University of Wisconsin System President Katharine C. Lyall

Charts from Presentation pdf

Thank you for this opportunity to describe the UW System budget, how we use it to serve the state, and the challenges we face as these resources change.

With me today are Chancellor Lydecker (UW-River Falls), Chancellor Messner (UW Colleges), Chancellor Reilly (UW-Extension), and student Regent Tommie Jones. Ninety-nine cents of every dollar goes to our campuses to serve students locally and the campus region. Please keep in mind that, although collectively we seem large, we do our work for Wisconsin student-by-student, community-by-community. Decisions made here in the Capitol, whether to add or subtract resources, quickly impact your communities and constituents locally.

The UW System is a complex organization-we serve 33% of all Wisconsin high school graduates, a total of 135,000 FTE (160,000 head count), at a price (tuition) that is among the lowest in the Midwest. We conduct cutting edge research that helps farmers, businesses, local governments, and saves lives here and around the world. We benchmark ourselves to national norms and report our performance publicly in an Accountability Report issued every year (you have a copy in your materials). In addition, we are audited and reviewed continuously by federal and state government, by regional and specialized accrediting authorities, and by private foundations and donors who are vigilant to assure that their investments pay off. Finally, we are our own toughest critics in holding the university to the promise of the Wisconsin Idea-we are committed to leading, debating, inventing, learning, and helping to solve the challenges facing Wisconsin and our nation. In Wisconsin, education is a statewide seamless system-this state has made an historic commitment to educating its people through support of K-12, technical, and university opportunities. Our PK-16 Council, now two years old, is the primary vehicle for aligning the efforts of our educational sectors. The University’s budget is a strategic tool by which we achieve our part of these critical goals.

Before I turn to budget details, I’d like to make three summary points that I hope you’ll keep in mind as we go along:

  • Wisconsin is economically at a critical fork in the road. We are not a rich state–we must invest our resources and use our assets very carefully, with conscious thought for the long-term impacts of our decisions, or we will quickly find ourselves at the bottom of the income scale with Mississippi, Louisiana, and Alabama. Moving per capita income up to the U.S. average (at least) is a clear goal that can be measured.
  • The UW System is a key asset in this process through our graduates and our research. If we work together to keep educational opportunities and academic excellence alive, Wisconsin can make the transition to a 21st century economy and a renewed prosperity. If Wisconsin’s per capita income were at the U.S. average, our economy would have $7 billion more in family incomes and community business.
  • The most effective way to rev up the university engine is to agree on the outcomes we seek, divide the costs of achieving those outcomes equitably among constituencies (state, students, donors), and avoid micromanaging. I’ll make some specific suggestions about this later.

If the Legislature and the UW System can agree on the outcomes we seek, we can make our respective decisions and policies to advance those goals and avoid the diversion of energy and resources to other directions.

Let me turn now to a brief description of the UW System budget.

I want to begin today by reviewing the UW budget, show you how we are trying to manage a long-term mission in the midst of short-term uncertainty, suggest some ways in which the Legislature could help us maintain access and quality, and finally, suggest that the real challenge for all of us is to raise family incomes in Wisconsin. Without a strategy to raise incomes at least to the national average, Wisconsin will be perpetually mired in fiscal problems. We can do better-and we must. Cutting existing programs and achieving greater “efficiency” alone will not close the gap…Wisconsin must continue to invest in its people or it will fail. Education is one way to invest, and Wisconsin has a long tradition of using education as the foundation of its future.

The UW System Budget. . .

State priorities have shifted away from higher education, past decade.

GPR provides one-third of our budget-gifts, grants, contracts, and user fees (including tuition) provide an additional $2 for every $1 in taxpayer funds. In essence, Wisconsin gets three times more higher education than the GPR investment alone supports.

Note: these additional $2 are earmarked by the donors or grantor for specific purposes (a specific research project, a particular building project, student scholarships, etc)- they cannot be reassigned for other purposes. Thus, GPR cuts must come from the one-third of the budget comprised of GPR, which primarily supports undergraduate instruction and student-related services.

Example: the approximately $100 million in base cuts to the UW System budget since 1990 have come out of the $1 billion GPR support-roughly a 10% reduction-not out of the entire $3 billion budget (which would be a 3%-4% cut).

The picture becomes more complicated when you recognize that the other sources-gifts,grants, contracts, and user fees-are growing steadily, while GPR fluctuates up and downfrom one biennium to the next. Thus, our core instructional mission is supported by our most volatile funding source. This presents a significant management challenge, because other resources cannot be reallocated to fill in for GPR losses.

Some rules-of-thumb may help you think about this:

  • You invest $5,000 GPR in every UW undergraduate student. This is about$1,000 less than the national average…thus, $5 million equates to about 1,000students.
  • $1 million in instructional budget provides support for about 200 students. This instructional workload exceeds our peers nationally.

Where the UW System budget stands right now…

In the 2001-03 budget, GPR revenues for the UW System increased for: fringe benefits, utilities, debt service, financial aid, and .7% pay plan increase for unclassified faculty and staff. Simultaneously, GPR cuts of $44 million were made. Since the increases were specified for fixed costs, the cuts had to come from reducing programs and services at every campus. Since 87% of our budget is people, these cuts entail significant reductions in faculty and staff.

You’ll note that although the UW System constitutes 9% of the state budget, we took 23% of the total cuts made this year.

Using the rules-of-thumb I gave you earlier, you can see that the $44 million cut removed GPR support for approximately 6,000 FTE students. In fact, our institutions have admitted for this year, an additional 2,600 FTE students, so this fall our campuses are serving 8,600+ more students than we are budgeted for. In effect, this is equivalent to operating a campus the size of Whitewater or La Crosse…with no money! This cannot be sustained.

Demand continues to grow for admission to the UW System. This fall, despite-exceeding our enrollment caps, we were forced to turn away several thousand applicants; half of our campuses are housing new students in motels, hotels, and YMCAs; student advising services are insufficient; and class sizes are growing…in short, we are stretched to the limits of both access and quality.

How efficient is the UW System?

We benchmark our efficiency against national performance.…

UW administrative costs are the lowest in the nation (5.8% vs. 10.3%) — this difference saves $115 million per year that is used for instruction. UW institutions are continually working to keep these costs low while providing the services that students need.

The UW System serves 14,600 more students than our peers nationally serve for the same budget. We believe in and practice continuous quality improvement, benchmarking, and public accountability.

We issue a public Accountability Report every year that lays out our performance on 23 indicators of importance to multiple stakeholders (students, taxpayers, donors, employers, etc).

UW-Stout was recognized by President Bush as the first-ever Malcolm Baldrige Award winner in education! More than 50 universities have already studied our model. Colleges and universities from around the country come to Wisconsin to learn from us.

How Are We Managing?

  • manage enrollments to match instructional resources
  • reduced administrative cost to lowest in U.S.
  • hiring freezes and travel restrictions
  • substitution of instructional academic staff for faculty
  • public accountability reporting since 1992
  • became more entrepreneurial. Examples…:
    • M.S. Management – UW-River Falls
    • E-business – UW-Milwaukee
    • Executive MBA – UW-Milwaukee
    • Nursing collaboration degree on-line – UW System
  • increased fundraising from federal and private donors
  • discontinued programs and reallocated resources to cover costs formerly covered from GPR:
    • for every new academic program added since 1992, we have eliminated one.
  • reduced our faculty positions by 500, and substituted part-time instructional academic staff.
  • reallocated $16 million per year to fund Instructional Technology.
  • self-funded faculty and academic staff pay play for 2001-03 ($44.1 million).
  • increased collaboration among UW institutions and with WTCS to deliver instruction to students more conveniently and effectively (through such programs as: Nursing Completion Degree and other 2+2 programs)
  • extend use of public/private partnerships to support:
    • scholarships and internships for students;
    • ongoing research and development projects;
    • regional economic development initiatives;
  • Benchmark ourselves against national peers

Investment in the UW System pays off …

Statewide economic impact of UW budget-the state’s $1 billion investment generates:

  • o $9.5 billion per year in gross state product
  • o $400 million per year in state income and sales taxes
  • o 150,000 jobs statewide
  • o 25,000 skilled graduates who stay and work in Wisconsin
    • 68% Wisconsin teachers
    • 90% Wisconsin pharmacists

Rate of return to the state: 8.9% per year (S&P 500 this year: -27%)
Rate of return to a graduate: 30% per year
Note: High School Graduate B.A./B.SA. Graduate
Average annual income $27,978 $51,649 +$24,000
Unemployment likelihood 8% 3%

Spin-off businesses from UW research and development:

  • 218 new businesses incubated in University Research Park (8,000+ employees);
  • 1,700 new patents received as basis for future growth.

8,000 Wisconsin small businesses are assisted by SBDCs every year:

  • Wisconsin Public Radio and Public Television provided statewide:
    • Reaches 565,000 public school students annually; 9 hours per day every school day to every school in the state;
    • Gubernatorial and other debates;
    • We The People public policy discussions on health care, race relations, state energy needs, etc.
    • Wisconsin Stories of Wisconsin History
    • Major documentaries on The Civil War, Baseball …
    • News Hour with Jim Lehrer
  • Life-saving medical research:
    • “Wisconsin Solution” for donated organs doubles their life and usefulness;
    • UW Hospital rated tops in U.S. for transplant survival rates and shortest waiting times;
    • New brachytherapy reduces treatment for breast cancer from two months to five days;
    • Conjugen, a UW spin-off enterprise, develops product that will save 500,000 lives a year from hospital staph infections.
  • UW-Extension served 900,000 clients of which 177,000 were in Wisconsin agriculture.

Key UW Challenges Going Forward…

  • Meet growing demand for admissions with shrinking resources?
  • Begin to restore some lost faculty positions.
  • Keep commitment to the Wisconsin Idea by:
    • completing the Economic Stimulus Package (graduate +1,250 students in high-demand fields)
    • in collaboration with WTCS and DPI, help state address:
      • nursing shortage;
      • specific teacher shortages (special education).
  • Maintain competitive faculty and staff compensation–recruit and retain replacements for retiring faculty and staff.
  • Fund regular replacement cycle of Information Technology for students, faculty, and staff.
  • Increase retention/graduation rates with fewer resources.
  • Handle increasing costs for technology costs and usage rates, library materials, growing intergovernmental charge-backs, increasing property and liability insurance costs.

Ways the Legislature Could Help…

Here is a list of some ways that the Legislature could help us maintain access, quality, and affordability for Wisconsin students:

  • Provide a lump sum budget; let Regents set tuition, resident and nonresident.
  • Consolidate separate appropriations for central functions.
  • Authorize UW to handle its own procurement, eliminating multi-layered approvals process through DOA. This would enable UW to save by participating in multi-state purchasing consortia that qualify for substantial educational discounts. Use these multi-state consortia as a possible model for other state agencies.
  • Direct UW to submit its unclassified pay plan requests directly to JOCER rather than through DER. UW is now paying for virtually all of its own unclassified pay plans with little or no GPR contribution. Faculty and academic staff do not compete with classified employees and should not be caught up in the separate bargaining process with classified employees. I note that the state’s classified employees and teaching assistants have had no pay adjustment for more than two years–if our faculty is caught up in this process in the future, we will have difficulties recruiting and retaining top faculty talent.
  • Exempt cash-funded capital projects from enumeration. Enumeration makes sense for projects that use scarce state bonding, but it can slow cash-funded projects by up to two years, increasing total building costs as a result.
  • Permit university to retain interest earnings on tuition revenues. This is money that really belongs to the students and should be applied to help offset tuition increases.
  • Similarly, enable the UW to retain 100%, not just 50%, of the proceeds from the sale of real property. Current “recapture” of up to half the proceeds by the General Fund discourages more efficient use of these resources by the university.
  • Encourage the availability of Advanced Placement and Youth Options courses as a means to cure “senioritis” in high school and accelerate post-secondary credits and degrees. Over half of UW-Madison freshmen now enter with college credits earned in high school; 20% graduate in less than four years as a result, making way for more students than could otherwise be served. This would advance the efforts of the PK-16 Council to achieve more “seamless” opportunities for students across all sectors of education.


Let me try to summarize all this as succinctly as possible:

  • The UW System is a key asset for moving Wisconsin towards a brighter future through our graduates, our research, and our outreach–every $1 of GPR invested in the UW budget returns $9.50 in additional economic jobs, incomes, and local business. A baccalaureate degree adds more than a million dollars in lifetime income beyond what each graduate could expect with only a high school diploma.
  • The university’s budget is complex and compartmentalized–GPR constitutes only one-third of our resources; the other two-thirds comes from constituencies that demand these funds be spent in very specific ways and, not reallocated to backfill for GPR cuts. Our core instructional mission is supported by our most volatile funding source.
  • Demand for admission to the UW System is growing, just at the time when instructional resources are shrinking. We have maintained access by an aggressive program of management efficiencies, collaboration, and other fundraising. We have come to the end of our ability to compensate for large base cuts in these ways–future erosion of the instructional budget will impact enrollments.
  • UW instructional costs are driven primarily by the number of students served–cutting programs, closing campuses, and similar proposals only save significant amounts if they result in eliminating the students served by those programs/campuses from the System. Otherwise, we’re just moving costs around.
  • 87% of our costs are for people–large cuts must come from cutting faculty and staff; and fewer faculty and staff can serve fewer students.
  • The university faces rigorous management challenges to recruit and retain the next generation of faculty, to invest in and replace Information Technology, to meet growing demand for admission with shrinking resources, and to remain steadfast in our commitment to the Wisconsin Idea through leadership on some of the most pressing state issues.
  • As I just outlined, there are a number of ways the Legislature could help us manage more effectively [including: considering a lump sum budget with performance goals; enabling us to manage our own purchasing and unclassified personnel processes; facilitating our ability to join regional higher education consortia eligible for educational discounts; moving cash-funded building projects through more efficiently; and permitting the university to retain interest earnings from tuition revenues and property sales]. These can help us maintain the access and quality that our students and Wisconsin need for the future, but they cannot offset additional large base cuts, which will ultimately impact enrollments.

Wisconsin has a long and strong tradition of sustained investment in educational opportunity. We feel a strong stewardship obligation to sustain this and will work hard with you and our colleagues in the other education sectors to ensure Wisconsin’s future.