Report for Academic Year 2021/2022
In the spring of 2021, as part of the University’s ongoing efforts to support institutional priorities and achieve a sustainable budget, I shared with the campus my approach towards achieving these goals—Closing the Gap. Closing the Gap includes actions we can take to strengthen the financial health of the University while maintaining our ability to support student success and sustain our academic mission.
As a reminder, the Closing the Gap Toolkit includes:
- stabilizing and, where possible, increasing enrollments;
- implementing the Strategic Hiring Freeze;
- realizing savings, where possible, through attrition and vacancies;
- participating in the Support Services Review;
- offering a Retirement Transition Program;
- launching a program review/reduction process.
The best way to understand the “gap” is to look at the amount of funds we need to draw from reserves to cover the gap between our revenues and expenses. In FY22, the university needed to use just over $15 million in bridge funds to cover this gap, of which $11.1 million was OAA’s share. For FY23¹, PSU's budget has $9.6 million in bridge funds, of which $7.1 million is OAA’s share. As you can see, we have closed the gap in OAA by $4m.
Summarized below are the FY22 financial impacts and FY23 budget savings as a result of these Closing the Gap strategies. While these strategies can remove costs from the budget, there are often new costs each year due to increases in salary/OPE (Other Personnel Expenses) and inflation. Therefore, while the budget savings below have been removed from the OAA budget, the FY23 OAA budget is more than the FY22 budget. I indicated at the beginning of this process that we expected this work to take about three years. We are on track to achieve that goal. Here is our progress in each of these areas:
Stabilize and, Where Possible, Increase Enrollments - FY22 Estimated Financial Impact: $2,932,000
As we continue to face a university-wide decline in enrollment, Enrollment Management and the Graduate School are working hard to recruit new students to PSU and ease barriers to admission. In addition, our collective Student Success efforts continue to improve student persistence, retention, and graduation, with overall retention and graduation rates increasing in each of the past three years.
Simultaneously, we can identify targeted areas where student and workforce demands indicate that we can increase revenues through new student enrollments. During FY2022, Honors, Business, and SSW all were able to enroll new students who would otherwise not come to PSU. This revenue will help offset reductions in tuition revenue in other areas that are experiencing a decline. As illustrated below, the estimated financial impact² to the University for these three investments was about $2,932,000.
| Unit |
FY22 Investment |
Increase in Students
Fall 2021
|
Estimated Net Tuition Revenue |
Estimated Financial Impact |
|---|
|
Honors
|
$100,000 |
113 |
$996,000 |
$896,000 |
|---|
| Business |
$217,000 |
193 |
$1,702,000 |
$1485,000 |
|---|
| School of Social Work |
$172,000 |
82 |
$723,000 |
$551,000 |
|---|
| Total |
|
|
|
$2,932,000 |
|---|
This revenue may offset a reduction in tuition revenue in other areas that are experiencing a decline. Thus, it remains important to identify areas that have the potential to bring new students to PSU. The President’s Strategic Investment Plan (SIP) is one mechanism to support these efforts. To increase new enrollments, the SIP has funded one-year bridge funding for positions for Social Work, Computer Science, Speech and Hearing, Business Technology and Analytics, and Interior Design. The outcomes of these investments will be reported as part of the ongoing outcomes of the Strategic Investment Plan.
Retirement Transition Program - FY23 Budget Savings: $2,040,000
In May 2021, we worked in partnership with AAUP to put forward a Retirement Transition Program for tenured faculty. Twenty faculty members participated in this program: nine were refilled, three were reallocated, and eight were not refilled. Even in those cases where positions were refilled, we were able to realize savings of $460,000 due to lower salaries and OPE with the replacement positions. With the reallocated and non-refilled positions, there is an additional personnel savings of $1,580,000, for a total savings of $2,040,000. The units use these budget savings to balance their budgets within their budget allocation.
In March 2022, the Retirement Transition Program for Tenured Faculty was extended for two years. A Retirement Transition Program for NTTF-I on Continuous Appointment and a Phased Retirement Transition Program for Academic Professionals was also agreed to in March 2022. Financial savings from these programs will be reported following the FY24 and FY25 budget process. Other retirements are included in the following section.
Attrition and Vacancies - FY23 Budget Savings: $656,000
While turnover is very disruptive, it does provide an opportunity to determine if the position should be refilled as it currently exists or if the resources would be better used elsewhere to support enrollment and student success goals. Additionally, there are often salary and OPE savings due to some positions being refilled at a lower salary rate and retirement benefits being at a lower rate for new individuals joining PERS. Retirements and departures occurred outside of the Retirement Transition Program. Between the FY22 and FY23 general funds budget for the OAA units, about $456,000 - or 69% of the $656,000 - is due to savings in replacement positions. The remaining amount is due to positions that weren’t refilled. The hiring freeze exception process ensures an intentional review of each open and new position.
In addition to budget adjustments at a position level, Academics Affairs as a whole has over $4 million budgeted as salary savings in FY23. This is a new process in FY23, and the amount reflects the historical salary savings. With this budgeting practice, the unit budget will more closely reflect the actual expenditure and addresses the concern of removing costs unnecessarily. This amount may change in future years and therefore is not reported as a budget savings due to the Closing the Gap strategies.
Program Review and Reduction Process
The Program Review and Reduction process is ongoing; we are currently completing Phase II and entering Phase III of the process. Approximately $2.1 million of budget savings captured in the above strategies relate to Phase II units. Any budget savings would be captured following Phase III and would impact the FY24 budget and beyond.
ReImagine PSU Initiative
ReImagine PSU was launched in Summer 2021 to provide space to collaborate and design mechanisms to address the challenges and opportunities we face. Ten projects were awarded for Summer 2021 and 23 for Academic Year 2021-2022. Details on these projects can be found on the ReImagine PSU Project Information page. Units have begun to incorporate work from their ReImagine projects into their planning, many of which will have implications for budget planning.
Support Services Review
Huron Consulting Group completed the support services review during Spring 2022. Report findings are available at: Support Services and Operational Review. Budget savings will be determined as implementation of recommendations is undertaken.
Other Budget Savings
The Article 22 process with the Intensive English Language Program resulted in budget savings of about $748,000.
Understanding the Impact on the Academic Affairs Budget
The Closing the Gap strategies impact the OAA budget in the following ways:
The Operating Budget Allocation
Annually, each division is provided an operating budget allocation built upon the budget parameters for tuition increases and deficit spending set forth by the Board of Trustees Finance and Administration Committee. Within the allocation, there is a budget line for bridge funds, which represents the difference between PSU’s estimated revenue and PSU’s estimated expenses, and this is funded by a division’s management reserves. Strategies that increase revenue, such as new revenue due to faculty investments, are included in the annual allocation. Increases to tuition and state allocations are also in the annual allocations and support closing the budget gap. The below table illustrates OAA’s share of the overall operational budget allocation and bridge funds share3. For FY22, 5% of the operational budget is covered through bridge funds, and it is 3% in FY23. This is due to a slight increase in revenue compared to FY22. The overall budget allocation increase from FY22 to FY23 is just over 2%
| |
FY22 |
FY23 |
|---|
| |
PSU |
OAA |
OAA% of PSU |
PSU |
OAA |
OAA% of PSU |
|---|
| Operational Budget Allocation |
308,783,282 |
205,638,333 |
67% |
316,374,008 |
210,480,633 |
67% |
|---|
| Bridge Funds |
15,053,000 |
11,100,000 |
74% |
9,595,000 |
7,075,000 |
74% |
|---|
| General Funds |
293,730,282 |
194,538,333 |
66% |
306,779,008 |
203,405,633 |
66% |
|---|
| Bridge Funding as a % of Operational Budget |
5% |
5% |
|
3% |
3% |
|
|---|
For FY23, OAA’s budget allocation also includes an increase in State Targeted Funds and Other Adjustments. Changes between FY22 and FY23 are noted in the below table.
| FY2022 Operational Budget |
$ 205,638,333 |
% increase/
decrease from FY22 |
|---|
| Change in Targeted Funds |
649,672 |
0.3% |
|---|
| Other Adjustments |
112,044 |
0.1% |
|---|
| Allocation Increase |
4,080,585 |
2.0% |
|---|
| FY23 Operational Budget |
$ 210,480,633 |
2.4% |
|---|
FY23 Expenditure Budget
The expenditure budget will reflect estimated cost increases as well as the cost savings strategies outlined above. Cost increases to maintain the current service level are estimated to be 4% for FY23, which is more than the allocation increase. As illustrated below, the cost savings strategies referenced above remove 1.7% of OAA’s FY22 budget from OAA’s FY23 budget. The net increase to OAA’s budget is $4,842,300.
| FY2022 Operational Budget |
$ 205,638,333 |
% increase/
decrease from FY22 |
|---|
| Change in Targeted Funds |
649,672 |
0.3% |
|---|
| Retirement Transition Program |
(2,040,000) |
-1.0% |
|---|
| Attrition and Vacancies |
(656,000) |
-0.3% |
|---|
| IELP Savings |
(748,000) |
-0.4% |
|---|
| Service Level Increases |
7,636,628 |
3.7% |
|---|
| FY23 Operational Budget |
$ 210,480,633 |
2.4% |
|---|
Closing the Gap is making important progress, but there is still work to be done. We are grateful to all of you for your continued collaboration as we work to achieve our shared goals of achieving financial sustainability so that we can achieve our mission and purpose. Our success requires that we focus both on revenue and reductions, which means that we need to utilize all of the resources in our toolkit. In order to Close the Gap, we need to sustain our enrollment and retention goals. Additional losses in enrollment can cause us to have a greater gap to close. Academic Affairs will continue to keep the Faculty Senate Budget Committee updated through the coming year. I will continue to update all of you regularly as we move forward to achieve our collective goals.
___________________________________________
1 Updated financial information is reported to the Board of Trustees Finance and Administration Committee. Information can be found on the Finance and Administration Committee webpage.
2 Estimated financial impact calculation is based on estimated undergraduate tuition of $8,818 per student from the 2022 Adopted Budget RCAT (Revenue and Cost Attribution Tool). Amounts are included in the revenue forecasts presented at Board of Trustees Finance and Administration Committee meetings and allocated annually to divisions through the annual planning process. OAA’s allocation is about 67% of the overall general fund budget.
3 OAA’s bridge funds is greater than 67% as not all divisions hold management reserves
4 Per the Tuition and Mandatory Fee Proposal