Cracking the Budget Mystery
There’s been a lot of talk over the past several weeks about Pennsylvania Governor Tom Corbett’s proposed state budget and how it will affect Penn State. The proposed budget eliminates $188 million from Penn State’s state appropriations, severely impacting Penn State’s budget. But for a University with an operating budget of over $4 billion, $188 million is a drop in the bucket, right? Not exactly…
Penn State’s $4 billion budget is an all-encompassing figure and takes into consideration not only the general operating expenses, used for paying teachers salaries and maintaining buildings; but also research expenditures, auxiliary units (Athletics, Housing and Food Services, etc.), and the operation of the Penn State Hershey Medical Center. The operating expenses of all of these units are incorporated into the overall budget, totaling $4 billion. But in reality, these units need to be looked at separately, as their incomes come from separate places.
We’ll start with the easiest unit, and the one that receives the most criticism for having the support of Old Main. I am, of course, talking about the Athletic Department. The Athletic Department is considered an auxiliary unit of the University and is entirely self-sufficient. For those of you who failed Econ 002, when a unit is considered self-sufficient, that means that the income generated by the unit is greater than its expenses. In the case of Penn State, the Athletic Department’s self-sufficiency places it in elite company. According to a report released by the NCAA, only 14 Div. 1 FBS schools reported profits from their Athletic Department in 2009. Penn State Athletics made $18 million in profit in 2009-2010. No tuition money goes towards the Athletic Department, in fact the Athletic Department contributed $12 million to the University’s general operating budget in the form of tuition for all of its scholarship athletes.
Similar to the Athletic Department, Housing and Food Services (HFS) is an entirely self-sufficient unit. This is why room and board costs are the same regardless of whether or not a student is from Pennsylvania or out-of-state, or the son or daughter of a university employee. Housing costs are the same across the board because HFS doesn’t receive any operating funding from the general operating budget.
The Hershey Medical Center, again, is self-sufficient, covering its expenses through the fees associated with its various treatments, as well as through state and federal grants that are awarded to hospitals all over the commonwealth and around the country. Though Governor Corbett’s proposed budget would effectively eliminate all state aid to the hospital.
The University spent almost $600 million last fiscal year on research expenditures. Almost all of this (roughly $528 million) was funded through donations and federal and state grants. These funds are designated for specific uses and cannot be transferred, locking their usage down to specific projects and departments.
Which brings us to the general operating budget. This is the big one, what your tuition money goes into and where professors’ salaries come out of. The University divides the general operating budget into eight pieces: Instruction, Research, Public Service, Academic Support, Institutional Support, Student Services, Student Aid, and Physical Plant. These are the eight units responsible for the day to day operation of the University, the parts that allow for classes to continue and buildings to be maintained. This is also where our numbers game comes into play with regards to the state appropriations. Last year, the University received a little over $318 million from the Commonwealth, representing 7.9% of the total university budget. But when you look at the general operating budget, that $318 million represents 17.1% of the general operating budget. This $318 million is primarily used to offer subsidized tuition rates for in-state students, as out-of-state students pay their whole way (provided they don’t receive any student aid).
Cutting down the $318 million by $188 million means that the University needs to come up with $188 million somewhere in the general operating budget in order to keep in-state tuition levels from rising significantly. Naturally, that task is much easier said than done, and it seems incredibly unlikely (not to mention extremely undesirable from an educational quality standpoint) that the University will be able to cut $188 million from the academic budget in order to keep tuition costs the same. So in-state tuition is looking to increase significantly. Out-of-staters would see a much more modest increase, somewhere along the lines of inflation, though it appears it will be a little bit higher than that.
The last piece of the budget puzzle is the idea of private donations, gifts and the endowment. The University receives thousands of gifts every year, 98% of which are restricted to specific uses (according to Dr. Spanier’s speech on March 9). The endowment has been voiced as a potential solution to the budget shortfall, pulling from the $1.37 billion in the University’s endowment. As with most gifts however, the endowed gifts are designated for specific purposes, with the University holding the funds in perpetuity. Thankfully, more than half of the endowment is already allocated to student aid, but for specific scholarships, as opposed to general financial aid. The For the Future: The Campaign for Penn State Students fundraising initiative is aimed at raising an additional $2 billion for student aid.
The University’s budget is an incredibly complex beast, and this article just scratches the surface of how Penn State spends its money, but from looking at the data, it is quite clear that the University’s options are extremely limited in dealing with the proposed appropriations cuts. The $188 million needs to come from somewhere, and while Penn State has already cut $200 million from its budget over the past 20 years, it’s obvious that there’s still significant amounts of work to be done in order to balance the budget in a way that ensures the affordability of a Penn State education to the people of Pennsylvania, while maintaing the level of academic quality that draws them to Penn State in the first place.
Author’s Note: A large portion of my research for this article (including all of the charts) came from budget.psu.edu, where the University reports its expenditures annually. The numbers cited are from the 2010-2011 fiscal year, which ended last month. In addition, I utilized the “Frequently Asked Questions Related to State Funding for Penn State” document published by Penn State Live for additional information.