Fitting the Pieces Together:
the UW System budget puzzle

The University of Wisconsin System is a huge and complex enterprise, with 160,000 students, nearly 30,000 employees — and a budget nearly as large as the state of Rhode Island's. In light of Wisconsin's recent budget deficit, and legislative proposals to cut the university's budget by as much as $108 million, here's a primer on the UW System's spending plan.

By Linda Weimer

Survey after survey shows that the University of Wisconsin System has a lot of respect and support among the general public. People feel good about the university and proud of its accomplishments.

But they don't understand it very well. Legislators don't understand it very well. Perhaps we don't understand ourselves very well.

As Wisconsin and its elected officials grappled with how to close a $1.1 billion gap in the state's budget, proposals to cut the UW System's budget ranged from $20 million to $108 million.

Gov. Scott McCallum proposed a $51 million cut to the UW System, and the Regents pledged to manage that cut.

But things got a lot more interesting as the budget repair bill moved through the state legislature. The Joint Finance Committee cut an additional $20 million from the UW budget and the Assembly took the overall UW cut from $51 million to $108 million. The Senate passed a version of the bill that puts the UW cut at $20 million - less than the governor's recommendation.

This would essentially restore the university's economic stimulus initiatives and enable the UW to enroll its full class of 132,300 full-time equivalency students this fall.

Assurances from Senate leaders and Governor McCallum that the deepest cuts to the university would be addressed enabled the Board of Regents to lift the admission freeze it imposed in March and authorize the campuses to admit another 5,500 FTE students.

During this process, we have gotten the question: "Why is a $100 million cut so bad when the UW System has a $3.3 billion budget?"

I want to spend some time answering that question. One thing we've all learned through this experience is how little our budget is understood, at many levels.

The March Regent action to pause the admissions process was really about living within the university's means. What was on the table was a cut that represented one-eighth of the UW's state operating budget. It's clear that many people don't grasp why that would be a problem, so let's explore that here.

The UW System has a very complex budget—funds come from many different sources, and those funds are targeted for very specific purposes. It is complex also because the university has little control over the largest elements in its budget—state general purpose revenue (GPR) and student tuition and fees. And it is complex because the UW has 15 separate institutions that each manages its own operating budget for maximum efficiency. In fact, 99 cents of every state GPR dollar goes to the campuses. One penny is used to help them operate more efficiently.

Figure 1: Text Only Description

The university's budget has grown more complex through the years. Where once the UW was run primarily on student fees and state GPR dollars, that is no longer the case. Over the past 10 years, GPR dollars have remained essentially flat when adjusted for inflation. Meanwhile, funding from tuition and fees and from all other sources has gone up.

Figure 2: Text Only Description

When the UW System was founded 30 years ago, the state provided half of its operating budget—now it provides now less than one-third.

During the past 25 years, higher education has become a lower state priority. Just in the last decade, the overall state budget has increased 74 percent. Meanwhile, the UW's GPR budget has increased 37 percent. The biggest growth in state government spending has been in corrections, K-12 education and local government aid.

Figure 3: Text Only Description

So if higher education is shrinking, what is growing?

State agency growth as a percent of the total state budget has increased substantially, but the UW System has not kept pace. Why is this a problem?

It's a problem because the university is one of the few levers the state can use to fuel state economic growth. UW graduates work for Wisconsin businesses, and faculty and staff assist local businesses and help spin off successful companies.

It's a problem because the state depends heavily on UW graduates to fill its workforce needs. Just two examples: 9 out of 10 registered pharmacists in Wisconsin are UW graduates. Sixty-eight percent of Wisconsin's K-12 teachers are UW graduates.

Figure 4: Text Only Description

There has been a lot of talk about the university being inefficient. Some feel the UW could absorb these cuts by simply trimming the fat.

Efficiency and accountability are important priorities for the Board of Regents, and the UW is the most efficient university system in the nation. Using national data to measure administrative costs, the UW spends about half of what its peers in other states spend on administration.

Figure 5: Text Only Description

With that efficiency, the UW System actually saves the state and students about $115 million a year. This enables the university to serve about 15,000 more students than its peer universities serve with the same dollars. And this has been done despite $55 million in cuts to the university's base budget during the last decade.

Base Cuts to UW State Funding

* Additional proposed reduction in Governor's Reform Package: $10,097,000

Figure 6: Text Only Description

But isn't public higher education being cut throughout the nation?

Yes, but Wisconsin's cuts over the past two decades have gone deeper. Only one Midwestern state - Ohio - has actually had an increase in higher education funding while Wisconsin and Minnesota have lost the most ground.

Figure 7: Text Only Description

With this context, let's come back to the question of why a $100 million cut to a $3.3 billion annual budget is so problematic.

The UW System's funding comes from five general sources—the federal government, student fees, the state of Wisconsin, auxiliaries and gifts, grants and contracts. Funds that are received from these entities are, for the most part, targeted for very specific areas.

The bulk of funding from the federal government goes to research, extension and outreach and student financial aid. Funding from gifts, grants and contracts also largely supports research and public service. Auxiliary funding is used to operate residence halls, student unions, cafeterias, athletics, printing centers, parking, bookstores and the hospital.

The major sources of student services and instructional support—that is, the day-to-day teaching in the classroom—are state funding and student fees.

Of the university's state funding, a portion is restricted and can only be spent on specific areas designated by statute such as debt service, utilities, laboratory and classroom modernization.

So state funding controlled by the university represents about $893 million. Of that, roughly 60 percent goes to instruction and student services. The rest is spent on physical plants, libraries, technology, farm operation, research, financial aid and administrative support like payroll, personnel, and fiscal management.

This is the key number—$893 million in state support.

That is why a $108 million cut to the UW System would be so damaging—it represents roughly one-eighth of the university's state operating budget.

Figure 8: Text Only Description

The other constraint is the limited degree to which Regents control the fee side of this equation. The Regents set tuition for some categories of students but resident undergraduate tuition—the bulk of the UW's fee budget—must be approved by state legislators.

Another complexity of the university's budget is that people comprise about 83 percent of its expenses. When the budget is cut significantly, ends cannot be met without cutting faculty and staff. And when the university cuts "people," it reduces its instructional capacity to serve students. And good jobs are eliminated in Wisconsin.

That is why enrollment is critical to the funding equation. The one thing the Regents can and do control is how many students they let in the door.

Instruction depends on GPR support and student fees. When state support declines and tuition growth is frozen or capped, students are robbed of the resources that go to serving them in the classroom, the lab, the library and residence halls.

The university could let quality slide and continue to take all the students who want to enroll. Some may remember when the UW System did that in the late 1980s. No one liked the results. At that time, there were students who couldn't get the classes they needed and had to stay in school an extra semester or more just to get their degrees. No one wants that to happen again.

This is why the Regents took action in March to pause and assess the enrollment commitments—to ensure that the UW provides a quality education to the students who are coming to its campuses this fall.

But this is more than a budget issue for the state of Wisconsin. This is an issue of state priorities. Going forward, we all need to make the case that an investment in the University of Wisconsin is a good investment for the state.

We are critical to the state's workforce—82 percent of our resident graduates stay and work in Wisconsin; nearly 20 percent of non-resident graduates stay and work here.

The UW System, the chancellors and the regents have been working hard on economic development issues. Why?

There are many troubling trends in this state:

• Per-capita income is below the national average and below our peer states.
• The percent of the adult population with college degrees is below the national average.
• The state population is aging.
• Wisconsin ranks in the top 10 in personal income tax rates.
• But it ranks dead last in the nation in a number of important arenas:
  • Federal dollars brought into the state. One of the few bright spots is research and development funding to UW-Madison.
  • Number of college graduates we recruit into the state's workforce.

But the state has a lot of positives, too: great work ethic, good quality of life, and a terrific educational system.

To call attention to these trends and to begin to map a course for the future, the Regents and UW System have convened two economic summits over the past two years, and Economic Summit III will be held this Oct. 14-16. The UW's budget request also has been built around economic stimulus, including more training in high-demand, high-tech areas and more access to the UW System.

It's discouraging that in spite of this, some state leaders proposed draconian cuts to the UW System. But this experience can be used as a launching point to talk about the importance of university funding in the next biennium.

This budget process is about state priorities. Wisconsin has progressed far as a state because in the past, higher education was a top priority.

With Wisconsin's economy at the crossroads, it is time for our state to recommit itself to public higher education and make it a priority again.