The FY10 Operating Budget

and Budget Reductions

12/2009

Presentation Overview

Section I – Fiscal Year 2010 (FY2010) Budget 101

• Overview of FY2010 Budget as of July 1, 2009

Section II - FY2010 Budget Reductions

• Budget Reductions by Major Responsibility Area

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The data displayed in this part of the presentation reflect the University

operating budget as it existed at the beginning of the fiscal year, or July 1.

Fiscal Year 2010 = July 1, 2009 to June 30, 2010.

Before discussing impacts of any budget reductions, it is important to have a

basic understanding of what the University’s budget consists of and what the

University spends money on.

This section of the presentation covers:

• Capital vs. Operating Budget

• State-Supported vs Non-State Supported Revenue Sources

• Programmatic Activities in State-Supported Budget

• State-Supported Budget Expense Categories

Section I:

FY2010 Budget 101

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FY2010 University Budgets

The State legislature authorizes two separate budgets each year for

the University.

• Operating Budget

– FY2010: $1.575 billion (as of July 1, 2009)

– Funds the General Operating Expenses for the University

• Capital Budget

– FY2010: $24.4 Million

– Finances the building of new facilities and major renovations

– Projects are typically planned many years in advance

– By State law, capital budget funds are prohibited from being used

for any other purpose, including the operating budget.

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University’s $1.575 Billion

Operating BudgetThe University’s operating budget represents all activities associated with the University’s mission and operations.

• The University’s core missions as described in the Strategic Plan (http://www.sp07.umd.edu/StrategicPlanFinalCompact.pdf) include:– Institution of choice for undergraduate students of exceptional ability and

promise

– State’s primary center for research and graduate education

– A flagship institution that applies knowledge for the benefit of the economy and culture of the State, the region, the nation, and beyond

• The University is a complex operation, involved in many different types of activities. – The University operates like a municipality by running many of its own

support operations

• For example: shuttle buses, police force, power generation facility

• When the campus is in session, its population is comparable to some of the largest cities in the State of Maryland.

– The budget also includes many self-supporting and auxiliary enterprises that generate revenue to support their own operation. These areas do not receive any State-supported revenue.

• For example: residence halls, dining services, athletics5

Revenue Sources of Operating Budget(Original Budget Allocated July 1, 2009)

The budget is first classified into two main areas based on the

sources of revenue received:

• State-supported budget (54%)

• Non-state-supported budget (46%)

Non-StateSupported$730.7M

Genreal Fund State Approp

$420.0MTuition & Fees

$346.5M

Contracts & Grants(Restricted State and

Indirect Cost Recovery) $47.6M

Fees, Interest, & Misc, $30.4M

State-Supported $844.5M

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The University’s Total Budget Over Time

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$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$ I

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Fiscal Year Appropriation

Non-State Supported Budget and Other RevenueState Supported Tuition and FeesState Appropriation

Over the past 10 years, the State appropriation has become a smaller portion of our total budget.

Increases in the size of our operating budget are due to growth in self-generated non-State-

supported revenue.

During this time, the University‘s budget increased 74% from a $904 million operation to one of

$1.575 billion. The growth in State Appropriation has been much smaller at 39%, increasing from

$302 million to $420 million.

The State appropriation previously made up one-third of the total budget in FY2000 and now makes

up a little more than one-fourth.

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Non-State Supported Budget ($730.7M)

REVENUE SOURCES:

The University is an enterprising

operation with approximately 46%

of its revenue coming from the

following four non-State-supported

sources:

RESTRICTED REVENUE -

CONTRACT & GRANTS

(Federal, State, Private)

$360.8M, 50%

AUXILIARY OPERATIONS

$238.4M, 33%

SELF-SUPPORTING OPERATIONS $46.7M, 6%

OTHER DESIGNATED

REVENUE $84.8M, 11%

EXPENSE ACTIVITIES:

The largest portion of these funds

will be spent on research and

auxiliary activities. In addition,

there are funds dedicated to

instruction, public service and

scholarships & grants.

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Restricted Revenue from Contracts and Grants ($360.8M)

– From federal, State, and private sources

– Restricted to purposes specified by grantor. Primary

activities:

• Research $267.6M

• Public service $41.8M

• Scholarships and educational grants $29.8M

• Instruction $20.5M

Other Designated Revenue

($84.8M)– Funds dedicated to special projects and initiatives,

which do not receive any State-Supported Budget.

• $28.3M Designated Research Initiative Funds

(DRIF)

• $56.5M Self-generated revenues

Examples:

– Study abroad and student activities fees

– Consortium revenues (joint operations with

institutions/associations)

– Conference and special events

fees/registrations

– Sales and service fees (consulting, facility

rentals, publications)

Auxiliary Operations ($238.4M)– Furnish goods or services to students, faculty, staff,

or incidentally to the general public, and charge a

fee directly related to the cost. These services

complement activities related to our mission.

• Athletics

• Dining Services/Residence Halls

• Shuttle Buses/Recreation Center

Self-Supporting Operations ($46.7M) – Include special instruction sessions and activities

primarily established to provide goods and services

to other internal units on a fee for service basis.

These activities are more closely related with our

missions of teaching, research, or public service.

• Extended Studies Tuition (e.g. Summer &

Winter Courses)

• Institutional Support Services (e.g. Printing,

Motor Pool)

Non-State Supported Revenue

Source Descriptions

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Areas Most Impacted by

Budget Reductions

• Since the non-State-supported budget represents restricted funds and

units that survive on their own revenues, the campus cannot utilize these

sources to cover the majority of state budget reductions.

• When the State government makes a reduction to our budget, the State-

supported budget ($844.5M) is the portion that is directly reduced.

• To gain a better understanding of what areas are significantly impacted

by reductions within the State-supported budget, it is important to

understand further breakdowns of the budget:

– By program activity

– By expenditure category

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How the University Spends the State-Supported

Budget by Program Activity Type - FY 2010

University spending is categorized into eight types of program

activities, following national standard definitions. They are listed

below.

Type of Activity

$ In

Millions

Instruction $314.7

Research $55.2

Public Service $33.7

Academic Support $114.2

Student Service $40.3

Institutional Support $76.6

Operations & Maintenance $143.8

Scholarships and Fellowships $66.0

TOTAL $844.5

Instruction37.3%

Research6.5%

Public Service4.0% Academic

Support13.5%

Student Service

4.7%

Institutional Support

9.1%

Operations & Maintenance

17.0%Scholarships and

Fellowships7.8%

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Each Program Activity Area Includes

• Instruction represents the largest portion of State-support funds at 37%, and supports primarily the academic departments. Expenditures include:

– Faculty, Support Staff, and Graduate Assistant Salaries

– Equipment and Supplies for Courses

• Operation and maintenance of current facilities and grounds account for 17% of the budget, including:

– Housekeeping, Utilities, Building Maintenance

• 13% goes toward Academic Support and is used for activities related to instruction such as:

– Educational Materials (e.g. Libraries, Galleries)

– Academic Administration (academic planning, financial accounting, advising support)

– Academic Computing support

• Institutional support is funding for day-to-day operational support and makes up 9% of the budget, and includes:

– General administrative services, central executive level activities concerned with management, planning, legal and fiscal operations, employee personnel and records, purchasing, public relations, and development, etc.

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Each Program Activity Area Includes

(continued)

• Scholarships and Fellowships make up 8% of the expenditure activity.

– Institutional grant aid awarded to undergraduate and graduate students

– Includes State-supported student tuition remissions

• Research accounts for 7% of the Budget.

– A significant portion goes to the College of Agriculture and Natural Resources for activities related to our land-grant university status (Agricultural Experiment Station)

– Other State-supported research activities are primarily in the A. James Clark School of Engineering and the College of Computer, Mathematical and Physical Sciences. These activities promote economic development within the State.

• Student services account for less than 5% of the budget.

– Funds expended for admissions, registration, career guidance, counseling, financial aid administration, and student activity groups

• The remaining 4% goes toward public service activities.

– The majority of these funds goes toward University of Maryland Extension programs in the College of Agriculture and Natural Resources, also in support of our land-grant mission.

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Salary, Wages, &

Fringe Benefits73.7%

Grants (Scholarships &

Remissions)9.0%

Fuel & Utilities6.3%

Equipment & Supplies &

Vehicle Operation

4.0%

Fixed Charges, Debt Service,

Rentals, & Contracts

3.8%

Land & Structure

(Renovations/ Maintenance)

2.0%

Travel & Communication

1.2%

State-Supported Budget by

Expenditure Category FY 2010

• The majority, or close to 74%, of the State-Supported budget is spent on salaries, wages and fringe benefits.

• When the University incurs a significant reduction, it is usually necessary to reduce salary and wages, or the largest cost area.

Expense Category $ In Millions

Salary, Wages, & Fringe Benefits $622.7

Grants (Scholarships & Remissions) $75.2

Fuel & Utilities $53.0

Equipment & Supplies & Vehicle Operation $34.2

Fixed Charges, Debt Service, Rentals, & Contracts $32.5

Land & Structure (Renovations/Maintenance) $16.8

Travel & Communication $10.1

TOTAL $844.5

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Areas in State-Supported Budget Subject to

Budget Reductions

• When the State makes a budget reduction, it is subtracted directly from the State-supported side of our operating budget ($844.5M). However, when implementing the reductions, the campus does not have the flexibility to apply reductions to all areas of the $844.5M State-supported budget. This means there is a smaller amount to which the budget reductions can be applied.

• Certain Items are considered Non-discretionary, and are excluded from budget reductions.

– These items have to be paid regardless of our size of operation (referred to as mandatory costs); some items reflect multi-year contractual or legal commitments; others cannot be reduced easily in a short amount of time; and specific areas must be protected in the best interest of students. Examples include:

• Scholarships and tuition remissions

• Fuel and utilities

• Public safety

• Fringe benefit costs (e.g. employer’s share of health insurance premiums & retirement contributions)

• Debt service (long term loan repayment)

• The remaining items in the State-Supported Budget are often referred to as discretionary costs and represent the areas where budget reductions can be made.

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• In FY2010, State-Supported Discretionary totals $485.8 million, or 31% of entire University Budget

$730.7 Million

Non-State

Supported

$485.8 MillionState

SupportedDiscretionary

$358.7

Million

State

Supported

Non-

Discretionary State Supported Non-Discretionary Costs include:Fuel & utilities, Fringe benefits, Scholarships and Tuition remissions, Debt service, Public Safety.

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Section II:

FY2010 Budget Reductions

• One-time vs. permanent reductions

• Reductions required of the University for

FY2010

• Budget reductions distributed to major

responsibility areas or vice presidential

areas

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Types of Budget Reductions

Permanent reductions – The budget is reduced in the current fiscal year

and the funding is removed permanently, meaning the unit will not get the

budgeted amount back in the next fiscal year.

One-time reductions – the budget is reduced in the current fiscal year, but

the funding is automatically returned in the next fiscal year’s starting budget.

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Total FY2010 State Budget

Reductions as of December 2009

• Several rounds of budget reductions were required by the State between July 2009 and December 2009.

• Reductions totaled $48.2 million by the end of December 2009.

• A $48.2 million reduction is a 9.9% reduction of the discretionary State-supported cost area ($485.8M).

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Types of Budget Reduction Actions

for FY2010

Permanent reductions

• $11.2 million reduction in State appropriation

One-time reductions

• $10.1 million for furloughs

• $25.4 million in fund balance return

• $1.5 million in Higher Education Investment Fund (HEIF)

– HEIF is funding through the State corporate income tax designated

for higher education projects and initiatives. Due to lower-than-

expected corporate income tax revenue, the institution’s share of

these funds was reduced.

Total = $48.2 million

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Budget Reductions History

Types of Actions In Millions

FY2009 Campus Base Reductions PERMANENT REDUCTIONS $7.9

FY2009 Fund Balance & HEIF Reduction ONE-TIME REDUCTIONS $14.5

FY2009 Furloughs ONE-TIME REDUCTIONS $6.8

Subtotal FY2009 $29.2

The FY2010 budget reductions come on top of budget

reductions already received in FY2009.

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How the University is Handling the

$48.2M Budget Reductions

First, the campus distributed $37.9 million worth of budget reductions

across the major responsibility areas under the president and vice

presidents, who were then responsible for delegating those reductions

within their own areas.

The remaining $10.3 million in reductions were covered by central

campus funds.

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$37.9M Budget Reductions

by Major Responsibility Area (Presidential and Vice Presidential Areas)

FY 2010 "DISCRETIONARY" TOTAL STATE-SUPPORTED

STATE-SUPPORTED REDUCTIONS BUDGET

Major Responsibility Area BASE BUDGET BASE & ONE-TIME AFTER REDUCTIONS

Total $485.79 in Millions -$37.94 in Millions $447.85 in Millions

President $3.47 -$0.28 $3.19

Academic Affairs $373.30 -$28.80 $344.50

University Relations $9.52 -$0.80 $8.72

Student Affairs $13.63 -$0.99 $12.64

Administrative Affairs $58.94 -$5.13 $53.81

Information Technology $21.23 -$1.49 $19.74

Research $5.70 -$0.44 $5.26

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The president and vice presidents have determined to use some of the

campus’s central fund balance to cover a portion of the one-time budget

reductions. This minimizes the budget reductions distributed to the campus

units.

However, the president and vice presidents are careful to remain good

stewards of the University’s funds by ensuring that the campus does not

jeopardize its credit rating and that it has sufficient funds on hand for any

unseen dire circumstances.

Fund balances are a finite and non-recurring source of funds. Once spent,

these funds are gone and cannot be spent on other important areas. Units

prudently save money in fund balances for future expenses, such as sizeable

acquisitions, substantial initiatives, or any unexpected cost not budgeted.

Examples of how fund balances are being used:

• Emergency funding for financial aid appeals

• Departmental renovations to aging labs, facilities, or computer equipment

• Support for new academic initiatives

Prudent Use of Fund Balance

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Will There be Future Reductions to the

University’s Budget in FY2010 and FY2011?

• The time line for the State’s economic recovery and stabilization of State

revenue levels is unknown. This translates into uncertainty about future

budget reductions the University is required to make for the remainder

of FY2010 and for the upcoming FY2011.

• The Maryland General Assembly’s Spending Affordability Committee

Report from December 2009 shows that the latest revenue projections

for FY2011 leave the State with a $2 billion shortfall to fund a projected

$15.7 billion State budget.

• If the State’s obtained revenues are less than what the State has

appropriated for the year, then the State may need to make further

reductions to the University’s budget. Reductions could include both

permanent and one-time actions.

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