As we begin the spring 2018 semester, we are entering into the regular, public phase of our development cycle for next year’s budget. This communication serves as the first of several you can expect from me over next few weeks and months. I want to keep our campus community and our stakeholders fully informed about UW Oshkosh’s finances, budget and fiscal future.
For too long, only a few senior level administrators have had a clear and complete view of the process and its influence on outcomes. We are working hard to reverse this, being more transparent of finances and ensuring others have more participation in the process. If you have attended my open forums, you know that I typically work with charts and slides and do my best to be open and transparent about sometimes-complex and difficult subjects. It leads to better decisions, real trust, and greater service to our students and stakeholders.
In this spirit, last year I asked our Vice Chancellor for Administrative Services Jim Fletcher to embark on comprehensive and detailed analysis of the financial state of the university. He has worked with his team, members of the Chancellor’s Cabinet, and Shared Governance leaders to take the deepest dive yet into an analysis of our fiscal future.
The results confirm what I shared in broader strokes last fall: the amount of revenue UW Oshkosh brings in does not cover our expenditures. This leaves a deficit that we have traditionally covered with the use of unrestricted fund balances. This future is, in a word, unsustainable.
Our commitment to protecting students’ learning, experiences and timely graduation remains a top priority. We are developing solutions to close the gap, and we ask the campus community to offer input and help in implementing our strategies. There will inevitably be differences in opinion about some budgetary decisions; however, our process will always be open and honest. We will rely on the members of the University Resource Alignment Committee (URAC) and the University Budget Development Committee who will help lead implementation of our new university budget model this July.
As a result of working together to develop long-term solutions, this institution will be on solid and sustainable footing. I want to make it clear that the work to get this institution’s finances in order is entirely independent of the ongoing UW Colleges restructuring process. Clearly, a stronger UW Oshkosh will only fortify the new university we are collaboratively building with the UW-Fox Valley and UW-Fond du Lac communities.
Factors in declining revenue
There are several reasons we see declining revenue at UW Oshkosh. The most obvious is our declining undergraduate enrollment, which is largely a result of Wisconsin’s declining birth rate. This has reduced the numbers of high school graduates statewide. Figure 1 shows UW Oshkosh’s undergraduate headcount has declined by 1,624 (-15.0 percent) over the past six fall semesters.
Using fall 2017 tuition rates, it is estimated this loss in enrollment translates to a loss of 1,498 FTE (full time equivalent) undergraduate students or essentially a loss of approximately $9.6 million in tuition.
Other factors leading to declining revenue include the significant reduction in state support during the 2015-2017 biennium, coupled with frozen undergraduate tuition and a tuition plateau set at 12 semester hours. The tuition plateau allows students to take additional semester hours without having to pay additional tuition. In addition, we offer our interim sessions to students and charge tuition as part of the connected semester’s tuition plateau.
We want to help students graduate more quickly as that ultimately reduces their cost of higher education. As we support our students, we must also internally look at the questions and opportunities related to these revenue challenges.
As many of you may know, our instructional budget is funded with general-purpose revenue (GPR), a combination of tuition revenue and state funds. Many of you also may also know this fund by its fund number, “102.” Historically, the UW System provides us with funds upfront based upon a tuition target, or expected enrollment and tuition. Figure 2 shows the assigned tuition target over the years and the actual tuition we collected.
Per UW System policy, UW Oshkosh is permitted to keep any tuition we collect over the target, and the years we fall short, we must write a check to the UW System to repay the shortfall. Every year since fall 2016, we have fallen short of the target. We have used funds held centrally or fund balances to repay the UW System. Given the steep decrease in enrollment in the 2017 fiscal year, we used central funds, fund balances and university-wide expense reductions to offset the shortfall.
The decline in enrollment continued into this current 2018 fiscal year. Our central reserves and fund balances cannot regenerate fast enough to cover this year’s shortfall of approximately $7 million. We will need to take immediate action to address this issue since we cannot continue to count on unrestricted fund balances to close our revenue-to-expenditure gap.
The bottom line is something I have shared with you before: we must bring our expenditures in line with our revenue. We can and will do this through increasing revenues and decreasing expenditures. Figure 3 shows an updated version of a graph I showed at the Opening Day Convocation last September.
The point of this graph is the trends and not the absolute values. Revenue declined rapidly during the 2013 fiscal year (2012-2013) and fell below the expenditure line by the 2014 fiscal year (2013-2014). We have been operating in a deficit mode since the 2014 fiscal year, and the gap is widening.
As I referenced earlier, in addition to the challenges of an enrollment decline, we also experienced a permanent $7.5 million annual reduction of our state subsidy starting in the 2015 fiscal year.
Acknowledging and taking on the issues
What are we going to do about the fiscal challenges we face? We are going to tackle them head-on.
- First, let’s talk enrollment. Since my arrival on this campus in November 2014, I have applied resources toward a worrisome enrollment trend: smaller first year classes and larger graduating classes. Large graduating classes is a great thing, and we certainly want to enable students to graduate as soon as possible. However, the math is simple. If we are graduating more students and losing some due to transfer and retention trends (~3,000 per year) and taking in fewer students (~1,800 to 2,000 per year), it does not take long to see fewer students overall at all levels of the university. To address enrollment, we have concentrated on enrollment management. UW Oshkosh has increased the number of recruiters, deployed new strategies to track prospective students, and increased our admissions marketing efforts. We have made strategic investments and taken steps to improve our retention, progression and graduation numbers through our University Studies Program, the Student Success Collaborative (SSC), and closing student achievement gaps for our students of color. These efforts take time and are paying off.
- For the first time in five years, our first-year enrollment modestly increased over the previous year. This is very significant since we had been dropping by more than 100 students per year.
- Retention from the first year to the second year is up from 76 percent to 77 percent with our students of color leading the way with a retention rate of 79 percent.
- Applications, admissions and deposits are up again this recruiting season for next fall.
- We have made significant progress in implementing our SSC that allows faculty and staff to use predictive analytics in advising our students and providing them the necessary student support to be successful.
- A new constituent records management system (CRM) is up and running in Admissions to better track and message prospective students.
- And finally, a new Strategic Enrollment Plan (SEP) will be ready soon to guide us over the next five years to maximize our efforts to attract, admit, enroll, retain, progress and graduate students. In so many ways, student success is foreshadowing stronger revenues.
- Second, we need to raise additional non-GPR revenue through all other facets of the university, including program revenue, fundraising, grants and contracts, auxiliaries and external services. This will help us rebuild our reserves while we take pressure off GPR-supported activities. Grants and contract efforts are essential to bring in non-GPR revenue to fund activities. Fundraising will get back on track this semester as we generate new scholarships for our students. Every scholarship dollar we award increases and stabilizes our enrollment. For those individuals involved in the generation of auxiliary and program revenue dollars, we need you to think and operate in new ways to maximize revenue for the benefit of the university.
- Lastly, we need to reduce expenses, primarily those tied to GPR funds. These will be permanent reductions in expenses, critical to restoring our fiscal health and enabling future growth. Let’s talk about that further.
Taking charge of expenditures
We have already taken our first step to significantly reduce our expenditures: we have asked and received permission from the UW System to decouple from the tuition target policy. This will be experienced as a significant budget reduction by the university.
I have accepted the recommendation from the Cabinet that we employ a three-phase fiscal recovery plan based on some strategic enrollment modeling. The plan requires us to reduce GPR spending by $9.5 million over the next two years. This is not a state-imposed cut but rather a self-imposed reduction. This will help us structurally align revenues with expenditures, reach a forecasted 2020 rebound in enrollment, rebuild reserves and, within the variables we can control, persevere through future enrollment reductions due to a decline in the state’s birthrate.
In spite of a modestly growing first-year undergraduate and graduate student numbers, enrollment modeling predicts we will experience a low point in total enrollment at approximately 8,500 FTE in fall 2019 from a current total enrollment of 9,145 FTE. So, we need close a gap of $9.5 million over the next biennium to reach a level of financial bedrock at that fall 2019 FTE level.
Again, our approach and our strategy is to reduce expenditures and increase revenues to meet the expected enrollment forecast in fall 2019 so that, as we begin to grow again, our expenses align with our revenue.
While state funding is in high demand from all state agencies, I do believe the state will continue to modestly reinvest in higher education. I also believe that our thoughtful and responsible efforts to align revenues with expenditures will strengthen our case that we are fiscally healthy, worthy of increased state support, and better positioned to deliver our students and stakeholders greater return-on-investment.
Here is the Plan for Fiscal Transformation:
- Initiate immediate reductions of centrally budgeted items that are not a direct priority to our mission.
- Target amount: reduce $2.5 million from $5.4 million of spending immediately with reductions taking effect in July 2018.
- Develop budget reduction targets for all division and institutional units to be implemented in the current budget development cycle.
- Target amount: reduce $6 million of GPR spending from $114.5 million GPR spending over the next two years.
- Work to develop and implement revenue enhancement strategies as soon as possible.
- Target amount: raise a net $1 million of on-going revenue by the second year of the plan.
Each member of the Chancellor’s Cabinet is responsible for working with their constituencies to identify and recommend spending reductions to me. While we have developed proportional targets, I reserve the ability to shift targets as needed to preserve the strategic priorities and mission of the university.
We will work closely with Shared Governance and administrators throughout the university organization. Leadership Council and URAC will be important entities to consult given that their memberships also represent the entire university. This will be a transparent process. I pledge to you to keep you informed and a part of it.
Our plan represents an opportunity to take stewardship of this institution to an entirely new level. As a result, we will set out on a sound, sustainable and responsible path for years to come while continuing to serve our students and the state at the highest level. Throughout the process and work ahead, we must never lose sight of our mission to transform the lives of our students.
I am grateful for the opportunity to serve alongside every member of this campus community.