Ohio State seeks ways to increase revenues, cut costs

COLUMBUS – Leaders of The Ohio State University are preparing strategies to help the university address its long-term financial resource needs to implement the Academic Plan in the face of ongoing uncertain state support for higher education. The plan focuses on savings, cost avoidance and seeking additional resources in development and research funding.

Executive Vice President and Provost Edward J. Ray and Senior Vice President for Business and Finance William J. Shkurti told the university’s Board of Trustees today (2/7) that Ohio State must find new ways to increase revenues and reduce costs, so that more revenues do not come from tuition increases and state support alone. The goal is to identify at least $20 million to $25 million in savings and cost avoidance over the next five years.

“Ohio State has established a good track record in managing its costs, but past achievements are not sufficient to meet our future needs,” Ray said. “At a time when growth in state support is small or decreasing, it is important to identify revenue resources and cost reductions to meet academic goals without an over-reliance on tuition increases.”

During the last fiscal year, Ohio State absorbed a $28 million loss in state funding that resulted in a reduction of nearly 600 positions. Now, with the state’s tax revenues continuing to falter and a slow recovery mirroring that of the nation, Ohio State cannot rely on state support as the only method to finance the improvements called for in the Academic Plan, the university’s blueprint for becoming one of the world’s top public research institutions.

On the other hand, the university cannot and will not lay the burden solely on the shoulders of its students through exorbitant tuition hikes, Ray said. Published reports that the university is planning a mid-year tuition increase are inaccurate, he added.

Shkurti said the Academic Plan calls for administrative cost reductions of $3 million to $5 million and revenue increases of $65 million to $85 million in one-time funds through fiscal year 2006. “These goals will be met or exceeded in this time period, but this still is not likely to be sufficient to meet our needs in the years ahead.”

Among the plan’s priorities are recruiting and retaining outstanding faculty and staff, funding for scholarships, and continued improvement of the student experience – through greater course availability, increased access to faculty, better academic and career advising, improved access to informational technology, and additional opportunities for learning outside the classroom, including the creative work and research of the faculty that will enrich the future for the entire university.

“This is not a continuation of business as usual, but a significant commitment to make our undergraduates some of the best prepared in the world,” Shkurti said. “These are the kinds of steps we want and need to make to better prepare Ohio’s future teachers, entrepreneurs, engineers and public servants.”

Ray laid out for trustees a one-year plan to raise additional revenues by implementing a stronger and more aggressive agenda to win federal research funds, increasing extramural sponsorship of research and cost-recovery rates on sponsored research, expanding opportunities for private giving, and selectively expanding programs, such as distance learning, as well as entrepreneurial partnerships.

At the same time, Shkurti said the university will continue to cut costs by taking advantage of lower interest rates to reduce borrowing costs, using changes in energy markets to lower utility costs, and reviewing core administrative processes on capital projects and purchasing, for instance.

“Our size and diversity give us a comparative advantage to formulate unique sources of additional income and cost reduction,” Shkurti said. “As we go through this process, we need to remember that achieving cost savings is a long-term, continuous process and not a one-time big splash.”

But as the university begins this long-term process, it is also facing significant short-term budget issues with the state, Shkurti said.

To address a $720 million current-year budget deficit, Gov. Bob Taft last month ordered a 2.5 percent budget cut, which means that nearly $3 million in university line items are on the chopping block, but he exempted the state share of instruction, which is the source of most of the university’s state support. Taft also made clear that if his plan for balancing this year’s budget is not approved by the General Assembly by the end of February – a plan which includes not only the 2.5 percent cuts but also the approval of so-called “sin taxes” on cigarettes and alcohol as well as a package of various new sales taxes – higher education’s state share of instruction and other primary and secondary school funding would be reduced by $175 million yet this fiscal year.

For Ohio State, such a cut would mean the loss of an additional $7.6 million in state subsidies by the end of the academic year. The instructional subsidy makes up the lion’s share of state support to the university and a cut of $7.6 million is significant, Shkurti told trustees.

Illustrative of the size of the cuts, he said $7.7 million is the equivalent of 153 positions paying $50,000 in average salaries and benefits; or 1,697 class sections at 45 seats per class; or 1,407 full-ride undergraduate tuition scholarships for Ohio residents. “We would never create revenue by making cuts in any one key area like that, but it does help show the magnitude of what we are facing,” Shkurti said.

Ray agreed. “Although more resources do not guarantee results, success in acquiring resources is critical to the success of the Academic Plan. Success doesn’t come easily or without time and commitment. It still will require a strong base of tuition and state support.”