University to begin preparing contingencies for coming budgets

As the global financial crisis continues, it is important for Missouri State University to take stock of its current financial position and to begin to plan for contingencies that could involve a decrease in state revenue and a corresponding reduction in future state appropriations to the University. What began as a credit crisis has obviously spread to a significant downturn in the equity markets across the world, a substantial loss of consumer confidence and spending, and now a significant increase in unemployment on the national level. All aspects of the nation’s economy are being adversely affected.

Currently, thanks to a number of factors, the financial condition of Missouri State University is strong. Enrollment has increased for another year; private giving hit an all-time record last year, and we are ahead of that pace this year; and extramurally funded research, service and educational projects also set a new record last year and are robust this year. Consequently, the University has increased its one-time fund balances this year over last; it was able once again to add to its ongoing reserves; it has increased its substantial investments in financial aid; it continues to meet all its bond obligations; and it has adequate cash on hand to meet other contingencies and emergencies.

The current budget (Fiscal Year 2009) was a conservative one, and both our revenues and expenditures to date are on target. The only fiscal area where we see a substantial downturn is in the Missouri State Foundation’s endowment, but even there, our diversified investment strategy has cushioned the Foundation against the magnitude of decrease that many endowments have suffered. Further, the income from the Foundation endowment, while very important, is not a revenue stream that supports a significant percentage of the University’s operation.

Fiscal Year 2010 expected to be challenging

As solid as our financial standing is, we must recognize that the economic downturn calls for unique planning and preparation if we want to maintain our positions. For the past two weeks, I have held discussions with Administrative Council about projections for public revenue in Missouri and their implications for the University’s budget. I also have visited with the leadership of the faculty and staff senates and the Student Government Association. On November 25, the Executive Budget Committee met with a focus on budget strategies for both Fiscal Year 2009 and Fiscal Year 2010. As a result of these discussions, I would like to outline what I believe would be prudent plans, priorities, and preparation as we continue through the current fiscal year and anticipate our situation for Fiscal Year 2010.

First, I believe that for the Fiscal Year 2009 operating budget both of our major sources of revenue – tuition and state appropriations – will remain as projected. Although overall state revenue will likely not meet the predicted and required levels for Fiscal Year 2009, I am hopeful that the state’s one-time surplus will be sufficient to maintain full state appropriations for this year and that the priority of supporting higher education will lead to protecting that portion of the budget.

The picture for Fiscal Year 2010 is of more concern. Most forecasters are predicting that the state’s revenue will not be sufficient to avoid a shortfall and that Fiscal Year 2010 will be out of fiscal balance.

Further, because the current economic slump is affecting everyone, the University must be very sensitive to the impact that our tuition and fee rates will have on students and families. The temptation to offset any decline in appropriations with a commensurate increase in tuition must be very carefully evaluated as we simultaneously attempt to maintain quality and assure affordability of our educational programs.

With all of this in mind, I believe the University should begin to develop and implement plans that recognize the possibility of a very tight budget year in 2009-10. By monitoring and controlling our expenditures this year, we should be able to create greater flexibility now so that we are well-prepared to address whatever demands we might face next year. These plans are intended to give us more security about how we can respond to a very unpredictable financial future.

Contingency planning under way

Among the plans and preparations I am announcing today are the following:

1. I have asked the Provost and the Vice Presidents to prioritize current faculty and staff vacancies so that we can proceed with some hiring opportunities and hold on other searches. The distribution of vacancies within various sectors of the University will be divided roughly into thirds. We will try to finalize appointments for vacancies in the top third, move forward cautiously with the searches for positions in the middle third (not finalizing the appointment until we are more certain of the budget situation), and not attempt to hire into positions in the bottom third of the distributions. This approach should allow the University to be successful with its highest priority searches while at the same time generating considerable salary savings going into Fiscal Year 2010. By continuing searches for the middle third of positions, we should also be able to fill some or all of those positions should the Fiscal Year 2010 budget news be more positive as we continue through the spring semester.
2. The Provost and Vice Presidents, along with myself, will prepare budget contingency plans that would be ready to be put in place were the University to suffer a cut in appropriations in Fiscal Year 2010. At this time, I have suggested that this exercise target a 5 percent reduction in appropriations. It is important to remember that state appropriations represent only about 53 percent of the revenue supporting the Springfield operating budget and approximately 63 percent of the revenue for the West Plains budget. In other words, this planning does not require that we target 5 percent of the total operating budget, but only that percentage of it supported by state appropriations. The plans are due to me by December 15, 2008.
3. In order to use our teaching resources as effectively as possible, it will be important to develop specific guidelines about the minimum enrollments expected for classes offered at the graduate, upper-division undergraduate, and lower-division levels. The Provost and Chancellor of the West Plains campus will develop recommendations for these guidelines and supervise their implementation.
4. The initial principles that will guide this exercise include the following:
   1. Any budget reductions should be strategically allocated rather than imposed across-the-board
   2. Scholarships and financial aid for students should be preserved
   3. Academic programs should be given priority over nonacademic activities
   4. Presidential/central funds will be the source of a disproportionate share of planned reductions, thereby relieving other University budgets of a substantial portion of what would otherwise be their burden
   5. Auxiliary and designated funds will be expected to at least maintain their level of transfer to the operating budget, with the exception of any repayment obligations that have been or will be satisfied during the next two years.
   6. One-time funds may constitute a portion of the budget reduction plans, but the majority of any reductions actually imposed should involve recurring funds.

Still focusing on five major goals

Missouri State University will be prepared to move forward in Fiscal Year 2010 with its current long-range plan that sets forth our five major goals:  1) democratizing society;  2) incubating new ideas;  3) imagining Missouri’s future;  4) making Missouri’s future;  and  5) modeling ethical and effective behavior. 

The economic downturn may slow our rate of progress, but with proper planning and discipline, the University can continue to advance and achieve its important missions.  Institutions that develop a collective resolve to cope with financial challenges are the ones that will weather the difficulties the best. 

Likewise, I accept the responsibility, along with all of the other presidents of Missouri’s public institutions, of making as strong a case as possible with the Governor and the Missouri General Assembly for adequate funding of higher education on behalf of our institutions and students.  Ultimately, we need to help everyone understand that a sustainable, vital economy depends on Missouri’s ability to educate its citizens well for the future.  I am confident Missouri State University will remain a leader in that role.