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Responses to DLS FY15 Operating Budget Analysis
Dr. Wallace D. Loh, President
University of Maryland, College Park
Responses to FY15 Operating Budget Analysis
Mr. Chairman and members of the Subcommittee, I want to thank you and the entire legislature, as well as Governor O'Malley for your remarkable support. Together you have made it possible for the University of Maryland to come through the Great Recession in far better shape than many of the nation's flagships. You have held down tuition while maintaining our academic strength. As a result, Kiplinger's has ranked UMD as a consistent Top 10-value institution for the past six years.
We have done our part, as well. The DLS staff has pointed out in its incisive analysis that we are more efficient than our peers, and with better student outcomes. This past year, our graduation rate reached the highest level in our history, and each year our incoming freshmen are even better than the last. We achieve these results for significantly less than our aspirational peers.
We have launched strategic partnerships with federal agencies, corporations, and the University of Maryland, Baltimore (MPowering the State). Our technology transfer has increased dramatically. With your help, we expanded our capacity to produce more STEM degrees—which exceeded 3,200 last year.
Much of the credit for our academic success must go to our remarkable faculty. After five years of frozen salaries and furloughs, you rewarded the loyalty of faculty and staff with merit and cost-of-living increases. This also helps us retain and attract the best.
However, I challenge the DLS' proposed use of $7M in non-state funds to pay for faculty-staff raises in the coming fiscal year. This would be a terrible precedent, in effect, drawing on tuition to pay for cost-of-living allowances. The burden of these increases should not be placed on the backs of our students.
I am delighted to answer all your questions. Below, I submit my responses to questions posed by DLS.
The President should comment on why UMCP will only withdraw and not add to its fund balance in fiscal 2014 and 2015, despite that over a five-year period from fiscal 2008 to 2013, it was able to add $220.4 million to the fund balance.
The time span referenced above coincides with the worst economic recession that our country has faced since the Great Depression. To meet these extreme economic uncertainties, we responded by exercising considerable restraint over our expenditures.
With salaries and benefits constituting two-thirds of our operating budget, in many instances, we deferred hiring regular, permanent employees for authorized and funded positions. In our State-supported operations, this resulted in an average of almost 250 authorized positions with an annual budgeted value of over $24M being held vacant over the period FY2009 through FY2012.
By intensifying and expanding numerous cost containment measures, including those associated with the USM Board of Regents' Effectiveness and Efficiency Initiative (E&E), we were able to keep our expenditures below budget and still meet a number of otherwise-un/under-funded demands. The annual value of our E&E savings and cost-avoidance efforts nearly doubled over this period, increasing by more than $20M.
Much of these savings represent a short-term deferral of needed actions that cannot be delayed indefinitely. As the economy has improved and uncertainties have declined, we have cautiously resumed more normal spending patterns.
It is also worth noting that market fluctuations during this five-year period have significantly lowered the interest income earned by these fund balances. In FY 2008, interest income added approximately $23M to the fund balance total. Last year, that had dropped nearly 75% to $6M. In total, our fund balances grew $40M, or 18%, over the five years from accumulated interest income alone.
A final major area of concentrated effort has been fuel and utilities, where the combination of negotiated electrical purchases, improved demand-side management, lighting retrofits and (providentially) generally mild weather over the period in question resulted in significant annual savings.
It is noted in the DLS analysis that we are not planning on adding significantly to the fund balance in fiscal 2015 due to the expectation that tuition revenues will be very close to the budgeted amount, the result of more accurate forecasting. The analysis also notes the required spending of $14.2M from our account balances.
We would add four additional reasons: 1) to ease the demands placed upon our faculty and staff by unfilled, state-funded vacancies, we have gradually returned to fully authorized levels, virtually eliminating the $24M addition to the balance fund; 2) interest earnings of the scale seen four and five years ago cannot be anticipated in the coming year, as rates of return remain below one percent; 3) the likelihood that we will self-fund certain items for which funding is not otherwise available, including some needed renovations for increasing production of STEM degrees; and 4) the ever-present need to address un-expected (and unpredictable) circumstances that may require significant expenditures, such as our recent data breach of personal information.
As prudent stewards of public funds, we admit to generally-conservative budgeting practices; if we err in our estimates, we are more likely to over-achieve revenues or under-spend expenditure budgets. When the books are closed on FY2015, therefore, we will not be surprised if we indeed realize a net addition to our fund balance. For all of the reasons cited above, however, we do not expect that it would be of the magnitude of previous years.
The President should comment on the portion of institutional aid going toward scholarships and if the financial need of the student is considered when awarding scholarships.
As the State Flagship and an AAU Research University, our mission is to recruit and graduate the most talented undergraduates in the state and in the nation. Toward that end, we compete with the very best schools for the most talented students.
While College Park has many attributes that attract students—our faculty, facilities, array of innovative programs and proximity to the nation's capital—awarding merit scholarships is a prime factor in an undergraduate's choice of a university. Without merit scholarships to recognize the achievements of our most talented applicants, UMCP would lose both resident and non-resident students to competing universities, exacerbating the state's brain drain.
Institutional aid that is invested in scholarships is necessary to recruit students who will allow us to maintain a high academic profile of incoming freshmen. The academic profile brings prestige to the University and the State, and is an important factor that determines our national rankings.*
Admission to the University and to our special programs (e.g., the Honors College and College Park Scholars), is need blind. Thus, financial need is not included in the review of students for merit-based scholarships. This is a long standing practice at most universities.
In FY 12, 63% of our total institutional aid budget was used for scholarships awards. In FY 14, we are on track to reduce the percentage below 60%, increasing our need-based aid from approximately $14M to approximately $16M, consistent with our goal of making education affordable for all students.
Students whose need exceeds their merit award are strongly encouraged to submit a FAFSA so that the Office of Student Financial Aid can develop a need-based package which will supplement any scholarship award, in order to assist the student with the cost of their education. **
*High national rankings attract exceptional non-resident undergraduates and graduate students, who provide critically needed tuition revenue. High rankings also attract world-class faculty, who bring sponsored research and major gifts to the University, which permits us to transfer research, fuel the state's knowledge-based economy, and create jobs. A highly ranked public research university, with a strong international reputation, is a critical component of any state's economic well-being.
**Although reported as scholarship aid, approximately 20% of our merit scholarship funds go to support students with demonstrated financial need.
The President should comment on the impacts, including financial, that the transition to the Big Ten will have on athletics and academics. The President should also elaborate on the current financial situation of the ICA.
The University of Maryland became a member of the academic collaboration of Big Ten schools, the Committee on Institutional Cooperation (CIC) on 1 July 2013. The impacts include:
- UMD Libraries acquired access to electronic resources valued at $2 million at a cost of only $200,000. UMD faculty, staff, and students can now borrow library materials from the 96 million volumes held at all CIC institutions via the UBorrow program. The CIC Shared Print Repository and the Google Book Search Project will allow UMD to eliminate less-used print volumes, facilitating the repurposing of UMD library spaces.
- The Department of Procurement and Supply has begun to use the CIC's Purchasing Consortium agreements, including those for search firms. We anticipate that the Purchasing Consortium will result in significant long-term savings by reducing the costs of computer equipment, software licensing, and other items and services through joint purchasing and licensing agreements.
- UMD students will be able to enroll in one or two remote courses in Fall 2014 through the CIC CourseShare program. We are preparing to expand this program, including offering UMD courses to students at other CIC institutions.
- UMD colleges and other units receive prompt, accurate, and up-to-date information on best practices at peer CIC institutions, as well as data on applications, admissions, enrollments, and other metrics, allowing us to quickly and easily benchmark ourselves to other public flagship institutions.
- UMD department chairs participated in a three-day CIC Department Executive Officers Seminar to share best practices in faculty development, performance reviews, time management, and conflict resolution. Next year, emerging faculty leaders will participate in the CIC Academic Leadership Program, to develop their leadership and managerial skills.
- CIC meetings and visits by faculty and staff from other CIC institutions helped shape UMD's new Teaching and Learning Transformation Center (designed to help faculty incorporate online teaching components into their courses).
- The School of Theatre, Dance, and Performance Studies has joined with other CIC theatre programs to commission, produce, and publicize five new plays over the next five years.
- The CIC Smithsonian Fellowship for research in residence at Smithsonian Institution facilities is now open to UMD graduate students. UMD doctoral students are able to spend up to a year doing research at another CIC institution through the Traveling Scholar Program.
- The CIC Shared Study Abroad program will give Maryland students access to study-abroad programs sponsored by other CIC institutions, increasing the number of options for study at foreign universities.
In October 2013, to prepare for joining the Big Ten athletic conference on July 1, 2014, the Department of Intercollegiate Athletics (ICA) launched the Athletics Big Ten Integration Committee, comprised of seven workgroups charged with the following:
- Examine the differences between the Big Ten and ACC and make recommendations to update our practices to align with the new conference's guidelines.
- Evaluate Big Ten policies and procedures and make recommendations for changes to departmental policy as necessary.
- Explore ways to maximize the benefits of the move to the Big Ten through fan engagement, development and branding.
- Recommend communication strategies to roll out and implement the Committee's recommendations and changes.
The Integration Committee Work Groups and their primary functions are:
- Business and Travel - Evaluate Big Ten business practices, including ICA and Big Ten travel policies and Big Ten financial reporting requirements.
- Academics and Student Athlete Experience - Identify matters affecting the academic eligibility of student-athletes under Conference legislation. Review the legislative procedures and programs relative to the student-athlete experience (e.g., Student Athlete Advisory Committee, academic awards, internships).
- Big Ten Network and Media Relations - Evaluate current practices to take full advantage of the increased exposure and opportunities that lie ahead as members of the Big Ten Conference and Big Ten Network. Explore policy and procedural changes that will need to occur with respect to multimedia and media relations in the Big Ten Conference.
- Donor and Alumni Relations -Identify and prioritize new opportunities to enhance engagement, cultivation, and stewardship opportunities for all alumni and friends of Maryland Athletics.
- Facilities and Branding - Evaluate Big Ten branding requirements, identifying necessary changes while developing a timeline for implementation. Identify facility infrastructure improvements necessary to meet the needs of the Big Ten Network. Explore additional branding opportunities to maximize our move to the Big Ten.
- Football Game Day - Work collaboratively with campus constituents to identify new initiatives to enhance the overall experience for our fans and visitors to campus on football game days.
- Compliance and Governance - Review Big Ten legislation and governance, including its regulations regarding financial aid, reporting of violations, waiver submissions, drug testing and health and safety.
The Committee and work groups are expected to forward all recommendations by April 30, 2014.
The Current Financial Situation of ICA
Due to historical circumstances and decisions, ICA has operated at a deficit since 2011. Funds borrowed from University Non-State Auxiliary Funds to cover operating deficits during this period, totaled $5.6M at the end of FY 2013. Add to this operating deficit the legally contested withholding by the ACC of approximately $16M in conference revenue, and the FY 2013 total deficit was $21.6M. The projected deficit for FY 2014 includes an additional estimated $16M in conference revenues withheld by the ACC, plus an additional $4M in annual operating expenses approved by the second Presidential Commission to prepare for entry into the Big Ten. This $4M in increased operating costs include:
- Funding for sport programs and administrative units ($1.5M);
- Implementation of a three year $1.5M branding plan ($500K);
- Varsity Team house renovation for Olympic Sports, facility improvements, deferred maintenance projects and Comcast Center concert overhead ($650K);
- Increased support for sports medicine and sports performance ($375K);
- Coaching and Staff retention pool ($250K);
- Addition of external staff to increase fan/alumni engagement and prepare for the needs of the Big Ten and Big Ten Network ($250K).
The total accumulated, projected deficit of approximately $41.6M by June 30, 2014 will create a significant financial challenge for ICA.
However, the move to the Big Ten provides a tremendous opportunity for a return to financial health for ICA in a conference revenue structure that is approximately $10M higher on an annual basis than the ACC, with the potential for increased revenue from the upcoming Big Ten Network (BTN) television broadcast rights negotiation (in FY 2018). In addition, the Big Ten schedule and conference opponents, particularly for the primary revenue sports (Men's Football and Basketball; Women's Basketball), will help generate additional revenues including ticket sales and licensing agreements.
While we cannot be specific about the annual revenues due to the non-disclosure agreement with the Big Ten, the move to the Conference will result in ICA returning to a small annual operating surplus by FY 2018 and the ability to repay all internal debts by FY 2023. By the end of FY 2017 the accumulated debt will have grown to approximately $48M.
As operating surpluses return with the initiation of Big Ten Conference payments, ICA will devote half of this revenue to pay down internal loans, with the other half to be kept within the division's fund balance and used to finance improvements and expansion of the program needed to be competitive in the Big Ten.
The President should comment on the status of the Agriculture Law Initiative, future activities, and if other sources of funding or a reallocation of existing funds are being considered.
The Agriculture Law Education Initiative (ALEI) provides information and resources to Maryland agriculture, helping Maryland farmers and allied industries understand the intricate tangle of laws and policies that govern the food system, and partners with the private bar to build knowledge and skills in the growing field of agriculture law among lawyers throughout the State. The ALEI brings together key faculty and leadership from the agricultural schools at UMCP and UMES and from UMB's Carey School of Law to provide programs to support the agricultural community.
In addition to the accomplishments to date cited in the DLS Analysis, the ALEI has been, with the University of Maryland Extension and the Center for Agricultural and Natural Resource Policy at University of Maryland, College Park, developing publications and offering workshops on crop insurance, leasing, and farm inheritance. This semester, to address the critical need for attorneys who specialize in agriculture law, the Carey Law School will offer Food, Farming and Sustainability, a seminar on food law. Additionally, ALEI has launched a new website, www.umaglaw.org.
Reactions from the farming community have been very positive. UMB and UMCP faculty are working together as a strong team.
Future plans include further publications on topics of interest; development of professional workshops and formal certificate programs related to food and agriculture law and policy to be launched in FY15 and FY16; and stronger faculty participation with the Initiative to highlight research on food and agriculture issues. Additionally, ALEI is exploring new curricula for UM Extension educators, an affiliation with a national "ask-an-expert" network.
If significant funds can be secured to allow hiring of new faculty, the Initiative could develop additional for-credit food and agricultural law and policy courses and expand opportunities for undergraduate and graduate students to work at the Initiative on research and public service projects. The ALEI will continue to assess farmers' unique legal needs, and develop further steps to meet these needs while protecting the integrity of Maryland's food system and environment.
The ALEI was awarded $250,000 in FY 2014 through MPowering the State funding, and has requested an increase from its current annual allocation from $250,000 to $750,000. MPowering the State's budget will remain flat for fiscal 2015 and all of its active initiatives have asked the UMCP-UMB steering committee for increases in their annual budgets. The steering committee will make these budgetary decisions for all MPowering the State initiatives by the end of March. We know, at this point, that the fiscal 2015 budget for the Agricultural Law Education Initiative will be no less than $250,000 for FY 2015.