Budget FAQs

Questions and Answers about the University’s Budget

1. How does the State of North Carolina fund higher education?
2. How does state funding factor into the University’s overall budget?
3. How are budget reduction decisions made on campus?
4. What are the total state cuts since the economic crisis hit?
5. How have the reductions affected the University’s academic mission?
6. What is the effect on the classroom?
7. What’s the impact on the University workforce?
8. What’s the role of private giving, and how are donors responding?
9. How is the University’s endowment performing?
10. How can the University continue to build buildings during a budget crisis?
11. How does Carolina Counts and the Bain & Co. study factor into the current budget-cutting process? What’s the long-term plan for improved efficiency?

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How does the State of North Carolina fund higher education?

About 56 percent of North Carolina’s $19.7 billion budget supports education (public schools, community colleges and universities). Funding to support the 17-campus University of North Carolina system is $2.5 billion or 12 percent of the overall state budget. Health and human services, including Medicaid spending, accounts for the second largest proportion of the state’s General Fund budget, at 23 percent.

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.

For the past four years, North Carolina has faced serious budget challenges because of the global economic crisis. Governor Perdue and the North Carolina General Assembly faced a $2.4 billion deficit for fiscal 2011-2012. By comparison, the revenue gap in 2010-11 was about $800 million. The extreme budget shortfalls during the past several fiscal years have resulted in reductions to all state entities. With education spending accounting for more than half of the state’s total expenditures and the increasing pressures on Medicaid, there have been significant cuts to education, including to UNC system campuses.

How does state funding factor into the University’s overall budget?

State appropriations and aid accounted for about 20 percent ($534.6 million) of Carolina’s $2.4 billion operating budget in fiscal 2010-2011. 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 a quarter 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 15,688 undergraduates and 2,100 graduate students (87 percent and 32 percent, respectively, of all undergraduate, graduate and professional students in 2010-2011). Last year, faculty in the college taught 86 percent of the University’s total undergraduate credit hours.

The University's overall budget is complex, as this pie chart produced in July 2011 for the Board of Trustees 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 2010-11 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, as they did this year, 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?

Throughout the economic crisis, the University has focused on protecting core academic and teaching programs.

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 2011, the UNC Board of Governors approved a 6.5 percent campus-based tuition increase at Carolina for the 2011-2012 academic year. As approved by the University’s Board of Trustees, Carolina set aside enough of the revenue 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 11th 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 and is the reason administrative departments have absorbed more cuts than academic units. During the 2011-12 academic year, however, the effect on the classroom has been noticeable. The number of course sections has dropped, and fewer seats have been available to Carolina students.

In the College of Arts and Sciences, where faculty teach 86 percent of the University’s total undergraduate credit hours, class sizes continue to increase. The number of classes with fewer than 20 students has decreased by 18.2 percent, while classes with 40 to 49 students increased by 22.5 percent and classes with 100 or more students increased by 17 percent.

The School of Journalism and Mass Communication, the only school-level journalism program among UNC campuses, has eliminated four class sections and increase enrollment levels in 23 sections of skills-based classes above the number recommended by the school’s accrediting organization.

Both the School of Nursing and the School of Social Work have cut key programs. Despite high demand for the nursing bachelor’s programs, the school has been forced to reduce enrollment in these programs by 25 percent and has had to curtail graduate clinical enrollments. Social work has eliminated two masters-level distance education programs in the state, and cuts to the Area Health Education Centers (AHEC) have decreased support provided to the state’s social workers by 19 percent.

The Kenan-Flagler Business School has lost five faculty positions, threatening the school’s ability to continue programs in finance and organizational behavior. In the Eshelman School of Pharmacy, where state funding has been reduced by 27 percent in the last four years, the primary effect has been felt in the school’s Professional Experiential Program.

Graduate student support has declined more than 15 percent, with the primary impact felt in teaching laboratories and discussion sections.

Despite the state’s 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 2010-11, 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 serious budget cuts. As deeper budget cuts take hold, however, some of those accomplishments could deteriorate.

What’s the impact on the University workforce?

Most University employees have gone without pay raises for the last four years while the costs of health insurance and other benefits have increased.

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 about 353 filled positions between June 2008 and July 2011. For 2011-12, a total of 493 positions were expected to be eliminated: 128 filled positions, 190 vacant positions and 175 part-time positions, including adjunct faculty. 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 $277 million in gifts in fiscal 2011. That was up 3.3 percent from the previous year's gift total of $268.1 million. In commitments – which include pledges as well as gifts – the University secured $305.6 million, up from $292 million in the previous year. 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. To date, donors have responded with more than $36 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 the University’s affiliated private foundations, are pooled in the UNC-Chapel Hill Investment Fund Inc. 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 UNC-Chapel Hill Foundation Investment Fund is the best available snapshot of the market value for the University’s “endowment.”

As of June 30, 2011, the market value of the UNC-Chapel Hill Foundation Investment Fund was $2.22 billion, reflecting a $278.7 million increase from the previous year. That increase in market value was mainly achieved through net investment gains of $306 million and net participant contributions of $87 million during the year. The increase in market value came after the fund’s annual endowment distribution of $114 million to support University academic programs and activities.

The UNC-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 some other campuses in the University of North Carolina system. The market value of the UNC Investment Fund on June 30, 2011, was $2.9 billion.

Click here for more information about the University’s endowment.

How can the University continue to build buildings during a budget crisis?

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. Current projects include the Bell Tower Development, which includes the Genome Sciences Laboratory Building; the Imaging Research Building; the Dental Sciences Building; and a recently completed expansion of Kenan Stadium. All are being paid for by previous state appropriations from the General Assembly, private gifts or other non-state University sources.

The Bell Tower Development, a mixed-use project, advances key concepts identified in the campus master plan. The development includes an already completed parking deck, a chilled water plant and a Genome Science Laboratory Building, part of a campus-wide research initiative. Other features include 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 building is part of an effort started in 2005 to support image-based biomedical research across the UNC system. The General Assembly has provided more than $243 million to design, plan and construct the building.

The Dental Sciences Building represents a previous commitment by the General Assembly ($92 million) and the University ($20.5 million) toward the total $118 million cost. The school has received commitments of more than $6.5 million from private donors. The project involved demolishing the previous dental office and dental research buildings to make way for instructional, research, academic and support spaces.

The expansion of Kenan Stadium is made possible by the private fundraising efforts of the Educational Foundation Inc. and the sale of premium seating. The current $70 million project, completed for the start of the fall 2011 football season, was scaled back due to economic conditions. The existing Kenan Field House and Pope Academic Center were removed 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 Carolina Counts to manage budget cuts as well as to make long-term, positive changes to campus operations.

In 2010, Carolina Counts began focusing on 10 areas identified by Bain for major improvements. The first year focused on three central units: information technology, finance and human resources. The second year is focused on the unit level – the professional schools and the College of Arts and Sciences, as well as seven central units.

And the University has incorporated the Carolina Counts team into the campus budget review and budget hearing process. Ultimately, it’s up to the deans and vice chancellors to recommend how best to manage the costs associated with programs and people in their areas. Carolina Counts is not prescribing specific actions, just helping to point out how to do things better.

As of January 2012, the University had completed more than 93 of the 154 projects identified. Savings identified and implemented from permanent state dollars total about $50 million.

The University is fortunate to have benefitted from an anonymous gift that made this project possible.