Questions and Answers about the University’s Budget
How does the State of North Carolina fund higher education?
More than half of North Carolina’s $20 billion budget supports education (public schools, community colleges and universities). Funding to support the 17-campus University of North Carolina system is nearly $2.5 billion or 12 percent of the overall state budget.
The North Carolina General Assembly makes adjustments to the UNC system’s funding based on revenue estimates for the upcoming fiscal year. In times of strength, the North Carolina General Assembly may provide funding for expansion items like new programs, capital projects or salary increases for state employees. When revenues are lower, generally the state legislature is only able to support increases in student enrollment and requirements to open buildings or make contributions to the state retirement program.
Like the rest of the country, North Carolina faced significant budget challenges because of the global economic crisis that began in 2008. State leaders dealt with a revenue gap of $800 million in fiscal 2010-11, followed by a $2.4 billion deficit for fiscal 2011-12. In 2012-13, the budget remained relatively stable, with no significant new reductions in state appropriations for higher education. The cumulative budget shortfalls during the past several fiscal years have resulted in reductions to all state entities, including the 17-campus UNC system. Carolina has taken approximately $235 million in total state cuts since 2008.
How does state funding factor into the University’s overall budget?
State appropriations and aid account for less than 20 percent of Carolina’s $2.4 billion operating budget. That support continued more than two centuries of investment in the University by Tar Heel taxpayers. Generous state support over the years is a key reason Carolina has become one of the world’s most highly regarded public research universities.
While state appropriations account for less than one-fifth of Carolina’s total funding, it is critically important revenue that is targeted to support instruction and key academic operations. The academic core depends heavily on these state dollars. Because of its extensive teaching responsibilities, the College of Arts and Sciences, for example, relies heavily on state budget allocations for its operating budget, not including contracts and grants. Most of the college’s permanent state budget goes for personnel, including faculty. The college is the University’s largest school, with more than 85 percent of all undergraduates and almost one-third of all graduate and professional students. Faculty in the college teach the majority of the University’s total undergraduate credit hours.
The University's overall budget is complex, as this pie chart from the 2012 Comprehensive Annual Financial Report shows. Besides state funding, Carolina relies on tuition and fees, sales and services such as patient care, research contracts and grants, athletics, and private support. Most of this funding comes with restrictions on how it can be used – such as a federal grant awarded to conduct a research study or a donor's private gift intended to benefit a scholarship program. Information about revenue sources and operating expenses is included in the University’s 2011-12 Annual Financial Report.
How are budget reduction decisions made on campus?
Executive Vice Chancellor and Provost Bruce Carney leads the administration’s annual budget planning process. His office directs the vice chancellors and deans on how to approach their budget plans. The provost’s office issues the actual target numbers that apply to specific cuts being made by the University independently or because of directives (like reversions to state government). Those target numbers may vary in size, based on the University’s priority to protect the classroom.
The vice chancellors and deans then decide how to take the cut targets for their units, with final approval provided by the provost (academic areas), vice chancellor for finance and administration (operations areas) or the chancellor.
Each vice chancellor and dean knows best how to minimize the effect of state budget reductions on people, programs and the quality of the education provided in his or her unit.
What are the total state cuts since the economic crisis hit?
What are the total state cuts since the economic crisis hit? By the end of fiscal 2011-2012, the University will have absorbed more than $231 million in total state cuts since 2008. That total does not account for additional funding that includes tuition revenue or enrollment growth funding, as the following graphs illustrate.
Until fiscal 2011-2012, reductions at Carolina have primarily been focused on administrative cuts and measures to improve efficiency. However, the cumulative impact of repeated reductions in state funding has made it impossible to continue directing reductions to non-instructional areas. Reductions for fiscal 2011-2012 have reached the level that they are now felt deeply in the classroom.
In fiscal 2011-2012, the University received a $100.7 million, or 17.9 percent, cut in permanent state appropriations. This fiscal year, that cut will be offset by $20 million transferred from UNC Health Care to help the University and the School of Medicine absorb the cuts. The University also is realizing the savings from the proactive 5 percent reduction in permanent funding Chancellor Thorp called for in January 2011. But the net effect of cuts of this magnitude on Carolina’s campus is significant, especially when considering the cumulative cuts during the past four years. And the $20 million shortfall for 2012-2013 will cause major losses in instruction. Click here for a detailed summary showing the impact of budget cuts at the University posted in September 2011..
How have the reductions affected the University’s academic mission?
Since 2008, the University has absorbed approximately $235 million in total state cuts. That total does not account for additional funding including tuition revenue or enrollment growth funding. Throughout the economic crisis, the University has made protecting core academic and teaching programs the priority. Until fiscal 2011-12, reductions were focused primarily on administrative cuts and measures to improve efficiency. However, the cumulative impact of repeated reductions in state funding has been felt acutely in the classroom.
Tuition revenue has been an important consideration in the ability to protect the classroom. In 2010, the General Assembly allowed UNC system campuses to retain the revenue from a $750 tuition increase to help offset the impact of budget reductions. That revenue was essential to the University’s ability to protect the classroom.
In 2012, the UNC Board of Governors approved a 9.9 percent increase in tuition and fees for 2012-13. As approved by the University’s Board of Trustees, Carolina sets aside enough of the revenue each year to cover the increase for undergraduates receiving need-based aid, as well as tuition remission and first-year in-state tuition support for graduate students. The rest supported instruction, advising and the libraries.
Keeping the revenue on campus for any additional future tuition increase is critical to preserving the University’s academic mission. Continued state cuts without additional tuition revenue will have an impact on the number and sizes of classes offered, library services that are critical to study and research, the number of faculty advisers for undergraduates and the level of support available in key student services units.
While the University has had to increase tuition to help offset these reductions, the campus has stayed true to its tradition of access and affordability. Carolina is still a great bargain for the quality of the education students receive. Even when combined with fees, tuition falls in the bottom quartile when compared with Carolina’s top peers for both undergraduate and graduate students. For the 12th consecutive time, Kiplinger’s Personal Finance magazine ranked Carolina the best value in American public higher education.
What is the effect on the classroom?
Protecting academic programs has been the University’s top priority; it is the reason administrative departments have absorbed more cuts than academic units. During the 2011-12 academic year, however, the effect on the classroom began to be noticeable. The number of course sections dropped, and fewer seats have been available to Carolina students.
In the College of Arts and Sciences, where faculty teach 87 percent of the University’s total undergraduate credit hours, class sizes continue to increase. Within the last few years, the number of classes with fewer than 20 students has decreased by around 18 percent, while classes with 40 to 49 students increased by more than 20 percent and classes with 100 or more students increased by 17 percent.
Many of the University’s graduate and professional programs also have been forced to eliminate course sections, adjust course enrollment and, in some cases, have lost faculty positions.
Despite the state’s recent economic hardships, the University is committed to providing a high-quality education for students and maintaining national prominence as a top public research-intensive university. In 2011-12, the retention rate for first-year students was 97 percent, the four-year graduation rate was 80 percent and the six-year graduation rate was 90 percent. That record puts Carolina among the top public universities in the nation, despite budget cuts. If deeper budget cuts take hold, however, some of those accomplishments could deteriorate.
What’s the impact on the University workforce?
After going without pay raises for four years while juggling increased costs in health insurance and other benefits, state employees received a 1.2 percent pay hike for fiscal 2012-13.
Personnel expenses, including salaries and benefits, are the single largest operating expense for the campus. The University aims to minimize the impact of layoffs through attrition and by eliminating vacant positions. However, the University lost 491 filled positions between June 2008 and July 2012. Information about the number of staff positions that have been eliminated and the University’s layoff policy is included here.
Despite these challenges, Chancellor Thorp and University leaders have consistently cited the strong commitment of employees to the University’s continued success during the downturn. Eighty-four percent of employees responding to a 2010 survey conducted as part of the University’s work with Bain & Co. believe in the University’s mission. Almost as many – 72 percent – believe that Carolina is a highly effective organization.
What’s the role of private giving, and how are donors responding?
One of Carolina’s greatest strengths is the remarkable loyalty and generosity of alumni and friends who make private gifts. Despite another tough stretch for the economy, Carolina received $287.4 million in gifts and grants in fiscal 2012. That was up 4 percent from the previous year's gift total of $277 million and marked the University’s second-best year in history. In commitments – which include pledges as well as gifts and grants – the University secured $331.4 million, an 8 percent jump from the previous year’s $305.6 million. Continued private support will remain critical.
Current private fundraising efforts include the Innovate@Carolina Campaign, a drive to raise $125 million to make Carolina a world leader in applying University-born ideas for the good of society. As of January 2013, donors had responded with $68 million in commitments. It’s important to remember that most private gifts are designated for a specific purpose, such as a scholarship or a professorship. These gifts fund vital aspects of Carolina’s mission, but the University doesn’t have wide latitude to use private gifts to help plug gaps created by state budget cuts.
How is the University’s endowment performing?
At Carolina, there is no one fund that constitutes the University’s “endowment.” Endowment funds, as well as most funds held by its affiliated foundations, are pooled in the UNC-Chapel Hill Foundation Investment Fund Inc. – or Chapel Hill Investment Fund – for investment purposes.
A small portion of the funds held by some affiliated foundations, however, is not invested in the Chapel Hill Investment Fund. That’s why the market value of the Chapel Hill Investment Fund is the best available snapshot of the market value for the UNC-Chapel Hill “endowment.” But it’s not 100 percent inclusive.
As of June 30, 2012, the market value of the Chapel Hill Investment Fund was $2.14 billion, reflecting an $80 million decrease from the $2.22 billion market value at the end of fiscal 2011. That decrease in market value is mainly the result of three components: a 2.1 percent net investment return on the fund during the year; a $119 million distributed from the fund to support designated University programs; and new private gifts and other additions made to the fund during the year.
The Chapel Hill Investment Fund invests all of its assets in the UNC Investment Fund LLC, which also includes assets allocated to the UNC Investment Fund from other institutions in the University of North Carolina system. The market value of the UNC Investment Fund at June 30, 2012, was $3.18 billion.
UNC Management Company officials stated that the 2.1 percent return generated by the UNC Investment Fund for fiscal year 2012 was a modest step forward in a year when positive returns were difficult to generate.
UNC Management company officials emphasize the Chapel Hill Investment Fund’s strong long-term performance results, with a 10-year return exceeding 8 percent, and ranking in the top quartile of university endowments.
Click here for more information about the University’s endowment.
How has the budget crisis affected campus construction?
Carolina was fortunate to have largely completed one of the nation’s most ambitious capital construction programs before the economic crisis hit. That physical transformation was made possible in part by North Carolinians’ approval of the $3.1 billion bond referendum for higher education in 2000 that benefitted the UNC system and community colleges. Through 49 projects, the bonds provided more than $515 million for renovations and new buildings at Carolina. In addition, the University leveraged state appropriations from the General Assembly with investments from non-state sources, including private gifts raised during the Carolina First Campaign. The resulting capital construction program exceeded $2.3 billion. More than 100 projects were completed.
Planning and financing arrangements for several major building projects already were under way or in process before the downturn in 2008. New buildings are supported with one-time funds earmarked specifically for that purpose. Recently completed projects include the Genome Sciences Laboratory Building, the Dental Sciences Building and an expansion of Kenan Stadium, with construction of the Imaging Research Building expected to be completed in 2014. All are being paid for by previous state appropriations from the General Assembly, private gifts or other non-state University sources.
The Genome Science Laboratory Building, part of a campus-wide collaborative research initiative, was dedicated in October 2012. The state-of-the-art facility is part of the Bell Tower Development, a mixed-use project that includes an already-completed parking deck as well as a chilled water plant, a pedestrian walkway, a new road helping better link north and south campus and storm water mitigation for the campus. The $239 million project is being financed by state appropriations, receipt-supported activities including parking and other non-state University sources.
The Imaging Research Building is a research laboratory facility housing the Biomedical Research Imaging Center (BRIC), research labs, state-of-the-art equipment and a consortium designed to advance the rapidly developing science of biomedical imaging. The General Assembly has provided more than $243 million to design, plan and construct the state-of-the-art facility, part of an effort started in 2005 to support image-based biomedical research across the UNC system. When the building is completed, more than 10,000 square feet of space is expected to be dedicated to the Department of Biomedical Engineering, a joint partnership with North Carolina Sate University.
The Dental Sciences Building, which opened in April 2012, involved demolishing the previous dental office and dental research buildings to make way for expanded instructional, collaborative research, academic and support spaces. It represents a previous commitment by the General Assembly ($92 million) and the University ($20.5 million) toward the total $118 million cost, with private donors contributing more than $6.5 million.
The recent $70 million expansion of Kenan Stadium was made possible by the private fundraising efforts of the Educational Foundation Inc. and the sale of premium seating. The project included removing the former Kenan Field House and Pope Academic Center to make way for the Loudermilk Center for Excellence (which includes the John W. Pope Student-Athlete Academic Support Center) and The Blue Zone (premium seating).
How do Carolina Counts and the Bain & Co. study factor into the current budget-cutting process? What’s the overall plan for improved efficiency?
Carolina Counts is a critical project during economic times like these. The University is taking what the campus has learned from the analysis and data Carolina Counts has provided to manage budget cuts the last few years as well as to make long-term, positive changes to campus operations.
Carolina Counts has worked with campus units to suggest initiatives related to streamlining cost structures in both unit and central functions. It analyzes and makes available comparative operational information through the OpSmart comparative tool, identifying best practices, helping to simplify administrative processes and providing a model for shared services.
Ultimately, it’s up to the deans and vice chancellors to decide how best to manage the costs associated with programs and people in their areas. Carolina Counts does not prescribe specific actions; it provides the analysis necessary for administrators to make informed decisions.
As of January 2013, the University had completed more than 111 of the 165 projects identified. Savings identified and implemented from permanent state dollars total more than $54 million.
Carolina Counts was initiated by Chancellor Holden Thorp to carry out the key recommendations made in 2009 by the Bain & Co. business consulting firm and funded by the UNC-Chapel Hill Foundation. After taking a hard look at the campus operating structure, processes, staffing and expenses, the firm offered high-level ideas about how to make Carolina’s complex organization more efficient.
It plays a key role in the University’s budget strategy by serving as a resource to help make wise, informed decisions that lead to administrative cost efficiencies.
Since January 2010, Carolina Counts has engaged the units, schools and departments to delve into options for cost savings in the 10 areas identified in the consultant’s report. Working with campus leaders, Carolina Counts has explored and identified operational improvement initiatives and ways they could be implemented. As of January 2013, 111 of 165 initiatives have been completed, resulting in more than $54 million in reduced recurring annual state costs.