Updated Friday, July 21, 2023
The Penn State Board of Trustees on Friday approved a two-year budget plan university officials say will significantly reduce the school’s operating deficit.
Board members voted by a 26-5 margin to move forward university-wide budgets of $9.5 billion and $9.6 billion for fiscal years 2023-24 and 2024-25, respectively, during a meeting at the Penn State Behrend campus in Erie. Those budgets include all university operations statewide. The Committee on Finance, Business and Capital Planning recommended approval of the budgets on Thursday.
Alumni-elected trustees Ted Brown, Alvin de Levie, Barry Fenchak, Anthony Lubrano and Jay Paterno — each of whom has opposed tuition increases included in the budget — voted no. Cynthia Adams Dunn, secretary of the Pennsylvania Department of Conservation and Natural Resources, abstained.
Operating under a new budgeting model, the university for the first time developed fiscal plans for two years as it grapples with financial challenges in large part brought on by the COVID-19 pandemic, including an enrollment dip and increased expenses, as well as factors like inflation and low per-student state support. The two-year budget model is intended to “enhance predictability, improve the strategic allocation of University resources, and better control costs in support of access and affordability,” according to the school.
Strides have already been made toward balancing the budget, with a projected $140 million structural educational and general budget deficit in 2022-23 shrunk to $63 million before the books are closed on the fiscal year.
Sara Thorndike, senior vice president for finance and business, told the board committee that several factors helped to narrow the gap. A university-wide hiring freeze, which is expected to remain in place for at least another year, has resulted in $27 million in savings. Health care costs were $17 million less than budgeted and investment income increased by $22 million.
The university also received a one-time $12.1 million COVID relief grant from the commonwealth, deferred spending and capital projects and saw savings on contracts for equipment and services.
For the next two years, the university projects the budget deficit to further diminish to $44.5 million in 2023-24 and $34.1 million in 2024-25 before being eliminated with the 2025-26 budget, a charge given by the board to President Neeli Bendapudi last year.
“I want to thank the entire Penn State community for its efforts as we’ve worked to respond to budget challenges,” Bendapudi said. “Our deficit today is lower than it was at this time last year, and we are forecasting progressively smaller deficits for each of the next two fiscal years. This work is not finished, but I am encouraged by what we have achieved thus far, and I am pleased to report that we remain on track for a balanced budget by fiscal year 2025-26.”
The budgets for each year include 3% merit-based salary increase pools and funding for the university’s ongoing compensation modernization initiative to update salary structures. Those, however, likely will be put on hold temporarily until Pennsylvania’s budget impasse is resolved and Penn State’s appropriation from the commonwealth for 2023-24 is funded.
Gov. Josh Shapiro and the General Assembly were unable to agree on a state budget by the June 30 deadline and the state House is not scheduled to reconvene until September.
Based on Shapiro’s proposed 7.1% funding increase, Penn State is anticipating a total $364 million appropriation from the state, including a $259 million general support appropriation that provides an in-state tuition discount of $5,750 for each of the university’s approximately 42,000 students. It’s the lowest per-student appropriation among the four state-related universities, but is nevertheless critical to contributing to the average annual $15,000 discount provided to Pennsylvania students at Penn State.
The university “will direct other resources to cover in-state tuition costs until state funding is approved,” according to a news release, resulting in a delay for compensation increases.
If Penn State’s appropriation is lower than projected, Thorndike said, adjustments will be made to expenses.
“We are in continued conversations with the legislature, and we remain hopeful that state leaders will pass our funding bill with the increase that Gov. Shapiro has proposed, as this funding is vital to students and families across Pennsylvania,” Bendapudi said. “Despite not knowing what our appropriation will be, university operations must be maintained, which is why we are moving forward with our budget as planned — with the caveat that some critical steps must wait so that we can meet our commitment to our Pennsylvania resident students.”
The full Board of Trustees will meet at 1 p.m. Friday at the McGarvey Commons Reed Union Building on the Behrend campus. The meeting will be live streamed.
