University Times

University administrators are asking for budget cuts from unit leaders as they brace for a reduction in Pitt’s state appropriation.

In the wake of a decision by Gov. Edward G. Rendell to withhold some $7.25 million (4.25 percent of Pitt’s current appropriation) from the University’s June appropriation payment if state revenues continue to fall short of expectations, Vice Chancellor for Budget and Controller Art Ramicone said he and fellow super-responsibility center heads in turn are asking units for a one-time budget reduction.

The others are Chancellor Mark Nordenberg, Provost James Maher, Executive Vice Chancellor and General Counsel Jerome Cochran and Senior Vice Chancellor for Health Sciences and Dean of the School of Medicine Arthur Levine.

Budget office staff have been working to adjust Pitt’s $1.7 billion education and general (E&G) budget, taking into account items such as research grants, interest payments and financial aid commitments that can’t be cut.

Initially, administrators estimated a 2 percent cut to the E&G budget would be necessary. However, on Wednesday Ramicone revised that figure, telling the University Times it would be somewhat less — more than 1 percent, but less than 2 percent. A final number is expected later in the week.

Robert Pack, vice provost for academic planning and resources management, said deans were informed prior to the distribution of an Oct. 1 University Update that cuts would be needed. In the update, Nordenberg addressed the University’s economic challenges including the potential appropriation cut. The document stated, in part, that “senior officers will be acting to reduce education and general budget lines, which are supported by the appropriation, in ways that permit us to meet this looming state revenue loss.”

The message closed with a foreshadowing that additional belt-tightening may be in the University’s future. “… it does appear that more troubled times await us. Meeting the challenges that lie ahead will not be easy. Instead even more determined efforts and broadly shared sacrifices almost certainly will be required,” Nordenberg wrote.

Although the governor’s office has indicated that it intends not to carry out the fiscal year-end budget recision if revenues improve (see Sept. 25 University Times), in light of current economic signs University administrators are expecting the cut will be made. “We’ve got to assume we’re not getting that money,” Ramicone told BPC. However, “if by chance the commonwealth does not reduce our June appropriation payment, there would be no reason to take those monies from the units,” he said.

Pack told BPC the 4.25 percent cut essentially strips the University of its past two years’ appropriation increases. “Frankly, we don’t expect them to be restored,” he said. “We expect to start fiscal year 2010 at 2007 levels.”

Pack said the Provost’s office would absorb 20 percent of the cuts targeted for Provost area units, but that units will be asked to give back a fraction of their compensation budgets.

He said the Provost’s area has targeted compensation budgets rather than cutting “quality of life” improvements such as faculty travel or support that it has worked hard to improve in recent years or for capital expenditures such as for computing or library resources.

“Cutting a capital expenditure is essentially a permanent cut,” Pack told BPC. “Even though it’s temporary, you’re essentially forgoing a purchase that you can’t make up.”

Pack said compensation budgets can find unspent dollars not only in unfilled staff openings, but also because there typically are faculty members on leave whose compensation hasn’t been obligated totally for the year. Additionally, he said, “If you reduce salary, you get the concombinant benefit of reducing fringe benefits, so you’re getting a 35 percent ‘bonus,’ in effect.”

Richard Henderson, budget director for the Schools of the Health Sciences, said the administration there was awaiting exact figures from Pitt’s Budget office before deciding on a methodology for making its cuts.

Ramicone said he plans to meet his share of the budget cuts through savings from budgeted but unfilled positions. “If we simply delay filling positions for a few months, we’ll pick up our 2 percent,” he told BPC.

Speaking on behalf of the senior administration Tuesday, Ramicone said historically Nordenberg and Cochran have tended to make budget cuts in their respective units on a disproportionate basis “depending on priorities.”

Ramicone pointed out that unlike the Provost’s area in which faculty positions tend not to open up during the year, administrators in staff areas have more flexibility in making cuts from compensation budgets due to staff turnover throughout the year.

Looking ahead, a decreased state appropriation isn’t the University’s only financial challenge. The declining stock market’s impact on Pitt’s investment income also affects the E&G budget, Pack said, noting that “stresses on the operating budget are becoming multiple.”

In addition to the likelihood that Pitt will begin fiscal year 2010 with a lower state appropriation and less investment income, Pack said tuition also will be a concern, given the impact of the current credit crisis on families’ ability to borrow.

“It will be a challenging year,” he said.

In other BPC business:

• Ramicone answered BPC members’ questions about Pitt’s investments in light of the recent market turmoil. The University was not among some 1,000 schools with a stake in a $9.3 billion investment fund whose assets were frozen Sept. 30, but Pitt has invested in similar funds, he said.

“Our endowment is broadly diversified; it’s invested across all asset classes and sectors, so when anything blows up, you can be pretty sure one of our money managers is holding it,” Ramicone said. “But in terms of any undue concentrations or exposures, so far we’ve been able to run through the raindrops. We haven’t been in any funds that have been frozen, we haven’t been in any funds that have blown up, and in our operating investments we haven’t been holding any bonds that are now held up in bankruptcy like Lehman.”

Citing University Treasurer Amy Marsh’s banking background and appreciation for the value of liquidity, and a trustees’ investment committee review last December of Pitt’s short-term holdings, Ramicone assessed the way Pitt has weathered the current market turmoil. “I think it’s partly luck, partly having sophisticated staff and trustees who understood things weren’t headed in a good direction as long as a year ago,” he said.

• BPC chair Richard Pratt said the Office of Budget and Controller has agreed to survey units within the University on behalf of BPC regarding the existence of planning and budgeting committees and their procedures for informing employees about the procedure for appealing a pay raise decision. (See Sept. 11 University Times)

• Betsy Porter, director of the Office of Admissions and Financial Aid, has been invited to speak at the next BPC meeting, set for noon Oct. 31 in 501 CL.

—Kimberly K. Barlow