To: All Faculty & All Academic Professionals & All Civil Service Staff
           <everybody@illinois.edu> 
    From: "Nancy Cantor and Richard Herman" <provost@uiuc.edu>

Reply-To: provost@uiuc.edu
 Subject: MASSMAIL - Budget Update

Dear Colleagues:

It has been two months since we wrote to you about the campus budgetary 
outlook, and we want to update you on recent developments.  Many of you 
probably saw news stories last week concerning what the effects of possible 
budget cuts might be on our campus and across the UI system.  Our FY03 
budget has not yet been finalized.  But recent events have given us a 
better idea of what to expect, and our planning for possible cuts-which was 
just beginning when we last wrote to you-is farther along now.  We want to 
share these expectations and plans with you so that you will know what the 
situation looks like as of this moment.

As you know, in December we were asked to take a rescission for the current 
year that turned out to be $15.2 million, of which the largest portion was 
health care costs that in the past have been paid by the State.  At that 
time, we expected that this amount would become a permanent cut to our 
State budget for next year.

After our January letter to you, the State's financial situation continued 
to deteriorate, making additional budget reductions necessary.  These 
additional reductions were incorporated in the Governor's proposed FY03 
budget, which was presented in February.  Also during this time, both the 
UI system and the campus worked on identifying unavoidable new costs-such 
as price increases for utilities, liability insurance, and higher Medicare 
costs-that we would have to find a way to pay regardless of how the 
State appropriation turned out.  The result became, in effect, a base 
budget cut to UIUC for next year of $29.9 million, which is the amount that 
we are now planning to absorb.

We have been working with the deans and the heads of our administrative 
units, and consulting with student and faculty groups to plan how to 
protect our highest priorities while absorbing the expected budget cut.  In 
doing so, we have been guided by the principles outlined in our January 
letter to you:  finding ways to cope with our short-term financial 
circumstance that continue our forward movement, build on our recent 
accomplishments if at a slower pace than had been hoped, and protect our 
missions of teaching, research, and public engagement.

One of the conclusions that emerged from this planning process has been 
that we should absorb as much of the expected budget cut as possible by 
using campus-level funds in order to reduce the cuts to campus units as 
much as we can.  In addition, we expect to provide a limited amount of 
nonrecurring funds for the first year or two so that units do not have to 
absorb the full cut in only one year.  The cost of using campus-level funds 
is that we will have much less capacity to support special needs and 
requests than we have been accustomed to in recent years.  For example, we 
are committing the preponderance of the remaining Faculty Excellence Funds 
to absorbing part of the budget cut.  

We cannot begin to absorb the entire reduction from campus resources, 
however, and substantial cuts will have to be made to the budgets of all 
units.  The cuts we face are serious, and much as we would wish otherwise, 
they will have human consequences.  Most of our budget is in human 
resources-the talented and dedicated faculty and staff members on whom our 
enterprise most depends.  Across all of our academic departments, an 
average of more than 95% of departmental budgets is committed to salaries. 
 Thus, it is unavoidable that there will be some reductions in the numbers 
of faculty and staff.  Naturally, we will try to absorb these reductions 
through the normal process of attrition as much as possible.  Faculty 
reductions will be accomplished through attrition, but there may have to be 
some staff layoffs.

Budget cuts of the size we expect will have impact across the campus.  As 
the budget picture continues to clarify, we will consult with the deans, 
the heads of our administrative units, with the faculty Campus Budget 
Oversight Committee, and others about how the cuts should be made.  Based 
on this broad consultation, we will decide how to proceed.  Our decisions 
will be principled ones, as we promised in our earlier letter to you, and 
as a result, cuts will be made differentially to protect our highest 
priorities and most important values.  

We will try to protect our core missions by cutting budgets of 
administrative units more than the budgets of the academic units.  We have 
asked administrative units to plan for cuts of 5.0% to 5.5%, and academic 
units have been asked to plan for cuts averaging 4.0% to 4.5%.  For 
planning purposes, we have used much of the yield of the proposed tuition 
increase to address the budget shortfall "off the top."  Distribution of 
the remainder of the tuition increase to the academic units will ameliorate 
the effect of the budget cuts there, though the necessary cuts remain very 
significant.  Cuts to academic and administrative units will not be made 
across the board, but rather will reflect careful appraisal of priorities 
and opportunities to move ahead in some key areas.

The plan we have described assumes approval of the additional 5% tuition 
increase that has been proposed.  Added to the 5% increase previously 
approved for next year, the total tuition proposal is for a 10% increase.  
The increase will allow us to protect the full yield of the tuition 
surcharge for allocation to the educational enhancements for which it was 
intended.  Surcharge funds will enable us to provide a number of new 
faculty positions and other programmatic improvements even as units are 
cutting their budgets.  By such means, we hope to be able to continue to 
make progress in a number of critical areas, as noted in our last letter to 
you, while at the same time preserving some capacity to act on new ideas 
and make critical cross-campus investments of the kind that have been so 
important to our success as an institution.

We know that the short-term outlook we have described raises concerns for 
the whole campus community, concerns that we fully share.  Our recent 
success-including this year an upturn in the number of faculty members for 
the first time in more than twenty years-has given us a solid foundation 
for withstanding the cuts that will have to be made.  The principles that 
are guiding our planning will, as we have described, allow us to continue 
to make progress on a number of fronts during this period as well as 
positioning the institution to move ahead dramatically when the State's 
finances begin to improve.  In the interim, we will continue to 
aggressively pursue opportunities for increased private foundation support, 
research funding, and other sources of revenue.

It is likely that we will not be making final decisions until late May or 
early June.  By that time the General Assembly will have enacted a budget, 
and we will know final tuition policy as well.  We will keep you apprised 
of any significant developments as we monitor the situation and continue to 
develop campus strategy for dealing with the reductions.

Very truly yours,

Nancy Cantor
Chancellor

Richard H. Herman
Provost and Vice Chancellor
    for Academic Affairs 
This mailing approved by:
The Office of the Provost & Vice Chancellor for Academic Affairs

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