UNIVERSITY UPDATE
Our Very Substantial Challenges Continue to Grow
July 7, 2009
The recently concluded annual meeting of our Board of Trustees was noteworthy both in its public praise of a former Chair and in its election of his successor. The Board’s “Resolution of Respect and Gratitude” for former Chief Justice Ralph J. Cappy was very well deserved and underscored his record of high professional achievement, his lifetime of committed connections to Pitt, and his many important contributions as the leader of our Trustees. That resolution also noted the high priority he always had attached to student financial aid, announced the creation of an endowed scholarship in his name, and permitted us to publicly present the incoming student who was named the first in what will be a long line of “Cappy Scholars.”
The election of Steve Tritch as the Board’s new Chair promises the continuation of capable and committed leadership in that key position. Mr. Tritch earned both his undergraduate engineering degree and his MBA from Pitt and has spent his entire career at the Westinghouse Electric Company, where he now serves as Chair. During his recent tenure as the company’s President and CEO, its business, around the world, grew dramatically. During that same period, the decision to maintain the Westinghouse headquarters in Southwestern Pennsylvania also was made. That clearly is one of this region’s most important economic development victories in many years and is one for which our new Chair deserves much credit.
Even as our Board’s annual meeting was moving toward its conclusion, though, attention began shifting to Harrisburg, as the Governor announced a new series of proposed budget cuts. Of most direct interest to us was an announced retreat from the previously declared intention of the Commonwealth to seek stimulus support, consistent with the language of the federal act, for Pennsylvania’s four state-related universities—Pitt, Penn State, Temple, and Lincoln. The Governor also expressed his further intention to subject all four institutions to additional, deep appropriation cuts. In a very real sense, then, we began and ended this past year with bad budget news from the Commonwealth. Unfortunately, the year-end news was far worse.
The first bit of bad financial news was delivered when the state’s Fiscal Year 2009 budget was passed last July. Though the approved state budget had grown by 4 percent overall, our appropriation was increased by only 1.4 percent. That pattern has become all too familiar in recent years. From Fiscal Year 2001 to Fiscal Year 2009, Pitt’s appropriation has been virtually flat, while the CPI has risen by 25 percent, and the Commonwealth’s budget has increased by 40 percent.
Of course, that disappointing, even if predictable, appropriation increase was just the beginning of the fiscal difficulties that awaited us as we moved into the new academic year. In the early weeks of autumn, we saw spending slow, job losses grow, and the markets begin their dramatic descent. Things did not get any better in the closing months of 2008 or in early 2009.
At a relatively early point, the state recognized that the recession would have an impact on its own budgetary circumstances and prudently began adjusting to meet the emerging fiscal realities. The Commonwealth Budget Secretary advised Pitt and the other state-related universities that a total of 6 percent of our appropriations would be held in reserve. Unless the state’s own economic condition changed, those reserved amounts—in the case of Pitt, totaling $11.4 million—would be withheld from our final appropriation payment.
We responded, with determination and without complaint, not only to those state reductions but to the more general decline in the economy. In October, budget cuts were imposed on both academic and support units; a process requiring centralized approval of all hiring authorizations was instituted; and the pace of capital projects was slowed. In December, officer compensation was frozen at FY 2008 levels, and in March, other salaries were frozen at FY 2009 levels. Responding both to existing pressures and to possible future challenges, we also took steps to increase liquidity and to protect against the higher interest rates that likely lie ahead.
Though this has been a very challenging time, by maintaining our commitment to our mission and by working together, we have been effectively meeting our challenges. In doing so, we are advantaged by the fact that, unlike many other organizations, the demand for the basic services we provide—the highest-quality higher education and cutting-edge research—remains strong. And within our own sector, we have continued to gain strength and add market share—as reflected in such measures as dramatic growth in applications for admission and in our ongoing rise, within the ranks of the country’s very finest universities, in terms of research funding. As has been recognized by both local and national analysts, these important forms of growth also have been a key to our home region’s relative record of success in weathering the recession.
In a series of earlier messages to our trustees, our campuses, and the broader community, I referred to a growing collection of articles from around the country that praised the Pittsburgh region’s economic transformation and cited, more particularly, the work done locally by Harold Miller, a highly respected analyst of regional economic trends. Writing in the Pittsburgh Post-Gazette last December, he confirmed that our local economy was doing better than most and asserted that a major reason for our relatively enviable position was the fact that fully “one-fifth of the jobs in the Pittsburgh region . . . are in the two most recession-resistant sectors: health care and higher education.” As I reported at the time, Mr. Miller also pushed beyond the present and raised a question critical to our entire community: “How long will our region be able to maintain this comparative advantage?” My response was straightforward—that our ability to sustain this record of new economy success was directly dependent on the level of priority assigned to public investments in Pennsylvania’s public research universities, which do now compete on an uneven playing field.
As we worked to meet the very serious challenges of the past year and to plan for the year that has just begun, our biggest source of uncertainty and concern has been the Commonwealth. To be clear, we always have expected to shoulder our share of the state’s collective burdens in challenging times. However, as has been noted, Pennsylvania’s public research universities recently had been relegated to a low priority position even when times were better. That stands in sharp contrast to the approaches advanced nationally by the Obama administration, with key parts of the federal stimulus package built on a belief in the power of public higher education, both as a long-term generator of knowledge and as a shorter-term generator of jobs.
My privately held view had been that we could find ways to maintain our momentum, as long as no serious and surprising blows were delivered from Harrisburg. Then, on the morning of Friday, June 26, we came face-to-face with a serious, surprising, and specific threat. When the loss of federal stimulus support is added to additional state funding cuts, Pitt has been targeted for an appropriation reduction of more than $30 million. That would take our appropriation to a point several million dollars beneath its 1995 level, when our enrollment was well over 2,000 students smaller, when our research enterprise was not much more than one-third its current size, and when costs generally were much lower.
There is a natural tendency to focus first on what a cut of such significant size might mean to our University, particularly at a time when most of our other revenue streams also are under serious stress. The simple math leads to an inescapable conclusion—by any measure, this is a dramatic reduction, and it would have a marked effect. That impact may first be seen when Pitt and the other state-related universities set tuition rates later this month. We already had announced a tuition freeze at our regional campuses and also had declared our intention to keep tuition increases at the Pittsburgh campus as low as possible. That remains our goal, but in our current circumstances, what now is possible will not be nearly as low as we earlier had hoped.
Our immediate focus, then, is to do everything we can to change those circumstances. That, most obviously, could happen if the Governor abandoned this approach and returned to the positions advanced in the Commonwealth’s first two applications for stimulus funding. In those documents, the state-related universities were identified—consistent with history, law, and widely shared perceptions—public institutions of higher education eligible for stimulus funding. Positions also could change either in the course of the budget negotiations that continue to slowly unfold in Harrisburg or through processes of review within the U.S. Department of Education, which exercises oversight in this area.
We believe we have demonstrated, in a series of submissions to the Department, that the stunning declaration that Pennsylvania’s state-related universities are not public is contrary to well-established law and is inconsistent both with earlier filings made by the Commonwealth with the Department and with other public statements by the Commonwealth upon which our universities have relied. We have further expressed our belief that this position also would destroy a carefully crafted statutory structure for the distribution of funds and would undermine one of the key purposes of the American Recovery and Reinvestment Act—to “mitigate the need to raise tuition and fees for in-state students.”
We feel confident about the merit of our legal positions and have enjoyed strong support from national higher education associations and other allies as we have pressed our case in Washington. At the same time, we do not know how the departmental process of review will unfold or what other factors might influence its decision-makers. Meanwhile, we are actively engaged in trying to protect Pitt’s interests in the budget negotiations in Harrisburg and also remain in contact with the Governor.
Alumni, faculty, staff, students, and friends all have stepped forward to offer help, and this probably is an occasion when we could benefit from an army of advocates. I understand that the Pitt Alumni Association, the University Senate, the Staff Association Council, the Graduate and Professional Student Assembly, the Student Government Board, and perhaps other organizations are engaging in outreach efforts.
In discussing these circumstances with others, it is important to note that the negative impact of these decisions will be felt well beyond the boundaries of our campuses. Especially in human terms, the economic news emerging in recent days has been bleak. A front-page headline from last Friday’s New York Times declared that “Joblessness Hits 9.5%, Deflating Recovery Hopes.” The opening sentence of the article reported, “The American economy lost 467,000 more jobs in June, and the unemployment rate edged up to 9.5 percent in a sobering indication that the longest recession since the 1930’s had yet to release its hold.” The lead editorial in the Pittsburgh Post-Gazette published that same day declared that the “latest economic figures paint a picture of gloom and raised a series of provocative questions about the success of the stimulus plan in the face of what it described as another disastrous month for the American economy.”
Unfortunately, as suggested by that editorial, there is a growing perception that federal stimulus dollars are being used mainly to bail out failed enterprises, with few readily apparent benefits flowing to the broader economy or to the American people. The federal investments targeting education under the American Recovery and Reinvestment Act fall into an entirely different category and were intended to do both. Those investments were designed to ensure that healthy and contributing institutions, like Pennsylvania’s state-related universities, would not fall victim to damaging cuts driven by current, and admittedly severe, state budget pressures. So long as the state itself maintains funding at mandated minimum levels, federal dollars are available, as a matter of national policy, to cushion against higher-level cuts. Immediate beneficiaries include “real people,” students protected from recession-enhanced tuition increases and everyone else touched by the local economies stimulated by university spending.
As the architects of the federal stimulus act recognized, public colleges and universities, and particularly public research universities, are critical both to the individual pursuit of the American dream and to the collective rebuilding of our troubled economy. As has been noted, this region’s record of success in transforming its economy has been widely praised, and Pitt has been one of the principal engines of progress. In these troubled times, it would be unfortunate—not only for the University and the constituents it directly serves, but also for the larger community—if the tools made available by the stimulus act were not utilized to help keep this region moving forward. For our shared good, hopefully, that will not happen, and, having secured more appropriate levels of support, we will be able to continue forging a record of accomplishment and impact here at Pitt.