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Budget Update - April 24, 2013

Dear Colleagues,

I am writing to continue the conversation about our budget for the next fiscal year. We have somewhat greater clarity on certain parameters, permitting me to provide additional context, describe actions for the short term, and set the stage for moving forward. The news is better than previously described.

The University has a total operating budget for the year of approximately $420 million. Much of that comes from "restricted" revenue, money that comes from various sources and is dedicated to a specific expenditure. Grant funds are an example, as are residence hall fees and contributions from the UM Foundation.

The portion of our budget under consideration in this memo is the "general fund." In the current year, it amounts to approximately $160 million and forms the basis for most of the core functions of UM. That includes salaries for most employees, operating budgets for our departments, funds for general maintenance of facilities and grounds, and even some forms of student financial aid. Charts and background data related to the budget can be found here:

The general fund has two principal sources of revenue:

-- State appropriation as determined by the Legislature and the Board of Regents
-- Tuition and mandatory fees paid by students

For UM, the state appropriation makes up about one-third of the general fund, and tuition makes up the other two-thirds. Both sources are essentially enrollment-driven. In fact, the Regents recently adopted a policy for the distribution of state-appropriated funds based upon a three-year rolling average of resident student enrollment on a full-time equivalent (FTE) basis. That approach was adopted to minimize disruption to operations based on short-term enrollment fluctuations of exactly the type we are facing.

We are, of course, required to operate within a balanced budget. If general fund revenue goes down, our expenditures must go down accordingly.

The Current Situation
The primary reason for budgeting at a lower level for next year is because of our enrollment. For the past five years, we have experienced a decreased market share of incoming students, both among the resident and non-resident populations. Our total enrollment was growing during the first three of those years, masking, to some extent, lower enrollment at the entering level.

Several factors have played a role in affecting undergraduate enrollment: fewer high school graduates in Montana, greater competition and more marketing from competing institutions, and the changing economy. These pressures were compounded in the past year and a half because of attention to the important issue of sexual assault.

Throughout this current year, we have been able to adjust for last fall's enrollment decline by tapping into our contingency fund (a portion of our annual budget set aside for such purposes) and one-time-only decreases. Now, as we prepare for next year, we must adjust expenditures downward in order to prepare a balanced budget.

Budget Adjustments for Next Year
Just as we added expenditures when enrollments soared in previous years, we must do the opposite now. At this time, we are projecting a General Fund revenue of approximately $160 million compared to $162 million in the current fiscal year. While that decrease is not especially large, we know we will have additional mandatory increases on the expenditure side of the ledger, the biggest piece of which is an anticipated pay plan for employees. In order to fund those necessary increases, we will need to reduce some other expenditures.

Right now, our revenue projections have a greater degree of uncertainty than is normal because of uncertainty about fall enrollment. After May 10, we will have a clearer picture of the outcome of both the Legislative session and enrollment projections, and at that point we will assign a final number to the budget adjustment.

Nonetheless, Deans, Directors and Chairs are planning for how to handle expected budget reductions. This is not an easy or enjoyable task, but it is an important one and it does allow us to think strategically how we best move forward in future years. We are working to make as much of the adjustment as possible without affecting individuals. Some people on annual appointments, both instructional and non-instructional, will be affected. Some positions that are vacated due to retirements or departures may not be refilled. Just as we added instructional and other personnel in times of enrollment growth, we will now need to reduce those numbers. We are working diligently both to finalize the reduction amount and to make it as small as possible.

Involvement of Shared Governance Groups
Ongoing and interactive communication is crucial to addressing our situation. Mike Reid, Vice President for Administration and Finance, will be hosting weekly, open meetings to discuss the budget. We are asking that these be official meetings of the University Budget Committee, which has membership representing the shared governance structure of the University. The meetings will be open to all interested people. These meetings are being scheduled and Vice President Reid will follow up with that information by the end of the week.

Over the next several weeks, the University Budget Committee will determine the overall budget adjustment, assignments to the university sectors, and the distribution to the units within the sectors. We are asking the University Budget Committee members to seek input from their constituencies. We also strongly encourage every member of the university community to seek out the members of the committee and provide their input. The entire campus community has a responsibility to help this committee determine future budget allocations.

Criteria for Adjustments
As we plan for adjustments, as a community, we will keep these priorities in mind for the University. We want to:

1. Preserve, to the maximum extent possible, the educational experience for our students. Factors under consideration should include maintaining a course schedule that continues to provide ample opportunity for students, adhering to the strategic goals in UM2020: Building a University for the Global Century, and maintaining research productivity.

2. Minimize negative impact on enrollment or on recruiting future students. Positions and activities that directly affect student learning, retention, and success are to be protected over those that have a less direct connection to students.

3. Respect contractual obligations of the University to ensure that we do not violate anyone's contractual rights and expectations.

4. Protect people over other aspects of our budget.

These principles will require that not all areas will be affected by the adjustments to the same extent. Over the course of the next several weeks, we will develop the details of distributing the actual adjustments.

Recruiting and Marketing Changes - Immediate
What are we doing to regain our market share of enrollment? We have tackled this on multiple fronts. Some measures will have a short-term return; some, longer term. For example:

-- In the current recruiting cycle, we have added more than $1 million from non-general fund accounts to Enrollment Services and for financial aid packages for incoming students. We must increase both the number and quality of contacts with prospective students, and we must offer more scholarships and tuition waivers. We have held high-visibility community events around the state to tell the story of this great institution.

-- We are asking for additional help from the faculty and staff in contacting prospective students. Many units and individuals have already provided considerable help. Please contact Enrollment Services to see what you can do to help at this stage.

-- We have taken a coordinated and more intentional approach to communications and marketing, which will include Enrollment Services, Alumni Relations, Athletics, and the UM Foundation. Recognizing more than a year ago the need for more competitive marketing and better communication, we enlisted the help of an outside firm, and reconfigured a Cabinet level position to create a Vice President for Integrated Communications.

-- We are improving the University's digital communications, starting with the home page complex, which is the front door for prospective students. The new design - completed entirely in-house - was launched last Monday, April 15. We will be better able to show and tell people about the UM experience.

-- We have asked the head of one of the nation's largest higher-education recruiting firms to visit and critique our recruiting efforts. This will lead to a considerably strengthened recruiting approach at all levels.

Planning for the Future
As a University community, we have work to do to, and we must consider fundamental changes in how we operate and how we prioritize our resources beyond fiscal year 14. To get us started immediately, I have asked for five new groups to meet through the summer months, and we welcome your participation. I realize many people are off contract in the summer, but we must not delay. For those of you with an interest, but who are unable to participate this summer, the work of these groups will undoubtedly extend into the next academic year.

Group 1: Enrollment Management. This group will take a five-year view of the total size of our student population and the optimum composition in terms of resident and non-resident students, two-year, baccalaureate, graduate and professional students. The group will address recruitment and retention, recommending strategies for both.

Group 2: Revenue Enhancement. This group will examine opportunities to increase revenue through sources other than the general fund. It will examine instructional and non-instructional opportunities to generate additional funding in line with our mission and direction for the University.

Group 3: Resource Allocation. This group will explore alternative models for resource allocation used in higher education to ensure we are making the best use of our resource base. Traditionally, we have allocated financial resources on a "base-plus?? model, where the historical base for a given unit is the starting point for the following year's budget.

Group 4: Cost Savings. Like any large organization, we no doubt are spending money on some activities that are no longer central to our mission or that no longer represent the best way to do our work. This group will look at our expenses to see if we can accomplish our objectives in more efficient, less expensive ways.

Group 5: Academic Programming. This group will examine the question around our portfolio of academic programs. Do we have the programs that are essential to our mission and that meet the expectations of today's students? Should some programs be expanded and others contracted?

Because these questions are central to our academic mission, each group will be co-chaired by an academic dean and one other person. Please express your interest in serving on one of these working groups by emailing Vice President Reid:

We have hard work ahead of us, and I recognize it comes near the end of our academic year, when everyone is so busy. As we go about this work, let's remember that we are a community with a common interest: to continue building a strong university. I appreciate your concern, your questions, and your helpful contributions. Thank you for your help.



Royce C. Engstrom
The University of Montana