ࡱ> q +Xbjbjt+t+ %AAT]lllllll8\:>"```; [ g!######$H<Glo;;ooGll``o.l`l`!llllo!rwll!`,γ:; .MARYLAND HOUSE APPROPRIATIONS SUBCOMMITTEE ON EDUCATION AND ECONOMIC DEVELOPMENT HEARING ON UNIVERSITY SYSTEM OF MARYLAND BUDGET FOR FISCAL YEAR 2006 FEBRUARY 3, 2005 Testimony of ϡȱ Chancellor William E. Kirwan Mr. Chairman and members of the Committee, thank you for this opportunity to testify on the Governors budget recommendations for the ϡȱ. I would like to briefly cover three areas. First, I will offer some general context regarding the Administrations budget recommendations. Second, I will discuss what the budget enables us to do in terms of the ϡȱs three primary goals: Quality, Access, and Affordability. Third, I will respond to the legislative analysts comments. Let me begin, however, by offering some words of heartfelt thanks. On behalf of the entire University System I want to thank the members of this committee and the ϡȱ General Assembly for recognizing the importance of funding for the ϡȱ. Your actions raised the issue of ϡȱ funding to a higher level of consideration, both throughout state government and in the public consciousness. Your leadership and support are very much appreciated. We also express our thanks to Governor Ehrlich and Lt. Governor Steele for making this reinvestment in the University System, especially given the fact that important state needs far outweigh available resources in the state budget. My staff and I have had many productive discussions with members of the Administration and the General Assembly and, given the states many needs, we are pleased with the commitment to once again make the ϡȱ a funding priority. I also wish to note that this is my first budget as Chancellor when my focus has been on how to allocate additional funding, as opposed to how to address budget cuts. I can attest that it is better to give than to take away. I speak for the entire ϡȱ when I say how pleased we are with the Governors Budget. We consider it a sound start to our recovery efforts. Turning now to the specific budget recommendation . . . . BUDGET PROPOSAL As Cliff noted, the bottom line of the Governors recommendation is a 4.8% general fund increase for the ϡȱ, from $761.5 million to $798.2 million.  EMBED PowerPoint.Slide.8  The single most important impact of this proposed increase in state support is that it will enable us to keep in-state, undergraduate tuition increases modest throughout the System. The average increase is 5.8%, and no institution will see a tuition increase of more than 5.9%. I can not over-emphasize how critical this budget increase is in terms of tuition affordability. The fact is, without it, we would have needed to increase tuition by well over 10% simply to meet our mandatory cost increases. Given the tuition increases of recent years, such an increase was untenable. Instead, if we had faced flat funding, we would be looking at a tuition increase of about 10%, with further cuts that would have threatened our commitment to quality. So with the proposed General Fund increase for the ϡȱ, we have been able to move from needing a tuition increase of well over 10% (while planning on 10%) to holding the increase under 6%. I am pleased that we were able to ratchet down our potential tuition increases so significantly. This will be a significant savings to our students and their families Furthermore, for the first time in three years we will be able to cover our mandatory cost increases at all institutions, accommodate enrollment growth of 2,400 students, and provide additional funding for need-based financial aid. EFFECTIVENESS AND EFFICIENCY One of the reasons we are able to stretch our funding so far is the progress we have made in our Effectiveness & Efficiency initiative. As you know, this is certainly not a new effort on the part of the ϡȱ. From the time I returned as Chancellor, I have been impressed by the commitment that exists throughout the ϡȱ to act as cost-conscious, cost-effective stewards of our funds, regardless of the source. Last year, for example, we took actions in cost avoidance, cost savings, non-tuition revenue generation and the strategic reallocation of resources that had a total value of $65 million. In recent years, both the Governor and the Legislature have made it clear that it was vital for the ϡȱ to do all within our power to be cost-conscious. As the Governor noted in his State of the State Address, we have taken great strides in that direction and will continue to do so going forward. Our on-going E&E Initiative features 16 specific action items, both academic (cost avoidance) and administrative (cost savings). Academically, we are removing some of the obstacles that lengthen students time to degree. Administratively we are leveraging the power of the system to save money. What differentiates our current effort from prior cost cutting and cost containment efforts is the extent to which we are now aggressively using our size and the system as a whole as opposed to institutionally-based efforts. For example, as a system we have renegotiated system-wide with PeopleSoft, consolidating multiple contracts into one and establishing maintenance caps, safeguarding our institutions from excessive costs. All in all, this action will save us millions of dollars over the next 10 years, while gaining access to $10 million-worth of new software at no cost. We are also using the leverage we have as a system to purchase electricity at more competitive prices, resulting in significant savings. The total value of E&E next year is estimated at more than $26 -$17 million cost reductions and $9.5 million in expanded capacity.  EMBED PowerPoint.Slide.8  In essence, E&E enables us to accommodate between 20 and 25 percent of projected enrollment over the next three years with NO additional cost to the state. Their tuition alone will cover the cost, with no state subsidy needed for these students. In addition, the $17 million in cost reductions contributes to our ability to hold down the magnitude of tuition increases. WHAT THE ϡȱ BUDGET PROVIDES Turning now to what the overall ϡȱ budget enables us to do. . . As Cliff mentioned, I think the most important aspect our budget provides is a return to stability and the chance for recovery and reinvestment. In terms of Affordability, the proposed budget allows us to keep tuition increases modest . . . very much in line with the spirit of HB 1188 and almost half of what they might have been without the state increase. It also enables us to provide additional funding for need-based financial aid. In keeping with the efforts of our Financial Aid Task Force and the Governors commitment to increase investments in need-based aid, we, in fact, intend to make ϡȱ a model for balancing need-based and merit-based aid. In terms of Access, the budget enables the ϡȱ to provide modest support for enrollment growth, target enrollment at comprehensive institutions, establish academic programs at Hagerstown, and expand academic programs at Shady Grove. These centers are especially important when we look at meeting specific workforce needs, from high-tech, new-economy jobs to more traditional needs such as nurses and teachers. Finally, in terms of Quality, this budget will let us increase support for selected academic programs; strengthen vital student services, such as advising and the libraries; and expand the use of information technology & online courses to enrich educational opportunities. Furthermore, we will be better equipped to keep our most talented, productive and sought-after faculty as well as our best and brightest students. And, with this budget, we will be able to stabilize research capacity at our institutional-based research centers, the University of ϡȱ Biotechnology Institute and the University of ϡȱ Center for Environmental Science.  EMBED PowerPoint.Slide.8  At this point, I will conclude my testimony by responding to the recommendations made and the issues raised by the legislative analyst. LEGISLATIVE ANALYST RECCOMENDATIONS & ISSUES Recommendation 1: Recommended reduction of $2.7 million in unrestricted tuition revenue; also restricts budget amendments for tuition and fee revenue except for institutions whose enrollment growth is in excess of 5% of the anticipated FY 2006 Governors budget proposal It appears that this recommendation is made to reflect the spirit of HB 1188, which called for a steady, predictable funding increase from the State coupled with steady, predictable tuition increases from the System. This particular recommendation, however, misses one key fact. Had HB 1188 become law, the ϡȱ would have gotten a retroactive increase to our FY 05 budget of $25.4 million, an increase that would have been built into the FY 06 budget that is before you. As we all know, this did not happen and the ϡȱ received only level funding for FY05. We respectfully request that the ϡȱ is able to maintain flexibility in terms of managing enrollment and submission of budget amendments. This will ensure effective management and better meet the needs of the students we serve. Any restrictions on access to tuition revenue would effectively limit institutional ability to accept additional students because their individual payments would not be available to meet educational and support costs. I will point out that the ϡȱ has a very strong and effective fund balance growth policy. The bonding agencies consider our policy and flexibility regarding budget amendments as best practices and have cited our management capabilities as a significant factor in our strong ratings. Recommendation 2 / Issue 1 (combined): Provide committee with report detailing Efficiency efforts by initiative. Report should indicate how initiatives, particularly on-line education initiative and the 12 credits outside the classroom shall be implemented. This report shall be provided for each year of the plan and the committees shall be provided with additional information if the plan is changed significantly. The chancellor should comment on the current status of efficiency efforts, particularly the study of the organization structure. Obviously, we will continue to provide extensive reports detailing the progress of our Effectiveness and Efficiency Program. Specific to our On-line Education Initiative, ϡȱ has established an On-line Education Committee, co-chaired by Vice Chancellor for Academic Affairs Irv Goldstein and Vice Chancellor for Administration and Finance Joe Vivona. The committee has asked each of the systems 11 degree-granting institutions to develop and submit institutional plans for on-line education. In addition, the committee is examining issues such as faculty development in on-line education and inter-institutional collaboration to help facilitate this goal. Regarding the 12 credits outside of the classroom, all ϡȱ institutions already encourage current students to take advantage of alternative means of earning academic credit. Internships, independent study, study abroad, and the like are valuable educational experiences and serve as an important tool in recruiting new students, who are attracted by the availability of alternatives to traditional classroom. To further strengthen such approaches, the ϡȱ Policy on Alternative Means of Earning Academic Degree Credit has been approved by the Education Policy Committee and will be submitted to the full Board later this month. Once approved by the Board, the Policy on Alternative Means of Earning Academic Degree Credit will go into effect for the freshman class entering in fall 2005. Institutions will coordinate courses and alternative academic experiences within the framework of the policy criteria.The institutions will track the fall 2005 cohort as they progress toward their baccalaureate degree requirements. Regarding the specific reference to the structure study, ϡȱ is conducting organizational reviews of four of the systems special-purpose institutions. They are University of Baltimore, which offers only upper-division and graduate programs; University of ϡȱ University College, which has established itself as the nations leading online university; University of ϡȱ Biotechnology Institute; and University of ϡȱ Center for Environmental Science, which are free-standing non-degree granting research centers. The Regents are reviewing how best to utilize these unique institutions in times of fiscal uncertainty and increasing enrollment demands. After deciding not to consider merging the University of Baltimore with another ϡȱ institution, the Regents charged UB with developing a plan to better utilize its facilities during the daytime hours. It is possible that UB will develop partnerships with other institutions to offer programs during the day. UMUC has developed a set of initiatives to better position itself in its international role. A bill will be coming forward to clarify UMUCs status as a state entity and to allow it some protection from FOI requests because of its need to compete in the marketplace. Other initiatives will allow UMUC to be more flexible in its employee and faculty policies (because of its presence overseas). The analyses of UMBI and UMCES are just beginning. The key issues to be addressed are the financial sustainability of these stand-alone centers without tuition revenues and the best structure for continuing the valuable missions of the centers. Recommendation 3/ Issue 2: (combined): ϡȱ should continue to provide the annual instructional workload reports for tenured and tenure-track faculty. The Faculty Workload Report is an annual report that ϡȱ prepares and distributes. The report provides workload data on tenured and tenured-track faculty, as well as workload data on nontenured-track faculty. The fact is, the inclusion of nontenured-track faculty in this report represents a more accurate reflection of the classroom teaching that takes place at our institutions. We will continue to provide both data profiles, but do so in a way that differentiates between the two. Issue 3: The Chancellor should comment on why ϡȱ does not use only public institution data in its salary comparisons. The Chancellor should comment on whether steps will be taken to address institutions with salaries outside the Regents target range. A strategic goal of the ϡȱ is to recruit and retain top quality staff. To provide guidance for setting salaries, the ϡȱ BOR has established a target of the 75th percentile for presidents and senior executives. The available College and University Professional Association (CUPA) comparisons do not disaggregate the data between public and private. However, since the recruitment of senior executives is regional and national, the lack of public-only data does not detract from the analysis and decisions of the BOR. The BOR will continue to monitor administrative salaries to ensure ϡȱ institutions remain within acceptable norms when compared with peer institutions nationally. I would also point out that the ϡȱ salary analysis compares broad categories of administrative titles against similar broad salary ranges within the CUPA data. The analysis completed by DLS was selective in nature by single title. It would be expected that the results would not be consistent. Issue 4: The Chancellor should comment on the reasons for the decrease in personnel most closely related to student learning, namely, instruction and academic support personnel. During the FY 2003-2004 cost containment, ϡȱ eliminated state-supported positions due to general-fund reductions. During that same time period, ϡȱ sponsored research increased, creating positions needed to carry out the research. Creation of these non-state-supported positions changed the university systems base position level. When you compare instruction to the state supported position level their share actually grew during this time period (see attached chart 1). The reduction in positions in instructional areas has not been the result of conscious general fund decisions by ϡȱ. Exhibit 8 in the DLS budget examines how ϡȱ has spent its unrestricted funds by program since FY 2002. Exhibit 8 shows that from FY 2002- 2005, instructional spending increased by 23.3%, while spending on research increased 10.1%. The percentage increase in research spending in FY 2006 is the lowest of the 9 categories listed. An important part of ϡȱs mission is our role as an economic engine for the State. The data discussed in the analysis show that despite the decline in general fund support, ϡȱ has been successful in attracting external funds to contribute to ϡȱs economic development efforts. The increase in this part of our mission happened to coincide with the decrease in general fund support that supports our core instructional mission. Issue 5: The Chancellor should comment on the outlook for building up the fund balance. In the current fiscal climate, finding enough resources to meet all needs, including increasing reserves, is extremely difficult for institutions striving to maintain quality as well as accommodate enrollment growth. Historically, ϡȱ institutions have demonstrated that they are able to increase their fund balance. And the Regents continue to hold institutions accountable for meeting their fund-balance goals. The University System is in the midst of a five-year plan to improve its financial health, through increasing the level of fund balances, and reducing the amount of System debt to be issued annually. The plan calls for each institution to increase its unrestricted fund balances by a small percentage of its annual spending. The University System is ahead of schedule in this effort and System leadership has every reason to believe that institutions will continue to reach their goals within the parameters of the timetable. In the past, similar efforts undertaken by the Regents and the System have been resoundingly successful. This past fiscal year, which ended June 30, 2004, all institutions but one met their fund balance improvement goal, and there is every expectation this progress will continue over the balance of the five-year plan. Issue 6: The Chancellor should comment on the outlook for institutions willingness to contribute unrestricted funds to facilities maintenance. The ϡȱ Board of Regents is holding a special retreat this spring to discuss deferred maintenance and related issues thoroughly. The expectation is that the system will develop a multi-year plan to address these issues. I can assure you that the budget dedicated to maintenance will increase each year for the foreseeable future. Final Issue: The chancellor should comment on why accountability data supplied by MHEC is not uniform. The report cited in the analysts comment was the MHEC performance accountability report, which is produced annually. The agreement worked out between DBM, MHEC, and the states public four-year institutions in 2000 follows the states Managing for Results (MFR) principles and format, which allows each institution to establish goals, objectives and indicators that are appropriate to its specific mission, educational goals, and operating conditions. Such an institution-centric format was considered necessary because of the varying missions, learning goals, programmatic offerings, and service focus that exist among the states four-year institutions, which range from liberal arts-focused institutions to comprehensives to research institutions to professional schools. As MHEC notes in its analysis, this agreement means that there is more variability and less uniformity among the reports produced by the four-year institutions than in the accountability reporting processes overseen by MHEC prior to 2000. The trade off in uniformity, however, is the flexibility of institutions to set the goals and objectives appropriate to their operations, and provide data showing the effectiveness of those specific operations, which is a key operating tenet of MFR. Chart (Issue 4): Chart 1ϡȱ FTE Personnel by Budget ProgramFY 2002-,2004, & 2005Programs separated by State & Non-State(Filled positions only)FY 2002-2005 ChangeShare ofFY 2002FY 2004FY 2005State/Non-STFTE% of totalFTE% of totalFTE% of totalNumber02-05State-SupportInstruction5,85843.7%5,91844.6%5,83544.6%(23)0.9%Public Service6895.1%6534.9%7165.5%27 0.3%Academic Support1,93714.4%1,89214.3%1,78313.6%(154)-0.8%Student Services9457.0%8766.6%8996.9%(46)-0.2%Institutional Support2,42718.1%2,43618.4%2,41218.4%(15)0.3%Operations & Maintenance 1,55811.6%1,49711.3%1,45211.1%(106)-0.5%sub-total state support13,414100.0%13,272100.0%13,097100.0%(317)0.0%Non-State SupportResearch2,45560.3%2,66061.8%2,92663.1%471 2.8%Auxiliary 1,36833.6%1,38732.2%1,43130.9%63 -2.7%Hospitals2486.1%2565.9%2816.1%33 0.0%sub-total non-state support4,071100.0%4,303100.0%4,638100.0%567 0.0%Total17,48517,57517,735 PAGE  PAGE 10    / ? 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