February 27, 2011

Dear Colleagues,
Thank you for your continued hard work and support as we navigate a variety of challenging issues. It’s a busy time in Springfield and at the University and I’m hearing from many of you about these challenges. I look forward to continuing to visit with you, but in the meantime, let me address questions I’ve been hearing:

  Q:  What can you tell us about pension reform?
  A:  Pension reform is troubling because it could negatively affect our current employees and compromise recruitment efforts. We hope the State will meet commitments it’s made to our employees and our Governmental Relations staff is working hard on this issue in Springfield. Yet, we must remember that pension issues are one part of larger budget issues in the state. We must try to advance our interests in this area, without damaging our interests in other areas important to the University.

  Q:  What is the State budget situation?
  A:  The passage of new tax legislation promises to reduce the state’s structural deficit and offers a partial solution to our serious budget problems. Still, the State faces billions in unpaid bills. Eliminating this deficit may take a combination of borrowing, new revenues, and reduced expenditures, which may include reductions in support for the University. Currently, the State owes the University almost $500 million of its FY 2011 operating budget and MAP (student financial aid) funding, even though we’re nearly eight months into the current fiscal year. Dealing with this may require the State to borrow some additional money as part of a debt restructuring plan, which may or may not win legislative support before the end of the fiscal year. It is clear that the State has long-term structural fiscal problems to deal with, as well as the short-term cash crisis, and we are not out of the woods yet. We must continue to monitor resources diligently and manage State allocations as carefully as possible.

  Q:  Why are we trimming our budgets further, when the Governor’s budget doesn’t decrease our appropriation?
  A:  We’re grateful to the Governor for not proposing further cuts to our budget in his recent address. Still, we know that flat funding doesn’t account for cost increases or inflation in our costs, and it doesn’t support compensation adjustments or replacement of lost faculty and staff. We must pay our bills, including paying faculty and staff, even if the State doesn’t enact a debt restructuring plan and State payments to us continue to lag. Also, I promised that I would not support furloughs. I’m glad that I’ve kept that promise and careful budget oversight will help us avoid furloughs next year, as well. Depending on State action, I’m hopeful that we’ll be able to provide our faculty and staff with the first compensation adjustment we’ve had since August 2008. This remains one of my highest priorities.  In short, our budget constraints safeguard us against further delays in State payments or rescissions this year and next; buffer us against potential reductions in our State appropriation or other adjustments to our budget; help us avoid furlough days; and, I hope, cover costs of a compensation program.

  Q:  What about other revenues to replace state funding?
  A:  First, our hardworking faculty and staff continue to do more with less and generate new revenues. Our Interim VP for Research, Larry Schook, will work with colleagues to drive our research numbers higher. We’re also appointing a director of federal relations in Washington, D.C, who will further expand our federal funding opportunities. Also, Dr. Schook will work in Washington, Springfield, and through our corporate partnerships to open new avenues for revenue opportunities.  And, we’re coming to the end of a very successful capital campaign and expect to meet, even exceed, our $2.25 billion Brilliant Futures goal. This will dovetail with a new initiative to raise millions for new scholarships, particularly need-based scholarships. At the same time, we’re exploring new and more successful ways to organize our fundraising operations. The goal of this effort will be to obtain a much better return on our investment. Finally, tuition is now our largest and most reliable revenue source. To our Board’s credit, trustees want to make it more predictable for our students and their families, by tying tuition increases to inflation rates, State appropriations, and the success of our efforts to reduce administrative costs. Achieving a proper balance between these revenue sources and administrative efficiencies is the key to our long-term well-being.

  Q:  Where are we with the Administrative Review & Restructuring (ARR) report and the efficiencies it recommends?
  A:  Under the leadership of Stan Ikenberry and Avijit Ghosh, we’re making great progress. We’re actively implementing the ARR reforms in many areas, including procurement, capital projects, human resources, and information technology. More work will be ongoing. We’ve already realized about $5 million in recurring annual administrative costs and expect that number to about double by the end of this fiscal year. These reforms are overseen by a steering committee, which includes the chancellors, vice presidents and the chair of our University Senates Conference. In each area, we also benefit from the advice of implementation committees that include campus-level experts. Let me take this opportunity to express my sincere appreciation for the help and good work of all of the people involved, even though at times it entails changes that can be difficult to make.

  Q: How are we covering costs of new administrative positions and how does this square with reducing administrative overhead?
  A:  The new cost for these positions is nominal. The VP for Health Affairs is covered by clinical revenues, not new general fund costs. The cost for the VP-Research is not new. This is a re-titling of the existing VP for Technology and Economic Development. Our new Executive Director of Human Resources and Executive Chief Information Officer are not new hires. They’re internal promotions. We expect all these positions to either generate new revenues or further cost-reductions. What’s involved is not additional cost, but rather reallocation of resources to generate more revenue, reduce costs, and improve the services we provide for our faculty, staff, and students. This is what our University has always done, particularly when facing financial stress, to remain great and improve its competitive position.

  Q:  What is the status of the searches for a new Vice President & Chancellor on our Springfield and Urbana-Champaign campuses?
  A:  Thanks to the outstanding work of the search advisory committees, these searches are going very well. Let me express my gratitude to both committees, chaired by Dr. Tih-Fen Ting (Springfield) and Dr. Doug Beck (Urbana-Champaign). The search for at Springfield is in its final stages, as the committee has put forth its finalists. The search advisory committee for the VP/Chancellor at UIUC, formed in December, already posted the position description and is receiving nominations. I want to personally extend my gratitude to the committee members, who are dedicating so much time and effort to these important searches.

  Q:  What are we doing about the new procurement reform law?
  A: Nothing has been more aggravating to all of us who must deal with the onerous regulatory processes embedded in this policy. I know that all of us, as public employees, expect to comply with reasonable systems of accountability. But, we believe there should be a proper balance between accountability and regulation that undermines our effectiveness. I want to thank our University Ethics Officer, Donna McNeely, and our Office of Business and Financial Services for their ongoing efforts to secure reasonable adjustments to how this new procurement law is interpreted and applied. I also want to thank the various state agencies, which have made these adjustments. At the same time, our Office of Governmental Relations is working tirelessly to call the attention of these same officials, as well as legislators in Springfield, to the need for further adjustments to the policy.

I hope these answers to the questions and concerns I’m hearing is informative. Rest assured that others will follow as I try to keep you abreast of the progress we are making on these and the other issues with which we’re dealing. Thank you for your time and consideration. Mostly, thank you for all you do each day to help us through these challenging times.

Sincerely,
Mike

 

Michael J. Hogan
President
University of Illinois