The effects that Wall Street’s credit problems are having on UNC campuses are no longer restricted to making student loans more difficult to obtain. Anticipated revenue shortfalls from reduced income and lower returns on various funds and endowments are forcing universities to make considerable cuts. Some media reports suggest the revenue shortfalls to North Carolina’s state budget could be as high as ten percent of the $21.3 billion budget for fiscal year 2008-9.
In response to the impending loss of revenue, last month Governor Mike Easley ordered state agencies to reduce spending across the board by two percent to prepare for the likelihood of shortfalls. According to N.C. State University director of news services Keith Nichols, UNC system president Erskine Bowles then “asked the universities to prepare for a four percent cut on the thinking that we haven’t seen the worst of it yet.”
It should be noted, however, that these cuts are not reductions from last year’s UNC budget, but from the 2008-9 UNC budget, which officially started in June 2008; thus, most of the budget has not yet actually been spent.
The new UNC budget is as much as 6.9 percent higher than last year’s expenditures, based on the Pope Center’s analysis. Therefore, the cuts really indicate a reduced increase in overall system spending for the new school year. Officially, the state’s allocation to the UNC system for operating expenses for the 2008-9 is $2.626 billion. However, the Pope Center estimates that the real figure is closer to $2.749 billion, due to increases in scholarships and professors’ salaries that were omitted from the UNC figures at the time the budget was passed because of accounting procedures.
At N.C. State last Wednesday, October 22, university officials discussed the implications of the cuts (actual and proposed) to a gathering of some 200 people, primarily faculty, staff, and students. This is an annual event held to explain budget changes, not one organized to address the current budgetary difficulties.
Provost Larry Nielsen said that Chancellor James Oblinger has already agreed to Bowles’ suggested cuts. However, the larger reduction has not yet been implemented. Thus, the reduction of $22.4 million discussed in the meeting only reflects the two percent cut ordered by the governor. (N.C. State’s entire budget for 2008-9 was projected to be $1.14 billion budget). Of that amount, $17.7 million will be born by Academic Affairs—the portion of the school’s budget under Provost Nielsen’s authority. Agricultural Research Service cuts will be $2.6 million, and Cooperative Extension Services will suffer a $2.1 million budget reduction. The latter programs have deans who function as individual provosts.
The budget reductions have not yet been divided among the various schools and programs that comprise Academic Affairs. Nielsen said he is employing a dual strategy—one-half of the cuts in Academic Affairs will be across the board, while the other half will be performed strategically to support the long-term goals of the university.
Nielsen said there were three things he wants to protect: teaching salaries, the library and utilities. The library and utilities are relatively fixed costs that don’t permit much economizing. Classroom salaries are necessary to maintain quality, Nielsen said, and can be reduced largely through attrition and by using a teaching reserve fund set aside for such situations. He said that the chancellor has not “made any declarations for a university-wide hiring freeze,” but that the heads of individual schools that make up the university have been told that some of the best areas to make cuts hiring, travel, and renovations. One professor in attendance said that he had already been told by his department not to travel (at the university’s expense).
Nielsen added that “every college won’t get the same cut—it depends on how much of the budget is in teaching lines. He said that the budget for the College of Humanities and Social Sciences (CHASS) is almost all teaching, and therefore they should expect a lower reduction, while the College of Textiles and the College of Veterinary Medicine should expect larger cuts because they have considerable expenses other than teaching.
Chief financial officer Charles Leffler said that, at this point in time, it was unknown whether the budget cuts would become permanent. “We don’t know if this is a one-time thing. We need to have contingency plans if it’s more than four percent. Come April, we might need more.”
Cuts were not the only matter discussed. Nielsen and Leffler also explained the implications of the new budget in general, revealing some long-term trends of the university in the process:
- N.C. State receives approximately 46 percent of its budget for 2008-9 from the state (It was this 46 percent only that was affected by the legislature’s 6.9 percent increase). Contracts and grants are the next largest source of revenue for the university at 23 percent, with tuition and fees are third at 15 percent. Leffler said that receipts from research grants are starting to decline slightly because of greater competition and because the federal government responsible for the majority of grants is pulling in its belt as well.
- Tuition for undergraduate students has gone up this year by $100 for state residents and $200 for out-of-state students. Nielsen said that he did not want to impact either scholarships or the university’s “Pack Promise” aid to needy students—59.7 percent for the 2.274 million in increased tuition revenues this year was used for financial aid. Faculty salary increases and bonuses accounted for another 25 percent—this is mandated by the university system’s Board of Governors to help UNC schools raise salaries up to the 80th percentile of their peers. The rest of the tuition increases are being used by the provost’s office to add more class seats and sections and to improve educational quality.
- While NCSU has historically emphasized its engineering school, this year CHASS, the business school, and the educational school all received larger percentage increases than is ordinary. Nielsen said that CHASS has other financial problems it needs to address, while there has been a considerable increase in demand for business courses, outpacing the rest of the school’s growth. The extra funding for the educational school reflects the university system’s projection of increased demand for K-12 teachers in the state in the near future.
- In response to a question about the school’s endowment, Leffler said “It’s smaller than it was three weeks ago. He said it is approximately $350 million, and that the “by this time next year most of the endowment” will be managed with UNC-Chapel Hill’s much larger ($2.3 million) endowment, since that fund has historically gotten higher yields. Nielsen added that the school hired Nevin Kessler in 2007 to improve the university’s fundraising, an area in which Nielsen said the school has historically underperformed.