2004 audit of the University of Wisconsin System by the Legislative Audit Bureau

October 6, 2004

Testimony

Joint Legislative Audit Committee

Kevin P. Reilly, President

University of Wisconsin System

Thank you, Senator Roessler and Representative Jeskewitz. One of the great things about coming into this job was hearing from people nationally and internationally about how wonderful this university is. Thanks to the committee members who are here today to consider the findings of this report. We appreciate this opportunity to discuss it with you and answer whatever questions you might have. I think the oversight this committee offers is where democracy’s rubber meets the road, and I thank you for it.

I will lead off with a few remarks in the course of which I will call on my colleague, UW-Oshkosh Chancellor Rick Wells. After my brief remarks, I will turn to UW Regent President Toby Marcovich, and then return to conclude the presentation.  I am sure you will have questions and we are happy to answer them.

Let me begin by thanking Jan Mueller and her staff, Kate Wade, the lead auditor, for doing a thorough and professional job. We appreciate their professionalism and cooperation.

We embrace all four of the report’s recommendations and we intend to implement them. Let me repeat that: We embrace all four of the report’s recommendations and we intend to implement them. We will report back to this committee by February 1, 2005 on our specific proposals to reduce administrative expenditures and increase operating efficiencies in the next biennium. We’d like to work with Jan and her staff to consider how best to provide the information in a format that is the most useful for the legislature. I want you to know that I have also asked Bob Lang of the Legislative Fiscal Bureau for his input in that regard, and he has agreed to help.

I believe this process will improve the quality and usefulness of the financial and staffing information we provide to you.  At the same time, we want to work with you and your colleagues to remove bureaucratic barriers that prevent us from operating more efficiently in areas such as purchasing, position reporting and streamlining our building programs.

I am committed, as the new president, to making efficiency and openness two priorities of my presidency, and that is another reason I welcome this report, and it comes at a very good time.

We appreciate the fact that Appendix Five in the LAB report, which is on page two in the handout we’ve provided to you, shows that when we apply nationally accepted accounting models for “institutional support” that the federal government uses, the UW System has the lowest administrative expenditures among its 18 peer institutions in the United States – 6 percent compared to the national average of our peer institutions of 10.2 percent.  As you will note on page three of the handout, if we were at the national average, we would be spending $122 million more on administration each year.

We have no quarrel with the findings of the report. Over the time frame of the study, our overall university workforce has grown but it is critical to note that during this biennium alone, we have lost more than 600 state-funded positions. Overall our workforce has grown because, while our state funding has declined, our nonstate funding has increased particularly in the research area, as you can see on page four of the handout.

We are proud of that growth. It has resulted in more high-wage jobs for Wisconsin and, as important, it has allowed us to undertake vital public service and research work in areas like cancer research, nanotechnology and water quality that will have long-term benefits for Wisconsin taxpayers, all American citizens and the world. Note the examples of two scientists cited on Sunday’s front page of the Wisconsin State Journal – UW-Madison Professor Laura Kiessling and her husband Professor Ron Raines. They have created jobs for 52 people through federal grants and other funding sources they have attracted to Wisconsin. The story is included in the handout as well. It is the story of UW scientists working entreprenurially on cures for arthritis and Alzheimer’s. It’s a story that should make us all proud.

We very much appreciate this kind of entrepreneurial activity by our faculty and staff, and we want to encourage more of it. It gives our students more opportunities for research involvement and learning outside the classroom.  The more we can leverage state dollars to increase outside federal and private grants and gifts, the greater the benefits for Wisconsin. As Sunday’s coverage of the Wisconsin Technology Council report pointed out, academic research and development is an important industrial cluster for the state, generating more than $800 million and producing more than 31,000 jobs annually. This is a good thing for our state.

In the audit report, LAB did use its own method of assessing our administrative staffing, counting in administrative costs those positions that have supervisory responsibilities and those who perform some administrative duties. And let me say that I don’t have any quarrel with that. It’s fair enough for the audit bureau to get at this in the way they did. It did not distinguish between employees funded by state dollars, and employees paid for with nonstate dollars whose jobs are created through outside grants, gifts, contracts and fees. For example, no matter what the source of funding, the report, included under administrative costs, clerical employees, research project managers, secretaries, admissions officers, athletic directors, career counselors and other such employees – those whom most people would not automatically think of as university administrators.

There are no benchmarks by which to measure the LAB’s assessment of our administrative staffing against other universities. We want to be accountable. We want to do that kind of benchmarking. We cannot determine whether 15% of our budget spent on administration, under LAB’s analysis, is low or high. In talking with my colleagues in private industry, many do place their administrative benchmarks in their respective industries in the 15% range.  Page five in your handout shows some of the common industry standards in this regard.

As you all know, the university took a net GPR cut of $100 million in this biennium.  Just to put this in some perspective for you – that cut amounts to more than the entire annual GPR budget of UW-Oshkosh, UW-Green Bay and UW-River Falls combined.

The university’s GPR budget has actually declined when adjusted for inflation over the past decade which has driven our fee budget higher. The rise in other sources of funds has been even more dramatic.  Today we have 580 fewer state-funded employees than we did in 1989.  Our employee growth during the period of this LAB study has been almost entirely on non-state funds.  One important point to note is that it takes more administrative support to procure both federal and private gift dollars.

A real problem for Wisconsin and UW students is that those declining state funds and rising student fees represent the university’s core instructional budget. And yet, while our GPR dollars and positions have declined, our enrollments have increased.  We have accomplished that through achieving greater efficiencies. During the last round of state cuts, we made protecting instruction and student services a priority. Our campuses are doing more with less. My colleague UW-Oshkosh Chancellor Rick Wells will give you a feel for how we accomplished that – where the cuts come home – on one of our campuses.

(Richard Wells Remarks)

Thank you, Rick.  One area in which we need your help is in realizing administrative efficiencies as outlined in our recent Regent study, Charting a New Course for the University.  Our UW Board of Regents President Toby Marcovich will address some of those recommendations and salary issues.

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