Testimony, March 2005, Office of the President, University of Maryland

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Converging Pressures

The University has kept its part of the bargain to set and achieve the standards of excellence across the board that put it in the ranks of the nation?s most prominent universities.

Pressures that threaten our achievements can be grouped into three categories:

Competition from other universities. As a top-ranked university, we are in a fiercely competitive environment that drives every aspect of the University. There is no more competitive enterprise in our society than the top-ranked research university. The State of Maryland, like other states, has benefited from the growing reputation of its flagship campus. Other states are not standing still in pursuit of economically important advantages. We compete for students and for faculty, and we seek the same rankings, awards, competitive grants, and beneficial partnerships.

We fended off 16 attempts to recruit our faculty in 2004, and these offers came from universities of the top rank, including Harvard, Stanford, Brown, Cornell, Pennsylvania, Rice, Illinois, Michigan, Minnesota, and Virginia. Offers include in some cases endowed chairs, promotion, and generous benefit packages. We aggressively work to raise funds to keep our stars, but we are not always able to compete with attractive offers for the top faculty. Playing at this level is mandatory if we want to be counted among the best, but it is not easy. We also lose faculty. Like any competitive process we need to win more often than we lose to succeed. This is a resource issue.

Rise in mandatory costs. A primary reason for rising operational costs is the cost of utilities.

Though we used an aggressive procurement procedure of our own (and saved over $1 million in electric costs in FY05 compared to the price offered through a DGS sponsored state-wide auction), the cost per KWH of purchased electricity increased 24% between FY00 to FY05. Over half of this increase occurred on July 1, 2004, when electricity was deregulated.
The cost per decatherm of natural gas increased 76% between FY00 and FY05.
Consumption increased 17% between FY00 to FY05 because of increased space.
The increases in energy costs doubled over five years to $25 million.
Prices are expected to continue to escalate.

Energy costs, health insurance costs, and other mandatory expenses spiral upward about 5% per year. Rising costs of health insurance have also been a large stress on the operating budget. The employer?s share of health care benefits increased 21.84% in FY04 and 10.34% in FY05. The FY05 base budget for health insurance (health and retiree?s health subsidy) is $51.5 million for our State supported programs. A 10% increase in the employer?s health insurance rates adds $5.2 million to our costs.

Deferred Maintenance. The University is falling further behind each year on facilities renewal, with a current estimate of $500 million needed in renewal funds for buildings over 20 years old. Twenty-two percent of the campus buildings are older than 50 years. Currently the Flagship University does not have the infrastructure of a top-tier institution. Deferred maintenance must be a high priority.

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