vote on them on June 27.

The total FY19 budget of $2.4 billion is comprised of $1.36 billion for UConn Storrs and the regional campuses, and $1.04 billion for UConn Health, including John Dempsey Hospital and the schools of medicine and dental medicine.

Although budget officials were able to balance both spending plan proposals through a series of efficiencies and other moves, they warned that the next two years look more difficult as UConn continues to absorb factors it can’t control.

They include the unpredictability of state financial support and fringe benefit costs, the latter of which is substantially increased by the state’s effort to cover its unfunded pension liabilities statewide. The budget is also affected significantly this year by the requirement to fund pay raises in FY20 and FY21 under a statewide agreement with labor unions, and the clause in that agreement that prevents cost savings through layoffs.

The University’s overriding goal is to continue to protect and build UConn’s academic strength, which draws talented students and faculty, helps foster economic development for the state, and has helped propel it to No. 18 among the nation’s top public colleges and universities, as measured by the U.S. News & World Report annual ranking.

“It is remarkable how far we’ve come and what an asset we are to the state of Connecticut,” Scott Jordan, UConn’s chief financial officer and executive vice president for administration, told members of the finance board at Monday’s meeting.

UConn contributes $3.4 billion annually to the state’s economy, employing one out of every 90 jobs in the state, Jordan said. UConn’s success provides direct, tangible returns to the state for the investment it’s made in the University’s academics and campuses.

But, Jordan warned, the past several years of unavoidable cost-cutting are already being felt in departments, schools, and colleges. Some have said they’re struggling to avoid a decrease in graduate student enrollment, which is especially worrisome because the strength of Ph.D. programs and other graduate education is critical to a school’s reputation.

“It’s not a little thing when you say a department can’t take more doctoral students; they can start to fall off the map academically,” President Susan Herbst said. “As departments can no longer take graduate students, we can expect our reputation to decline.”

Being forced to cut too deeply into the academic enterprise also puts UConn at risk of losing talented students and faculty to other institutions, being forced to charge more in tuition and fees to offset declining state support, increasing class sizes, and cutting student services and staff.

Some specifics presented at Monday’s workshop also show that:

• UConn is among the leanest among similar universities in administrative costs, with a faculty to administrator ratio of 14.1 – the second highest in the peer group – and the highest student to administrator ratio, with almost 242 students per administrator.
• The University relies more on tuition than any other revenue source at nearly 31 percent, greater than state support at 25 percent. That ratio tipped in FY17. Before that time, state support represented a higher amount than tuition.
• The state block grant for FY19 – about $190.6 million for operating costs and $156.2 million to pay a portion of fringe expenses – is approaching a 20-year low point.
• The next two years’ budgets are projected to have substantial deficits, driven by the mandatory raises and fringe benefit costs, unless one or more deficit mitigation strategies are considered. They include tuition increases beyond those already forecast in the adopted four-year schedule, and strategically replacing staff attrition and/or restructuring departments, which could lead to the loss of talented faculty and staff.
• The fringe benefit costs are especially difficult because they are unpredictable from one year to the next, they include extra costs imposed by the state to help it catch up with unfunded pension obligations, and the state covers a decreasing portion while UConn has to cover the rest.
• In FY19 alone, the $2,000 guaranteed one-time payment that each unionized employee gets under the statewide pact represents $20 million in costs to UConn that are only partly reimbursed.
• UConn’s fringe benefit costs have increased significantly in a short time. In FY11, for instance, UConn paid $148.3 million for those costs for Storrs and regional campus students; in FY19, it’s forecast at $277 million for those workers, not including the additional $254 million at UConn Health.
• UConn and UConn Health already are working together to combine departments for efficiencies where possible, including in areas such as procurement, public safety, institutional equity, and others. “We are going to continue it whether there’s budget pressure or not, because it’s the right thing to do,” Jordan said.
• While UConn’s drive for philanthropy has been more successful in recent years than ever before, the University cannot look to that as a revenue source for the yearly operating costs. In fact, although the endowment has increased, UConn still can only draw $21.7 million next year from interest income to support its costs – a respectable sum, to be sure, but nothing near the amounts available to private universities with large endowments.

Jordan, Herbst, and others said they continue to talk with state officials to help legislators understand UConn’s budget picture, and the fact that its academic obligations make it unlike a business or some other state agencies where across-the-board cuts can be imposed.

For instance, Herbst said, UConn should not and would not make decisions on academic programs based on whether they make money, and noted that the humanities and other programs are a critical part of a well-rounded education.

“That’s the dream of public education, and of making citizens and leaders – and that’s what we do here,” she said.

UConn Health also faces a complex financial picture for FY19, including the need to fund the mandatory pay increases under the statewide labor pact and the increasing fringe benefit expenses.

“The next two years, I think, are going to be the most difficult we’ve faced in the last six years or so,” Andrew Agwunobi, UConn Health’s chief executive officer and UConn vice president for health affairs, told the finance committee members. “For the same reasons Scott [Jordan] mentioned, we’re facing very strong head winds in terms of salary and fringe [costs].”

If not for the fringe costs, UConn Health would have been on track to turn a $5 million profit, said Jeffrey Geoghegan, UConn Health’s chief financial officer.

UConn Health is focusing strongly on building its clinical operations, with about 51.4 percent of its revenue coming from patient care. It also has reviewed and revamped some operations and is looking into a public-private partnership.

The Board of Trustees will review and vote on the budgets June 27 and, if approved, they go into effect July 1.