Budget Approved by Trustees Approach reflects both high aspirations and economic challenges

July 15, 2002

PITTSBURGH—The Executive Committee of the University of Pittsburgh's Board of Trustees today approved a $1.2 billion fiscal year 2003 operating budget. In doing so, the executive committee acted upon a recommendation from the board's budget committee, which met earlier in the day.

Typically, the University's full board would have acted on the budget at its June meeting. However, because the Commonwealth's budget, including the University's appropriation, had not been finalized at that time, consideration was postponed until the committees met today.

In commenting on the budget, Pitt Chancellor Mark A. Nordenberg stated that the University had just completed a year of remarkable progress.

"During the past year," he noted more specifically, "we admitted the best-qualified group of students in our 215-year history, from our largest pool of applicants ever. Talented graduate and undergraduate students earned national recognition for their academic achievements, and so did distinguished members of our faculty and staff.

"The research dollars attracted by our faculty, primarily through competitive peer-reviewed processes, rose to an all-time high and, among other things, provided the foundation for important regional economic development initiatives.

"We successfully concluded the most ambitious period of new construction in our history," Chancellor Nordenberg added, "bringing the Petersen Events Center, the Sennott Square academic center, and our library system's new archival, technical services, and high-density storage center on-line. And we surpassed our $500 million dollar capital campaign goal more than a year early and extended that campaign to raise an additional $500 million to support the people and programs of Pitt.

"The University of Pittsburgh has been highly respected for many, many years," Chancellor Nordenberg continued, "but its position as a major provider of high-quality higher education has been dramatically improved in the last several years. We see that in the demand for our programs from prospective students, and we see it in the judgments of our peers."

Chancellor Nordenberg made specific reference to the laudatory report issued by an evaluation team representing the Middle States Commission on Higher Education. That report praised Pitt's "extraordinary accomplishments, particularly in the areas of improving the undergraduate student body quality, enhancing undergraduate campus life and support, integrating academic and budgetary planning, and strengthening city and Commonwealth relationships."

Both Chancellor Nordenberg and Pitt Board of Trustees Chair William S. Dietrich II made clear that the University was committed to building on this momentum, even as it continued to move through economically challenging times.

Chancellor Nordenberg also noted that finding the best ways to meet emerging fiscal challenges had been the subject of a yearlong process of discussion within the University's planning and budgeting committee, which includes representatives of the administration, faculty, staff, and students.

The new budget, as approved by the board, includes:

• $13.4 million to support special initiatives in faculty recruitment, curriculum updates, freshman instruction programs, counseling and placement services, and recreation and security initiatives;

• a $10.1 million investment in research infrastructure––a strategy intended to enhance Pitt's ability "to make discoveries that benefit mankind and simultaneously boost the local economy by attracting externally funded research grants and contracts budgeted at $458.3 million in the coming year," according to the budget committee report; and

• support for new operating expenses of $4.2 million associated with the Petersen Events Center, the Sennott Square multipurpose academic building, and new library facility––which are "adding top-quality resources to our campus," the report added.

The report also stated that the budget is designed to respond to "difficult economic times in the Commonwealth and across the country." It noted that "the decline in the economy has placed a financial strain on the Commonwealth's ability to maintain funding for higher education."

Pitt's FY 2002 appropriation had been essentially flat, increasing by less than

1 percent over the prior year. That authorized appropriation subsequently was subjected to mid-year reductions totaling 3 percent.

The University's appropriation for FY 2003 is $171.9 million, a reduction of $6.5 million, or 3.7 percent, from the original FY 2002 appropriation. It is further anticipated that the overall state of the economy will make it difficult to sustain current levels of endowment earnings and that the University will face significant cost increases in certain categories of expenditures.

The report stated that Pitt "has addressed this complex combination of high aspirations, economic decline, and cutbacks" through a number of methods. These include the following:

• The University will reduce certain of its current operating budgets by $8 million;

• The University has refinanced a portion of its fixed rate long-term debt to yield interest expense savings "in the current low interest rate environment";

• The University has created a "channeled spending program" to generate additional savings by taking advantage of group purchasing rates through preferred vendors and an Internet procurement system;

• The University is in the process of implementing energy conservation efforts to offset utility rate increases expected in FY 2003; and

• The University has limited the faculty and staff compensation increase pool to

3.5 percent. Chancellor Nordenberg characterized this investment as essential "if we are going to successfully recruit, retain, and support the faculty and staff whose work distinguishes this University within American higher education."

"Although the foregoing cost-cutting and operational efficiencies will contribute significantly to advancing our ambitious goals," the report stated, "the University can only maintain momentum toward its goals by increasing its revenue streams."

Therefore, the approved budget includes a 14 percent increase in tuition rates for in-state students and a 10 percent tuition increase for out-of-state students for most schools.

This will result, for instance, in a $966 increase for undergraduate in-state students in the College of Arts and Sciences, whose tuition will be $7,868, and a $1,516 increase for undergraduate out-of-state students in the same program, whose tuition will be $16,676. To help offset the impact of these increases, the budget also provides for a $9 million increase in financial aid expenditures.

Pitt's tuition increases rank near the middle of tuition increases approved by the institutions in its principal peer group, the public universities of the prestigious Association of American Universities. Most of these universities, like Pitt, face the twin challenges of dealing with declining levels of state support while competing against private universities that already have budgets built around a much higher tuition base.

In February 2000, the University's Board of Trustees formally and publicly declared that "by aggressively supporting the advancement of Pitt's academic mission, we will clearly and consistently establish that this is one of the finest and most productive universities in the world."

Both Chancellor Nordenberg and Board Chair Dietrich underscored the fact that the University would continue to pursue that ambitious goal within the framework of the operating budget adopted today.