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June 10, 2010

Pitt’s FY11 appropriation: Déjà vu all over again?

Last year, Pennsylvania’s legislators were 101 days late in passing a state budget. With less than a month to go before the July 1 start of fiscal year 2011, could another state budget standoff be looming?

In spite of state legislators’ apologies and pledges not to repeat last year’s delay, sluggish revenues are feeding a growing state budget gap that could slow this year’s process.

The lack of a state budget delays the approval of the University’s state appropriation, which in turn delays the finalization of Pitt’s budget.

According to Pitt Director of News John Fedele, “Until the actual appropriation bill is formally passed in the House and Senate and signed by the governor, there is never a guarantee of funding at a specific level. It is fair to assume that the University will not finalize its FY2011 budget until Pitt’s appropriation bill is legally passed by the legislature and signed into law by the governor.”

Last year’s delay in the state budget and the University’s appropriation (which is approved separately by legislators after the general fund budget is passed) created a number of sticky situations for Pitt.

Administrators issued tuition bills for the fall term with the caveat that a surcharge could be imposed if state funding fell short for the year. (See July 23, 2009, University Times.) Pitt had to dip into its cash reserves when the flow of more than $15 million in state dollars each month was halted.

And the lack of a state budget kept Pitt from being reimbursed on time for more than $4.8 million in fall Pennsylvania Higher Education Assistance Agency grants credited to students’ accounts.

The budget standoff even delayed Pitt’s appropriation request for FY11, typically sent to the Department of Education in late September, because no current-year budget numbers were available.

Although the state’s FY10 general fund budget was approved in October, Pitt’s appropriation was held up amid wrangling over table games legislation.

A trustees committee enacted a contingent FY10 budget Dec. 14 after the House approved Pitt’s appropriation. The governor signed Pitt’s appropriation on Dec. 17 — 168 days after the July 1 start of the fiscal year, but Pitt’s entire board didn’t approve the fiscal year 2010 budget until its Feb. 26 meeting — eight months after the start of the fiscal year.

In February, Gov. Edward G. Rendell proposed a $29 billion general fund budget that increased spending $1.2 billion over the current $27.8 billion budget. The state House in March passed a budget bill (HB 2279), but Senate leaders balked at acting on it, taking issue with its revenue shortfall of more than $500 million — a gap that has since grown larger.

Legislative leaders began meeting with the governor last week, but hope for a budget before the June 30 end of FY10 is slim.

In a press conference that followed a June 3 session with the governor, Senate majority leader Dominic Pileggi (R-Delaware) labeled the meeting productive, adding that there is more of a willingness on the part of the governor to make timely passage of a budget a priority this year. “If the governor wants to have a budget done close to June 30th, it would require a degree of compromise by him and the administration towards the position of the General Assembly,” an attitude that was not apparent in the summer months of the 2009 budget impasse, he said.

Pileggi said Rendell acknowledged that the proposed  $29 billion budget is out of balance and that lower revenues would force reductions. Pileggi said spending cuts, transfers from funds outside the general fund and new taxes were discussed as ways to bring the budget back into alignment.

According to the state Department of Revenue’s most recent report, released June 1, earlier estimates of a $1 billion state deficit by the end of the fiscal year appear low. With only a month to go in the fiscal year, general fund revenues are $1.2 billion short.

Senate appropriations chair Jake Corman (R-Bellefonte) said the state’s balance sheet comes to roughly $27.5 billion; any spending above that would require new taxes or fund transfers. He said no specific cuts would be discussed until legislators determine how much revenue is available.

“There’s no sense in getting into ‘cut this’ or ‘cut that’ at this point in time until you figure out how much revenue there is available to spend and then do a spending plan that matches that,” he said.

Adding to the concern is the questionable status of $850 million in Federal Medical Assistance Percentages (FMAP) funding included in the governor’s budget revenue estimates. Congress has failed to bring the FMAP funding release to a vote and Pileggi said there are doubts as to whether there are sufficient votes to approve release of the funds. That could leave an additional $850 million budget hole for Pennsylvania to fill.

In the midst of this year’s budget woes, there may be a small bright spot for educational institutions.

Fears that Pitt’s state appropriation could be cut may be allayed — at least for the coming fiscal year. Strings attached to stimulus funding through the federal Department of Education require the state to maintain support for public institutions in FY11 “at least at the level of such support in FY 2006,” according to education department guidelines. That requirement can be waived if a state can demonstrate that it has provided for the fiscal year “a percentage of the total revenues available to the state that is equal to or greater than the percentage provided for that purpose in the preceding fiscal year.”

The state House already has passed an appropriations bill (HB 2293) for Pitt that includes $160.49 million in state support (the same amount as in Rendell’s budget proposal) and more than $7.5 million in American Recovery and Reinvestment Act (ARRA) stimulus funding.

While the state is bound (save extraordinary circumstances) to maintain funding levels in order to receive the stimulus funding, Pitt’s Vice Chancellor for Governmental Relations Paul A. Supowitz said that given the state’s budget crunch, it’s not likely the University will see an appropriation significantly higher than the amount allocated in the House bill.

Any reassurance the ARRA money brings may be short-lived. Supowitz said Pitt’s Governmental Relations representatives already have begun educating state legislators about the looming “funding cliff” that Pitt faces when ARRA funds expire in FY12 and encouraging them to begin addressing this issue proactively this budget year.

When it comes to Pitt’s appropriation, the difficulties span both the past and the present. In remarks to the House and Senate appropriations committees during budget hearings earlier this year, Chancellor Mark A. Nordenberg labeled the past 10 years “a lost decade” in terms of state funding for Pitt and Pennsylvania’s other state-related universities.

“During that period, the state’s general fund budget grew by nearly 40 percent; inflation increased by just over 24 percent; state support for community colleges rose by some 33 percent; state support for the State System of Higher Education increased by nearly 6 percent; and state support for Pitt increased by less than 0.3 percent. Also telling is the fact that actual commonwealth dollars invested in Pitt fell by more than 5 percent during this period, because some past state support was replaced by federal Medicaid matching funds,” he stated.

The University’s state appropriation now represents about 10 percent of Pitt’s budget, down from 32 percent of the budget in 1975 and 19 percent of the budget in 1995.

During budget hearings in Harrisburg earlier this year, House appropriations committee chair Dwight Evans (D-Philadelphia) spelled out the state’s situation. “It’s a matter of time that you may not be seeing any appropriation from the state. And it’s not anybody’s particular fault. It’s where we are today,” he told leaders of the four state-related universities. (See March 4 University Times.)

“One of the problems is history,” Supowitz said. “The bigger problem is the economy, the times we’re living through.” Big funding issues such as the state pension fund, roads and infrastructure are coming home to roost. “There are more needs with fewer resources to go around.”

Budget woes already have prompted several state-system universities, including Mansfield, Slippery Rock, Kutztown and Millersville to announce potential program cuts and layoffs in the upcoming fiscal year.

Penn State, which like Pitt is a state-related university, earlier this week announced it would combat lagging state appropriations through 10 layoffs and the elimination of dozens of positions through attrition in its College of Agricultural Sciences. A June 7 release from Penn State stated the layoffs are part of a 5 percent spending cut in all agricultural sciences departments for FY11 and that a 10 percent budget cut is planned for FY12. Flat state funding and rising costs are expected to create a budget gap of $11 million by the start of FY12, forcing the elimination of the equivalent of 160 positions in agricultural sciences.

Fedele would not comment on whether similar moves are being considered at Pitt, but belt-tightening has been ongoing. A salary freeze was put into effect for FY10 following mid-year cuts in the state appropriation during FY09. Since last fall, promotions and hiring (both for vacant as well as proposed new positions) require approval from super management center leaders. Filling of vacant positions is being evaluated on a case-by-case basis.

Fedele stated, “There cannot be any formal decisions on a salary pool and/or tuition levels until specific anticipated funding levels are provided by state government.”

—Kimberly K. Barlow

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