Almost to the day a year ago, I wrote to you about potential revenue shortfalls facing the State of Florida and the need to restrict travel, equipment purchases, and the hiring of new faculty and staff. These shortfalls were anticipated on the basis of lower sales tax and corporate income tax collections caused by several factors, including a weakened housing market, and lower consumer and construction spending.
As these revenue shortfalls materialized during the fall semester, we developed a budget reduction program that eliminated over $8.5 million from the 2007-08 fiscal year budget. As it became apparent that even more drastic reductions would take place in 2008-09, a budget reduction plan was set in place to review strategic priorities and to recommend comprehensive budget reductions that would be consistent with Florida Atlantic University’s mission, goals and objectives. The recommended budget reduction plan was presented to the Board of Trustees in May and was incorporated into the university’s 2008-09 operating budget. In the end, the 2008-09 Educational and General operating budget was reduced by $18.7 million as compared to the 2007-08 budget, which was partially offset by a 6 percent tuition increase for most students and an increase in lottery funding.
Unfortunately, state general revenue continues to decline, and we can expect that the numbers will come in under projections. For the months of March, April, May and June, revenue was $361.3 million below the estimated collections, estimates that were already adjusted downward. This translates to over a 4 percent reduction to estimated collections. To illustrate the magnitude of this issue, general revenue for June 2008 was $2.167 billion, as compared to $2.470 billion in June 2007, a difference of over $300 million for just one month.
In addition to reductions in general revenue, the largest component of our Educational and General budget, state lottery collections, also continues to slide. Lottery revenue, which in February was projected to increase by $120 million in 2008-09, was revised last Friday to be $34 million less in 2008-09 compared to 2007-08.
What does this information mean in terms of FAU’s 2008-09 Educational and General operating budget? Our operating budget, which was approved only a few weeks ago by FAU’s Board of Trustees, was based upon projected levels of general revenue, lottery and student fee revenues appropriated by the Legislature. Actual revenue collections are well below projected amounts, and unless there is an immediate turn-around of state revenue collections, the projected amounts used to develop our budget will not be achieved.
Based upon the lower than projected collections of general revenue and the revised downward estimates of lottery funding, FAU could experience additional budget reductions of over $12 million in 2008-09. It should also be noted that these amounts do not include any shortfalls that may arise from lower enrollments, as many of our part-time students struggle to balance work, family and educational demands. While the university did set aside reduction reserves of $4.3 million during the budget construction process, we would still need to identify approximately $8 million of additional budget cuts.
On the basis of the information we have today, and with the concurrence of President Brogan and Board of Trustees Chairwoman Nancy Blosser, we are continuing with the university-wide freeze on all travel, equipment purchases from operating capital or expense funds, and filling of line and OPS positions implemented last year. This freeze will apply to all fund categories, including educational and general, auxiliary and sponsored research overhead accounts. This freeze will not apply to contract and grant expenditures directly related to the performance of the grant. All funding categories of the university must be monitored and evaluated to ensure the optimal use of combined financial resources. The effective date of this freeze is Thursday, July 31, 2008. All expenditures not approved or encumbered as of this date are affected.
Obviously, there may be a need for exceptions to the freeze in order to meet essential and contractual obligations associated with our ability to meet the teaching, research and service missions of the university. On behalf of the President, the University Provost and Vice Presidents are authorized to approve only essential travel, equipment purchases and personnel appointments. Requests for exceptions should be submitted in writing to the appropriate individual.
We are fully aware of the hardships and difficulties this freeze will cause. We can assure you that this decision was carefully made following much consideration. Certainly, as we work on a comprehensive budget reduction program, the freeze will be reevaluated. By working together and identifying savings and efficiencies throughout the university, our goal to meet the key components of our mission without the need to reduce staffing and the quality of service to our students, faculty and staff will be realized.
Over the next few weeks, we will begin discussions on a contingency budget reduction plan using the same principles we utilized in the development of the 2008-09 budget reduction program. We will have comprehensive discussions on where and how these reductions will take place. Of course, we will continue to look for innovative ways to maintain services at reduced costs and other operating efficiencies. Then we will look at strategic ways to reduce the budget while doing everything possible to fulfill our key mission of educating students while protecting the university’s employee, financial and physical resources. This job will not be easy as each proposed reduction must be evaluated not only in terms of immediate savings but also in long-term benefits and costs.
We greatly appreciate your understanding of the difficult situation facing Florida Atlantic University and the State of Florida, and the need for this action. We will continue to update FAU’s Budget Q&A website as information becomes available.
