Office of the Provost

Memorandum

May 8, 2003

Mr. Mark A. Nordenberg
Chancellor
University of Pittsburgh
107 Cathedral of Learning

Dear Mark:

During the past several years, my annual planning and budgeting report has focused on the recommendations of the University Planning and Budgeting Committee for the next fiscal year’s budget. Throughout this period, the committee has been quite concerned about structural problems with the budget that could, if not addressed, arrest our progress and eventually defeat our determination to retain and to enhance our position as one of the nation’s leading public research universities. As we have reviewed the challenges we face in constructing a budget for Fiscal Year 2004 (FY04), the recent fiscal problems faced by the Commonwealth of Pennsylvania, coupled with the diminishing returns we can envision from what will be our continuing and determined pursuit of cost savings without reduction in program quality, lead me to offer you both a one-year strategy to balance the FY04 budget and an analysis of the available budgetary resolutions to the longer term problems which the University must address.

Before I offer budgetary advice, let me sketch, at least in outline form, the highly successful activities of the past seven years, and relate these activities to our budgetary issues. During these seven years, we have completely restructured the University to align all its activities to result in the delivery of the best possible academic programs. We have pursued cost savings in every unit of the University, and all identified cost savings have been reallocated into support of improved programs. We have analyzed the physical facilities needed to operate nationally and internationally competitive programs, and our ten year Facilities Plan (about to enter year 7) has very successfully positioned us to have the facilities our ambitious plans require. We have analyzed the information and instructional technology needs of our programs, and positioned the University as a true national leader in the use of information technology for research, instruction and management. We have carefully studied the needs of our students for their total education, in and outside the classroom, and we have enhanced the environment on each of our campuses while connecting our students in all meaningful ways to the cultural lives of the environments in which our campuses are located. And we have reviewed the curricula of each of our schools and campuses, insisting on revisions to ensure that our students will be optimally educated to deal with whatever they choose for the next stage of their personal, academic and professional development.

This restructuring of the University and its programs, successful as it has been in so many visible ways, has been accomplished within a climate of serious financial constraint: increases in the Commonwealth’s contribution to the University’s budget have never matched the increases in the Higher Education Price Index; tuition increases were kept low until Commonwealth reduction of the FY03 appropriation forced a significant tuition increase. A combination of aggressive reallocation and significant enrollment increase on the Pittsburgh Campus provided the main financial resources for our ambitious and successful programmatic improvements.

The continued development of the University and its programs will require enhanced financial resources. Some of these can and willcome from continued success of our Capital Campaign. However,there is little capacity for enhanced enrollment on the Pittsburgh Campus, and our aggressive reallocations have not only reached a point of diminishing returns, but have indeed reached a point where further forced reductions of expenditures would almost certainly produce significant harm to important academic programs we have built over the recent period of development.

At the same time, clear challenges stand between us and our further development. Indeed, some of these challenges could threaten the sustainability of our recent improvements. We, along with all of this nation’s leading public research universities, face a very significant challenge to recruiting and retaining the excellent faculty we need to fulfill our mission. While faculty salaries at all faculty ranks were essentially the same at public and private research universities in 1980, very significant increases in private school tuition in the ensuing two decades provided financing for private school salary increases that resulted in private school salaries exceeding public university salaries by slightly more than 25% by FY02. Recruitment and retention of faculty is very difficult under these circumstances, and our continued success depends on our finding a resolution to the problem.

Through great effort, we have carefully compared the salaries of each group of our staff with salaries in the Western Pennsylvania market and positioned staff salaries and benefits to be competitive in that market. Similarly, we have benchmarked our faculty against public research universities which are members of the prestigious AAU. With significant effort, we have brought our faculty salaries back (after the setback they had experienced in the budget crisis nine years ago) to or above the median of the public AAU universities at all faculty ranks, as of FY03. However, retention losses to the private universities will remain a problem as long as the unacceptably large gap between publics and privates remains.

Similarly, challenges exist in the areas of facilities and technology. While we have been very successful in providing our programs with high quality facilities through careful renovation of our existing space and the judicious addition of crucially needed space, continued renovation of our laboratories, classrooms and libraries will be essential to the continued enhancement of our programs (and even to the retention of our current position). Unfortunately, cutting edge technology for such facilities and programs exhibits an inflation rate that far exceeds the increases typical of the consumer price index, so our ongoing program of cost-savings will be needed just to keep this inflation from far exceeding any fiscal remedy we can devise.

The expectations of our students and their families also pose challenges for us. During the past several decades these expectations have placed increasing demands on the quality and amenities found in typical university residence facilities, and they have also driven up the number and sophistication of the services expected in the student life area. While we have made impressive strides in these areas in the past few years, we must do more, and continued development of these areas at the nation’s best universities will predictably force us to do even more than we might currently aspire to do.

It is obviously essential that the instructional and research programs of the University become increasingly better, and all of our efforts in recent years have been directed to that end. We have, however, made our recent improvements while insisting on constraining faculty numbers in the interests of efficiency. We have realized as much efficiency as can be attained in this way, and further development of our programs in our highest priority areas will almost certainly require some enhancement of faculty numbers in the predictable future. At the same time, we have closed all the programs we identified for closure, and the remaining, lower priority programs are not only important programs needed for fulfillment of our mission as a comprehensive university but also programs that are already operating in as lean a mode as is possible.

The constellation of problems outlined above has led various members of the University Planning and Budgeting Committee, on many occasions in the past several years, to speak of a “structural problem” in the University’s budget. At core, this structural problem is that tuition in any of our programs, even when augmented by any reasonable fraction of the Commonwealth appropriation, does not cover the real cost of educating a student. On the other hand, our academic successes in both research and instruction position us to compete rather well with elite private schools whose per student expenditures far exceed ours. This demonstrates that we are a very efficiently operated research university, and encourages us to believe that our structural problem could be solved with much more modest financial enhancements than would be needed to match the expenditures typical of the private schools with which we compete.

The challenge then is clear. Our mission as a leading public research university is to provide the families that depend on public universities the highest quality programs at a cost that is far more affordable than costs typical of comparable private university programs but not so inexpensive as to materially sacrifice the quality demanded of the program by national competition. We would not need to address all aspects of our budget’s structural problem in one fiscal year. Rather, we could plan to phase in an appropriate tuition increase over several fiscal years, applying it to new students as they join us. To illustrate the tuition differentials currently relevant, let me point out that undergraduate tuition at the better private research universities currently stands near and above $30,000 per year (exclusive of room, board, books and travel). In contrast, undergraduate tuition at the University of Pittsburgh is approximately $8,000 per year for Pennsylvania residents. If the Commonwealth did not reduce our appropriation any further and if technological changes did not drive some important and as yet unanticipated costs onto our shoulders, our budget’s structural problems could be addressed by increasing in-state undergraduate tuition to approximately $11,000.

The proposed FY04 budget that I transmit with this memo provides the needed resources to continue the University’s progress through another year. The committee recommends this budget to you as the best way to address the crucial problems of the moment. However, I further recommend that you consider enhancing the revenues of the University by instituting a further tuition increase for new students to make FY04 the first year where we begin to address the budget’s long term structural problem.

Sincerely,

James V. Maher

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