Provost Mark McNamee, 11/19/08

 

Introduction:

The budget challenges facing the state and the nation are unprecendented in this generation and the prospects for a quick and full recovery are not promising. As a result, we must view the immediate and future reductions in state support as a permanent change in the financial structure of the university. We must make changes that preserve our essential missions as a land-grant university and take steps that position us for a future that ensures our survival as a top-tier university. This memo is designed to provide guidance primarily to the academic units. President Steger, Vice President Shelton, and I are working closely together to ensure that the overall university response is well coordinated. The three of us will schedule one or more Town Hall meetings to provide a forum for an open discussion about the budget reduction process. On Monday, Dwight Shelton distributed to the vice presidents and deans working documents that address issues related to the budget process, including information about the salary decisions. (See memorandum, guidelines, and form.)

 

Assumptions:

The five percent general fund reduction implemented in 2008-2009 will be followed by an additional reduction in 2009-2010 (and likely beyond). A reasonable estimate is a permanent combined reduction in general fund support of 10 - 15 percent in both the University Division (Agency 208) and the Agricultural Experiment Station and Cooperative Extension Division (Agency 229), which will be implemented additionally in 2009-2010. A reduction of 10 percent of the reducible state funding amount will result in approximately $17.9M for Agency 208 and $4.6M for Agency 229. Given the worldwide financial crisis, these numbers could change further. As noted in earlier correspondence from President Steger, we have managed the central university budgets as aggressively as possible to minimize the impact of reductions on the university programs. For 2008-2009, the assigned one-time budget reduction target to all senior management areas is 1.5 percent. For 2009-2010, we expect the final target to be a permanent reduction of three to five percent to senior management areas after taking into account all the ways in which we can centrally manage revenue increases and budget savings within the existing operating parameters. The three to five percent distributed cuts accommodate a reduction in state funding of 10 - 15 percent. (For the 229 Agency, which does not have the benefit of tuition revenue, the distributed cut to the colleges will be very close to the state reduction percentage in 229 funds.) The remaining discussion in this letter will focus on the 208 budget. As noted in earlier correspondence from President Steger and expected in follow-up instructions from the Budget Office, we will initiate budget reviews by looking at three percent and five percent reduction scenarios.

Belt-tightening, across the board cuts, and temporary savings measures will not provide an effective enough strategy to deal with the budget reductions. The reductions enacted in 2007-2008 exhausted nearly all of our typical institutional strategies for absorbing reductions. A senior management plan that distributes reductions across all departments without differential strategic recommendations will not be accepted.

Revenue enhancements are providing an important tool to offset some of the reductions. Revenues can come from increased tuition, greater returns from auxiliary and affiliated enterprises, private fundraising, and program-based revenue generation. All of these avenues are possible, but our capacity will be constrained by many of the forces that are affecting the national economy, at least for the next two to five years.

Enrollment projections in the strategic plan call for a relatively stable undergraduate population at 2005-2006 levels and a modest increase in the graduate population. Currently, the undergraduate population exceeds the enrollment targets and the graduate enrollments are approximately as planned. Gradually adjusting enrollments to fit within the existing strategic plan is sound policy.

In order to ensure the future strength, reputation, and competitive capacity of the university, the University Strategic Plan will provide strong guidance. The following activities should not be significantly compromised:

1. We will maintain high quality, comprehensive undergraduate educational programs in Blacksburg that attract and retain highly motivated, diverse students from Virginia and beyond.

2. We will continue to develop our research capacity to remain globally competitive in the 21st century with the intent of sustaining annual research expenditures in excess of $500M by 2012 and beyond.

3.We will sustain high quality graduate programs as part of our efforts in research and national prominence. We must remain competitive with our SCHEV peers and continue to aspire to the profile of AAU universities.

4. We will attract, retain, and support the best possible faculty and staff in order to carry out the first three goals. The 60th percentile goal for faculty salaries relative to the SCHEV peers remains a high priority. The cluster approach to hiring will be a major factor in approving any new hiring plans. Faculty recruited into clusters are expected to participate in the university missions of learning, discovery, and engagement.

5. We will fulfill our unique position as Virginia's senior land-grant university through creative strategies that advance the engagement priorities in our strategic plan.

6. We will continue to remain true to our core values and fulfill the Principles of Community and the spirit of Ut Prosim.

7. We must continue to raise about $100M per year from private sources following completion of the current comprehensive campaign.

 

Guiding Strategies and Tactics:

We should look out five years and determine what the university can and should look like in the new fiscal environment in order to fulfill our institutional missions.

From this perspective, new investments now (even in the face of declining budgets) can and will be very carefully considered. Examples could include new majors and programs, strategically important research and educational initiatives, revenue generating programs, and new capital projects. Any new initiative will face detailed scrutiny.

Changes in the size, scope, and existence of programs should be viewed as permanent adjustments. The long time frames associated with closing programs should not preclude strategic decisions about the future. We can help units manage transition costs.

Every administrative activity that is not essential to the delivery of the core missions of the university should be evaluated for possible reductions in scale or elimination.

Academic programs that do not meet an essential university need for our overall educational programs and/or cannot compete nationally for impact should be analyzed, especially in cases where other Virginia institutions offer a reasonable alternative for students. Departments that have an undergraduate program with fewer than 100 majors should be carefully analyzed with attention to possible program consolidations.

The programmatic emphasis of departments, schools, and colleges should be carefully evaluated with a goal of narrowing the scope while enhancing the quality. The actions taken by the School of Education in 2002 to focus attention primarily on the K-12 system with an emphasis on the STEM areas are a good example.

Every college should explore new organizational structures that maximize administrative efficiency and retain the possibility of long-term flexibility in program design. School structures instead of department structures may be worth serious consideration. For example, the College of Architecture and Urban Studies now has four schools with multiple academic program areas rather than departments. Department mergers or consortia may be another option to increase the critical mass of faculty who can benefit from more coordinated administrative services.

We will continue to offer undergraduate degrees on the Blacksburg campus only, although we will continue to develop distance and distributed learning strategies to help students achieve their educational goals, including access to online courses in the summer. All academic support services should be looked at for efficiency, effectiveness, and impact.

Off-campus graduate programs will be carefully reviewed to explore options for cost-neutral or revenue-generating operations whenever possible. Continued subsidies for off-campus programs represent a serious budget challenge.

We will continue to honor the practice of NOT terminating any untenured tenure-track faculty for budgetary reasons. At this time, we also have no plans to implement the Alternative Severance Option (ASO) program for tenured faculty.

Major efforts should be made to minimize or eliminate the use of state funds whenever possible for discretionary items. We trust that every unit will be looking carefully at printing costs, travel, etc., to obtain marginal savings.

 

Assistance and the Decision Process:

The Office of the Senior Vice President and Provost and the Budget Office will work with the senior management areas to provide as much advice and assistance as possible.

Every college will receive a full summary of the academic profile of all academic programs at Virginia Tech, including budgets, faculty positions, student credit hours, research expenditures, etc. The data are complex and should be used primarily to make decisions within a college. However, it may be useful to compare programs across college lines.

All proposals for addressing the budget challenges will be carefully considered. Communication and transparency will be essential. When appropriate, we can have confidential discussions about sensitive issues prior to any public discussion. Budget reduction plans will need approval from the senior administration (Steger, McNamee, and Shelton) with final approval from the president. As noted earlier, a senior management plan that distributes reductions across all departments without differential strategic recommendations will not be accepted.

As in the past, we will not accept cost-shifting as a budget reduction strategy unless there is full disclosure, full discussion, and compelling justification. The Budget Office will critically examine any proposal to make sure there is no explicit or implicit intent to shift costs.

 

Conclusion:

We are all in this together and we need all the help we can get to make the best possible decisions under very challenging circumstances. Our people are our most important asset in fulfilling our mission and we must be very attentive to both the short-term and long-term consequences of any decisions we make. Suggestions and feedback are invited on all aspects of the process.