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

Date: February 8, 2005

Testimony to the House Appropriations Subcommittee on Education (as prepared)

Mark G. Yudof, Chancellor, The University Of Texas System

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Chair Kolkhorst, members: Thank you for this opportunity to present testimony on behalf of the University of Texas System and to address our reactions to the General Appropriations Bill as filed. We want to say at the outset that we are pleased that the bill provides for enrollment growth in the instructional and operations formula and that the 5% reduction was not applied to formula items. Accounting for enrollment growth in this fashion is an important step forward – one that we applaud.

The subcommittee is well aware of the demands placed on higher education as a result of the Closing the Gap s initiative. According to the most recent numbers, higher education must accommodate about 1.6 million new students by 2015 and at the same time, improve the diversity and success of Texas students.

The rate of growth in our institutions has been pronounced. Since 2000, our full-time student equivalent (FTSE) enrollment has grown almost 14% and is projected to reach a cumulative 20% by the end of the next biennium. The table on page1 of our submission describes for you by institution our growth in full time student equivalents.

While it is gratifying to us that so many Texas students choose the UT System, accelerated growth presents serious challenges. General Revenue funding for our academic institutions has been relatively flat over the last several biennia (which you can see in the table on page 2), and more students means less money to spend per student.

In fact, as you can see in the table on page 3, between the 2002-03 and 2004-05, per student General Revenue funding decreased an average of 12.6% across the nine general academic campuses. The problem will be compounded by the rate of inflation for the biennium – which the Coordinating Board estimates to be 3.7% for the next biennium. That information is provided in the table on page 4.

Even though the introduced bill funds the debt service requirements for Tuition Revenue Bonds, that funding appears to come at the expense of the nonformula items system institutions requested. This approach constitutes a significant policy change of the state retreating from the longstanding practice and understood commitment for General Revenue funding of TRBs. The credit rating agencies tell us that any change to the state's long-standing policy of fully funding TRBs would threaten the bond ratings of our public universities, thereby increasing the cost of debt for needed projects. This proposed action comes when historically low interest rates make this an ideal time to finance the construction of new classrooms, laboratories and student housing.

In this connection, we would also point out that, while the baseline bill provides for enrollment growth in instruction and operation, there is no similar accounting for growth in the infrastructure formula. This means our facilities will not be able to meet the demand. We will continue to work with committee and LBB staff in reviewing the effects of the various formulas.

In terms of specifics about the effects of the baseline bill at our campuses – particularly the effect of reductions in nonformula funding – particularly the effect of reductions in nonformula funding – the presidents will have the opportunity to identify for you those effects. As you hear from them, please keep in mind that the aggregate increase of $9 million for the academic institutions conceals the differential effect on the individual campuses, and that some academic campuses suffer a dramatic reduction. In addition, when $26.9 million in money that would otherwise be available for operation is allocated to TRB debt service, there is an astounding $59.3 million reduction for our health campus operations. And that reduction comes on top of a $49 million reduction the previous biennium. Dr. Ken Shine will share with you on Thursday the details relating to health institutions.

As you review the baseline bill and our needs, I want the committee to be fully aware of our sources of revenue and how that revenue is spent. The chart on page 5 gives you a picture of where the money came from for the current fiscal year. As you look at the chart, note that the General Revenue Appropriations are 18.9% of the combined budgets – but 25.3% for our academic institutions. GR appropriations are critical because they support the core instructional mission of undergraduate education at all of our campuses. The relative dependence on General Revenue funds for instruction varies from campus to campus, but for some campuses GR is 80% or more of the funding.

In addition, as you look at the revenue sources, realize that many of those revenues are designated and must be spent for specific purposes and those purposes only. For example, the $1.9 billion from sponsored programs must be spent on those programs; we are unable to spend those revenues for other purposes. If we are given dollars to do research in microbiology, we cannot divert those funds to teaching English literature.

The next series of charts, on pages 6, 7, 8, and 9, shows where the money comes from and how the money is spent, respectively, for the academic institutions and then for the health institutions.

Finally, because of the profile of the issue of designated tuition, we have included a series of charts and tables relating to designated tuition. The tables on pages 10 and 11 show the extent to which tuition increases offset the loss of general revenue funding last biennium, in dollars on page 10 and per student adjusted for inflation on page 11. You will note on page 11 that, accounting for inflation, tuition increases did not fully offset the loss in general revenue; in fact, most of our academic institutions still have less revenue per student in double digits. The final chart, on page 12, depicts for you, looking at FY 05, how the designated tuition increases are being expended. Sixty-eight percent is being spent on faculty and financial aid. The remainder is being spent primarily for staff and for making more classrooms and laboratories available to our students.

In contrast with these weighty matters, System Administration represents a very small portion of the System budget. Our total request for GR funds is less than $800,000 and complies with the 95% limit established by the LAR policy letter.

We are proud that, despite increased demands on our staff, we have been able to reduce our expenditures. For the last biennium we cut administration expenditures by 5.7%. As of this fiscal year, our administrative costs come to about 34 cents for every $100 of total expenditures – and that is significantly down compared to 48 cents for every $100 that was spent for this purpose in 2001.

Because of economies of scale and other efficiencies, administrative costs system-wide are relatively low. For FY 05, budgeted general administration FTEs are 27.7 below the cap.

We provide many centralized services for our 15 institutions, such as facilities planning and construction. Many of those services are self-supported; in fact, 288 FTEs are budgeted in positions that are funded through user fees.

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 constitutionally limited to three primary purposes: interest and principal on Permanent University Fund bonds, academic excellence funds for UT Austin, and general operations for System Administration.

Recognizing that the subcommittee has requested brevity this morning, I will close there. And I will be glad to answer any questions that you have.

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