This year’s $3.3 million deficit will be covered through budget revisions and internal reserves.
UPDATE: Ohio University responds to budget deficit projections
Ohio University stands by President Roderick McDavis' statement that OU is in "strong financial health," according to Bethany Venable, an OU spokeswoman, in response to a previous Post report. She said OU has revenues beyond tuition and other fees to cover any shortfall.
"We would never present an operating budget with a $24 million deficit to the Board of Trustees," she said in the email.
That figure is drawn from a new way the university budgets, Venable said. The next Board of Trustees meeting is Jan. 22.
Venable said OU is committed to paying for its "strategic priorities," including increased employee compensation, investments in deferred maintenance and new construction, and scholarship packages.
But the money to cover the costs of those "priorities" has not yet been identified.
"There is an expectation of additional revenues generated from program growth and expansion for which the colleges are still working on projections," Venable said in the email.
That reflects a recent shift in university budgeting, called "responsibility centered management," in which colleges assume financial responsibility for the revenues and costs. The university is looking for entrepreneurial successes in the colleges to generate new money.
Until those revenues are identified, that leaves the university waiting to determine how it will cover increased costs.
— Dec. 18, 2015.
Original story
Next year, Ohio University is projected to fall $24 million short of its financial needs.
That gap may threaten the university’s plan to raise employee salaries.
Documents discussed during last Friday’s budget planning council meeting show the university has projected $24 million more in expenses than revenues for the 2016-17 academic year. OU also projected a more than $3.3 million deficit for this year.
Officials cautioned the numbers are preliminary. The shortfall contrasts with a statement from OU President Roderick McDavis at a Board of Trustees meeting in October, when he said “our university is in great financial health.”
Higher costs stem from decisions made by the board to raise faculty and staff salaries and benefits. Along with increased compensation, more money for scholarships and debt payments will also increase costs, documents show.
Combined, those three factors are projected to increase OU’s operating costs by $17.6 million next year, nearly two-thirds of the total shortfall. In contrast, the tuition and fee increases the council voted to recommend at last Friday’s meeting would only add $3.4 million.
OU does not have the cash to cover some of its “wish list,” or goals set by top administrators, which include:
• Salary raises for faculty and staff;
• More money to cover employee health insurance;
• Better scholarship offers for new students;
• Increased debt payments to pay for new construction.
That assessment comes from John Day, associate provost for Academic Budget and Planning and a longtime university budgeter. “The amount of money that’s going to come in is far smaller than the appetite for stuff we want to spend it on,” he said.
But those investments are all in “the best interest of the institution,” Beth Quitslund, chair of Faculty Senate, said.
Day said double-digit, million-dollar deficits are not uncommon during OU’s budget planning phases, but $24 million is substantially larger than normal, he and other sources added.
This year’s $3.3 million deficit will be covered through budget revisions and internal reserves, Day said.
{{tncms-asset app="editorial" id="9d06f54a-a053-11e5-bd18-135b434fa6ab"}}
Employee compensation as the main driver
On its own, higher employee compensation costs, which include faculty and staff raises and increased costs for their health insurance, are projected to cost OU an additional $11.7 million next year.
Day told The Post everything is on the table. But scholarship programs and debt payments — other, smaller components of the projected shortfall — seem less likely to take a hit.
Next year, nearly half the $2.8 million OU plans to use to pay down debt will flow to paying off a century-long, $250 million bond taken out last year — a payment that must be made, Day said. Other payments, such as paying off debt related to renovations of McCracken Hall on East Green, are also required.
Future projects, including renovating Clippinger Laboratories and Seigfred Hall, would further increase the university’s debt payments.
The university recently rolled out a new scholarship model that costs more than the previous model but is seen as a driver for continued enrollment success and, therefore, increased tuition dollars, Day said.
He said OU has calculated that every 14 cents spent on a scholarship equals 86 cents in tuition revenue by attracting a new student. Cutting back on scholarship money would mean lowering enrollment.
That leaves faculty compensation, which is nearly half the $24 million shortfall. Projections peg university spending at slightly more than $700 million this year.
The case for the “wish list”
“(Those) are not things we’ve committed to, but they’re not aspirational either. They’re things we need to do,” Quitslund said of compensation, scholarships and debt for buildings. She said a key reason she voted in support of a tuition increase at last Friday’s budget planning council meeting was to ensure better payment of faculty and staff.
University plans undoubtedly indicate Quitslund has a point.
The university has a massive deferred maintenance backlog that fluctuates at levels of several hundred million dollars. The century bond was taken out, in part, to help lower that backlog. The university continues to tout its increased enrollments, driven partly by its scholarship model. When it comes to compensation rankings, OU is keenly aware of its place behind peer universities. Raise pools and compensation plans aim to increase how well OU’s employees are paid compared to their peers.
Increases in state appropriations — estimated to add about $5.6 million — are already built in to next year’s budget, meaning help in closing the gap is not likely to come from Columbus, Day added.
{{tncms-asset app="editorial" id="db7759f8-99d9-11e5-b749-a74f34c4f177"}}
Echoes of the past
The projected $24 million deficit reminds Joe McLaughlin, an associate professor of English and chair of Faculty Senate’s Finance and Facilities Committee, of financial difficulties that followed the recession.
At last Friday’s meeting, McLaughlin said he is concerned OU will support men’s basketball and football but cut academic programs.
“The question, as always, is whether or not they’re going to do what they need to do in a way that reflects the values and the mission of the university,” McLaughlin said.
A deficit projection does not guarantee the university will face a shortfall. But the numbers indicate OU’s budget planners face a daunting gap. The 1.7 percent tuition increase for incoming freshmen would raise $1 million, a fraction of the $24 million shortfall — a deficit greater than the cost of running OU Intercollegiate Athletics.
Day said it is the first year OU’s colleges provided their own budget estimates, meaning those projections could be higher or lower than past years.
OU’s budget planners will highlight the gap at January’s Board of Trustees meeting before continuing discussions about how to fill the hole in future budget planning council meeting, Day said.
“What this is saying to us is, if we do everything everybody wants to do, it proves the point it all doesn’t fit,” he said. “We’re going to have to do some prioritization.”
dk123111@ohio.edu | @DanielleRose84
dd195710@ohio.edu | @WillDrabold
