As you by now know, the University System of Georgia (USG) has absorbed a budget reduction of 3% for FY13, which each USG institution has had to absorb, as described in a campus announcement made two weeks ago by GHSU EVP and Provost Gretchen Caughman. And GHSU has already articulated separate plans to address this requested reduction. In addition, USG is projecting an additional 2 percent reduction in the current fiscal year. And so….
We are $600M upside down.
In effect, over the last four fiscal years (beginning in 2008 or fiscal year [FY] 09) we have experienced budgetary challenges that cumulatively amount to more than a $600M burden to our enterprise….
Let me explain.
Beginning in FY09, with the worst recession to date dramatically reducing state tax revenues, serial yearly and mid-yearly reductions to state appropriations were implemented. From FY09 to the present FY13, GHSU has lost almost $50M ($49M to be exact) in annual state funding, or about 28% of its yearly state support (…state appropriations currently support about 23% of our university’s budget).
That’s an enormous amount in any setting, but in our university that yearly reduction alone equals about 10% of the total university’s revenue in 2008 numbers.
And while the total loss in annual state appropriations for GHSU from FY09 to FY13 is about $50M, we should recall that state appropriation cuts have been occurring since 2008. And so the total loss of state funds to our university during that period of time has been an enormous $226M, or almost a quarter billion dollars.
We are not alone. A recent report by the National Science Board noted that Georgia’s major public research universities lost 37% of per-student state funding between 2002 and 2010, the 5th largest drop in the nation.
However, most state universities have made up for the decline in state support through increases in tuition rates. In contrast, because we have a relatively small (but select) student body, we can’t just make up for the deficit by spreading the added costs across our students. That wouldn’t be fair or feasible. And in any event, we have tried hard to ensure that we keep our tuition rates as low as possible.
In fact, for these reasons GHSU has been the university in the USG to lose the most in educational revenues (i.e. state appropriations through formula funding, and tuition and special institutional fees, or SIF) over the past four years. And it is also noteworthy that of the next five institutions that have been either losing revenues or barely staying even with the progressive reductions in state support… all are consolidating (see above bar chart; red arrows indicate GHSU and ASU, light blue highlights indicate other consolidating institutions).
In addition, our Health System has experienced reductions in revenue, mostly through lower payment rates from insurers (Medicaid, Medicare, etc.), the loss of disproportionate share monies (monies provided by states to those hospitals taking care of an inordinately high number of Medicaid patients), reductions in state Budget B (for medical training) support, and because the number of patients seen who were uninsured or could not afford to pay rose dramatically. Overall, between FY09 and FY12 the GHS Health System lost a total of more than $80M in such revenues ($28M in decreased state support or payments and $52M in increased indigent unreimbursed care), or about $20M per year.
And because the GHS Health System funds about 33% of our university’s budget (more than the state we should note), primarily by supporting the higher costs of medical education which by its nature is more costly than undergraduate programs, we could have assumed that the university experienced an additional loss of about $7M in annual revenues from lower health system contributions. Except that the opposite has been true. In fact, the Health System (primarily through the GHS Medical Associates, see graph below) has compensated for reduced state support of the medical school by providing greater amounts of financial support to the university… putting additional strain on the Health System bottom line. Essentially, by FY12 the Health System was injecting $27M more annually into GHSU, an additional burden above and beyond the $20M yearly deficit noted above.
In addition, the university has enjoyed, and now suffers the loss of federal stimulus funds, which amounted to almost $10M in the past four years, temporarily stressing our current finances further.
Finally, in addition to the massive loss in revenue experienced by the university and health system, we also have the additional costs of a number of worthwhile, but unfortunately unfunded, mandates. The costs of these unfunded mandates well exceed $300M, with many of these expenses continuing to recur year after year. Let’s briefly review these…
Firstly, we are readying ourselves to become the 2nd NCI-designated Cancer Center in Georgia by 2020. While state support has increased to support this plan, institutional investment will still exceed $150M during this time period to make this important resource a reality.
Secondly, we have accepted a mandate to increase the class size in our College of Dental Medicine. The annual and recurring costs of doing so amounts to more than $7.5M between FY13 and FY18 in faculty and staff alone. And in contrast to the medical student expansion, few state funds are earmarked for this growth.
Thirdly, we must upgrade our aging IT backbone. IT needs are as diverse as better classroom space management systems, new distance learning resources, better IT access in the classroom, administrative tools to improve bureaucratic efficiency, needed systems for facilitating research and research compliance, not to mention the enormous cost of implementing electronic health records (EHR) in our health system. This could easily become a $100M 8-year endeavor.
Fourthly, as more than 80% of the University facilities are over 30 years old, the cost of maintaining these is increasing exponentially. And unfortunately, due to a state budgetary decision, the costs of maintaining and operating our wonderful, yet enormous, 275,000 sq. ft. new College of Dental Medicine Clinical Learning Building ($2.0M yearly) are not included in our state budget. Recurring costs that run into the tens of millions of dollars.
Fifthly, we continue to carry the costs of those who accepted ‘early’ retirement in 2000, about $17M yearly. Unfortunately, for our bottom line (but fortunately for those retirees) many have had a longer life than expected (so much for the popular thought that retirement is bad for your health!…). And yes, we do pay these ongoing benefits from our regular operating funds that could have otherwise gone to build further educational and research programs. And these costs are recurring.
Finally, and critically, we have the unfunded mandate of our consolidation. And while the consolidation of ASU and GHSU to create GRU Augusta will eventually save costs and allow these savings to be directed to better student education, in the short term we have many costs that need to be funded in advance. New IT systems, relocation costs and facility upgrades, new signage and employees ID systems, branding, marketing and student and faculty recruitment efforts, faculty and staff salary adjustments, are just a few of these. And not to mention the large investments we will need to develop and grow new academic programs, particularly in the non-health science fields.
All budgetary challenges that we must understand, accept, and plan for.
——————————— o ————————————
So what have we learned and what are we doing to address these challenges? What will it take to grow in an upside-down world?
Firstly, we learned that we have an extraordinarily loyal, dedicated, and resilient staff and faculty, who have been able to maintain and even improve the services we offer to students, patients and our communities, despite the severity of budgetary reductions. Staff and faculty, many of whom have not received a pay raise in over four years. An unfortunate situation that state employees of at least four other states in the Southeast share (including Alabama, Florida, Louisiana, and Mississippi). A situation we intend to try to begin addressing in the coming fiscal year.
Secondly, we are in an economic ‘New Normal’. Waiting for things to “get better” is folly. The time for planning and action is now. No magical thinking allowed….
Thirdly, we can’t rely solely on state support to continue our current operations, much less grow. We must be innovative in our financial plans, we must rally our philanthropic community, and we must find alternative revenue sources through discovery and technology transfer and improved health system performance.
Fourthly, we need to craft a growth plan that ensures protected (sequestered… the term of the day) future-oriented development funds. More on the new STARS (STrategic Academic, Research, and Service) Development Fund in a later post
And last but not least, we must ensure that we respond to budgetary cuts to our current operations with operational reductions and efficiencies in those same operations… And not use our growth funds to do so. In other words, we cannot eat our seed corn to respond to today’s challenges, because for the foreseeable future… today is here to stay and we must grow regardless.
————————————– o —————————–
We remain committed to growing in an upside-down world, optimizing our operational and administrative efficiencies and capitalizing on our core strengths. We will be prudent in our spending and in the utilization of our many valuable resources. To the extent possible, all departments are being asked to absorb their target reduction by not filling vacant positions and by continuing to reduce other administrative overhead costs. Our vigilance in managing administrative costs will continue as we develop and grow our clinical, research, education and service missions.
Why am I sharing these facts and lessons learned? Because I strongly believe that the only way we will be able to effectively tackle our economic challenges is with the understanding and planning, not panic and frustration, of every member of our large enterprise.
If each of us recognizes and understands the challenges we face, and each of us does our part in addressing them, we will become a much better, more focused, and more effective university.
I know we will.