Budget Situation Update for the UH ‘Ohana
July 1, 2009
Members of the UH ‘Ohana:
As you know, the budget restrictions imposed by Gov. Lingle on June 1 for the next two fiscal years coupled with the budget passed by the legislature and signed into law earlier this week by the governor mean that we will have $76 million fewer general funds in FY10 and $78 million fewer general funds in FY11. Were it not for the offset of $22 million in federal stimulus funds in each year, the general funds budget cuts would amount to $98 million and $100 million, with slightly less than half ($46 million) by the legislature, and slightly more than half ($52 and $54 million) coming from the governor’s action in the wake of the May 28 Council of Revenues downgrade of its economic forecast.
This amount is more than 20% of the general funds received each year by UH, net of payments of such items as fringe benefits, interest payments on bond indebtedness and the like. On a campus-by-campus basis, the University Budget Office estimates that the annual general funds restrictions break down as follows for FY10 (in millions of dollars):
| Legislature Reductions |
Federal Offset |
Net Legislature Budget |
Governor’s Restrictions |
Total Impact | |
| UH Manoa | -34.2 | 14.7 | -19.4 | -29.4 | -48.8 |
| UH Hilo | -2.6 | 0.3 | -2.3 | -4.1 | -6.4 |
| UH West O‘ahu | -0.4 | 0.0 | -0.4 | -0.8 | -1.2 |
| Community Colleges | -6.9 | 7.0 | 0.0 | -14.1 | -14.1 |
| UH System | -1.9 | *** | -1.9 | -3.6 | -5.5 |
| SBDC/Aquaria | 0.0 | 0.0 | 0.0 | -0.1 | -0.1 |
| Total | -46.0 | 22.0 | -24.0 | -52.1 | -76.1 |
*** UH may receive some Federal stimulus funds for the development, in collaboration with the DOE, of longitudinal student data systems and other assurances required by the American Recovery and Reinvestment Act. Totals may not add because of rounding.
I testified on these developments and their implications for the university at a joint hearing of the Senate and House Higher Education Committees on June 30. You can download my testimony.
In that testimony and during the Q&A afterward between legislators, the chancellors of our baccalaureate campuses and our community colleges vice president, I stated that the university will not be imposing furloughs of the magnitude employed by the governor. I went on to give my assessment of the situation, that some form of compensation reductions, achieved either via furloughs or via the collective bargaining process as salary reductions, would need to be part of the university’s solution to the budget situation because of the sheer magnitude of the problem. There are a number of additional considerations that shape the context in which we must address our budgetary challenges.
June 30 marked the end of our six-year contract with the University of Hawai‘i Professional Assembly. This contract provided significant compensation increases in its final three years of, respectively, 5%, 9% and 11%, with UH itself paying for, respectively, 1%, 3% and 3% of those increases from our tuition revenues. We’re pleased that we’ve been able to elevate the competitiveness of our faculty’s compensation, but we now believe that the economic situation and budget realities call for some downward adjustment for the next couple of years.
UHPA believes that Article XXX of the contract is an “evergreen” clause, implying that the contract continues in force after June 30. We support expedited arbitration of this question and anticipate a resolution by mid-July.
Tomorrow, Judge Sakamoto of the State Circuit Court will take up the question of whether furloughs can be implemented outside of the process of collective bargaining. If it is found that furloughs are an option we could employ, I believe, based on discussions with the chancellors and other university constituencies, that the most sensible use of this instrument would be during the winter break between semesters, the spring break and the Friday after Thanksgiving. Taken together, 13 furlough days would amount to a 5% reduction in compensation and—applied to those faculty and staff members paid with general or special funds, including our executives—would save the university more than $23 million per year. Such an approach would permit us to continue to deliver our educational services to our growing student population with minimal disruption of the academic calendar. Almost everyone I have consulted also recommended that the university system adopt a single approach to any furlough program rather than varying by campus or unit.
Though there are arguments on both sides of this issue, for a furlough plan of this magnitude (13 days per year), I would not support having those paid with federal funds—except our executives in that category—take a furlough. Researchers paid on “soft” funds are true entrepreneurs, assuming the risk that their grants will not be funded, and represent a powerful stimulative force in Hawai‘i’s economy. Indeed, in the fiscal year concluded June 30, UH scholars brought in more than $412 million in research and training grants and contracts, an increase of nearly 20%.
Frankly, we would prefer to achieve these savings through the collective bargaining process, and we hope we will be able to do so. Even with these salary savings, though, we have another $30 million in reductions to address to meet the $52 million requirement imposed by the governor’s restriction.
I reviewed our FY10 and FY11 budget and the status of collective bargaining today with our chancellors at the monthly Council of Chancellors meeting. The chancellors were unanimous in their desire to be given a budget reduction target to manage to, and not to be subject to any more stringent freeze requirements than those already put in place by the governor last fall. I concur with their desired approach once we’re clear on how much of the budget restriction will be handled by compensation reductions achieved by collective bargaining or, perhaps, furloughs.
The chancellors and I agreed that there are some systemwide measures that can be taken to address the remaining budget challenge. For example, we intend to close our campuses during the winter and spring breaks, except for essential services, thereby saving noticeably on electricity and other expenses and reducing our carbon footprint. Though our Centennial Campaign concluded yesterday 10% above our goal, now that the campaign is over we will certainly revisit our $3 million annual contribution to the University of Hawai‘i Foundation ($1 million comes from the system, $2 million from the campuses). The strategic use of attrition will be important, and, perhaps with legislative support, early retirement incentives could have a role to play. On the revenue side, though the anticipated FY10 increase in tuition of $20 million is already allocated by the campuses, we know that tuition revenues step up by $20 million each year in FY11 and FY 12.
I will continue to be in touch with you as the situation evolves. Should Judge Sakamoto render a decision tomorrow, the losing party may appeal. The governor earlier this week announced a record number of bills that she may veto, increasing the likelihood that the legislature will come back into session July 15.
I continue to appreciate your patience in this difficult time and your commitment to our students and our community.
With best wishes and aloha,
David McClain
