Contact: Anthony de Bruyn, (512) 499-4363

Date: October 25, 2004

Testimony before the Senate Finance Committee

Teresa A. Sullivan, Executive Vice Chancellor for Academic Affairs, The University of Texas System

AS PREPARED

Chairman Ogden, Members of the Committee:

Thank you for this opportunity to testify on behalf of the University of Texas System Administration.

Chancellor Yudof had a long-held commitment in Washington, DC…and he asked me to give you his best wishes for a successful hearing.

When you held hearings concerning higher education in March of 2003, you were dealing with a budget crisis as severe as any since the Great Depression.

Every indication is that we will not be confronting the same kind of situation in the coming session.

I know that no one is happier about that than the members of this committee.

We realize, of course, that even though budget prospects are improved, resources remain finite.

And, as you progress through your deliberations, we will do everything we can to assist your efforts and provide the information you request.

As Chairman Huffines indicated, I will provide you with a brief overview of the System and our concerns for the session.

And afterward, I will be glad to answer any questions about my testimony or our academic institutions.

The System

As you are aware, the University of Texas System is large and complex.

Nationally, we are among the university systems with the greatest size and scope.

System-wide, our preliminary enrollment figure for Fall 2004 is 183,000, an increase of 5200 students (or 2.9%) over Fall 2003. Each year, we graduate more than 33,000 students.

The System's large role in health care, health research and health education distinguishes us from other university systems in Texas. These functions employ more than half of the System's employees 88,000 employees, 63% of our operating budget and 65% of annual research expenditures.

We are very proud of the fact that administrative costs system-wide – at 8% – are, in comparison with our peers, among the lowest.

The university presidents will be discussing their institutions in greater detail, but I want to mention the common factors driving our budget numbers for this fiscal year and the next biennium.

Expenditures are being driven primarily by three elements: continuing enrollment growth and increased instructional cost, increased federally sponsored programs including research, and increased patient care.

The level of federally sponsored programs varies significantly among institutions.

Increased patient care applies only to our health institutions.

But growth and increased instruction costs are constant across the System.

While UT Austin is intentionally limiting their enrollment with each entering class, they experienced enrollment growth for the previous decade and their instructional costs also increase in response to market pressures.

This situation is intensified on our other academic campuses where enrollment growth continues apace…and is likely to be more pronounced as the System absorbs the rising population of young Texans who are seeking a university education.

Table 2 of our submission shows our biennial GR appropriation except for Tuition Revenue Bond funding. Between the last two biennia, we saw a decline of one-half of one percent. Table 2 also shows the potential effect of a five percent cut in GR.

Enrollment growth, however, poses a significant issue and would magnify the effect of a cut. As you can see in Table 3 of our submission, between the 2002-03 and 2004-05 biennia, enrollment as represented in full-time student equivalents grew system-wide at a rate of almost 14%.

Projections suggest that the growth rate between 2002-03 and the next biennium will be almost 23%.

Looking at Table 4, we combine the data from Tables 2 and 3 to show General Revenue Funding per full-time student equivalent.

Because student enrollment is growing, even a constant appropriation results in less funding per student.

The percentage change for GR funding per student from 2002-03 to 2004-05 is a negative 12.6% because of enrollment growth…and the projected change, incorporating the 95% of base funding for the next biennium, is minus 23.6%.

To simplify things a bit, for this last biennium, we have been dealing with a 14% increase in students and a nearly 13% effective decrease in GR funding.

Next biennium, we are looking at a cumulative 23% increase in students and a cumulative 23% decrease in GR funding.

The similarity of the numbers it not coincidental; it clearly illustrates that, in effect, all our institutions are a facing a double whammy of more students and less GR funding.

And, the problem is compounded by reductions in GR funding for Tuition Revenue Bonds and the rate of inflation for the biennium – which the Coordinating Board estimates to be 3.7%.

We are grateful that the Legislature gave us the ability to offset some of these increasing costs and catch up with previous shortfalls…by allowing our institutions to keep their indirect research costs and, with the approval of the Board of Regents, to set their own tuition rates.

For Fiscal Year 2005, designated tuition increases are expected to generate about $117 million. Table 1 in our written submission gives you a breakdown for how those additional monies will be spent.

Sixty-eight percent will be spent on faculty and financial aid. The remainder will be spent primarily for staff and for making more classrooms and laboratories available to our students.

Many of you have recently seen a new College Board report about rising tuition in public and private colleges and universities across the nation.

The report indicates that public institutions are increasing tuition in response to higher costs and declining federal and state support.

The good news that is buried in the charts accompanying the report is that…UT System institution costs remain among the lowest…and even our most expensive institutions are in line with the cost of similar public universities.

And, while the report also cites a decline in financial aid available to students, tuition flexibility has allowed us to set aside additional funds to help our students.

I want to emphasize two points that Chairman Huffines mentioned.

First, we are eager to keep tuition as low as possible. As Chairman Huffines indicated, last week we sent budget instructions to our academic institutions advising them that, for the next round of tuition proposals…"any increase greater than 5% for resident undergraduate tuition and mandatory fees requires special justification."

And second, meeting the goals of Closing the Gaps will require making the infrastructure and faculty necessary to achieve those goals a high priority.

System Administration

In contrast with these weighty objects of expense, System Administration represents a very small portion of the System budget.

We are proud that, despite increased demands on our staff, we have been able to reduce our expenditures. As of this fiscal year, our administrative costs come to about 34 cents for every $100 of total expenditures.

Our total request for GR funds is less than $800,000…and complies with the 95% limit established by the LAR policy letter.

As you know, System Administration also submits the LAR for the Available University Fund.

AUF appropriation requests for 2006 are estimated at $364.4 million and, for 2007, $396.2 million.

The AUF is used for three primary purposes: interest and principal on Permanent University Fund bonds, academic excellence funds for UT Austin, and general operations for System administration.

That concludes my presentation.

I hope these remarks have been helpful…and I thank the committee for its time and interest.

Tables 1 - 4 (PDF)

Testimony of James Richard Huffines, chairman, UT Board of Regents