The Commonwealth of Pennsylvania has notified Temple University that 4.25 percent of its state appropriation for 2008-2009 has been put on reserve. This presents the university with a potential reduction of $7.5 million from the current operating budget.

The move is part of a number of measures, totaling $200 million, recently announced by Gov. Edward Rendell to maintain a balanced budget for the commonwealth in light of the current unstable and deteriorating economic conditions. In addition to the $200 million reserve in spending from the state budget, the governor has implemented a state employee hiring freeze and ban on all out-of-state travel by state employees. These restrictions do not apply to Temple employees.

On top of the weakening national economy, the crisis on Wall Street and rising unemployment in Pennsylvania, state revenue collections are 4.7 percent ($281.4 million) below projections, and these shortfalls are expected to continue. There is concern that more cuts will follow because the decline in revenue now exceeds the amount that was reserved.

The 4.25 percent cut to the state appropriation, which amounts to $7.5 million, is one percent of Temple’s $775 million operating budget. If affected, the total appropriations received by the university this fiscal year will be a 2.8 percent reduction from last year’s appropriation.

To prepare for the potential reduction in payments from the commonwealth, President Ann Weaver Hart and Senior Vice President, Chief Financial Officer and Treasurer, Anthony E. Wagner have developed a budget reduction plan to keep the university in good financial health.

“Salary and benefits are the major cost elements in our budget, comprising two-thirds of our costs. Consequently, we’ve asked the vice presidents to reserve $5.9 million from their compensation budgets,” said Wagner. “We need to reduce our salary and benefits costs.”

Additionally, the university is taking back a 2 percent inflationary increase, or $1.6 million, that was given to all schools and colleges and some administrative units in the 2008-2009 budget for non-compensation related costs, such as office supplies, equipment and books.

At this time, Temple’s regular schedule of payments from the commonwealth will not be affected; rather the $7.5 million has been placed in reserve. The governor will determine in the coming months whether to implement the cut depending on how the U.S. economy weathers the current chaos in the financial markets. The same percentage was reserved from the budgets of Pennsylvania’s other state-related universities: Penn State, University of Pittsburgh and Lincoln University.

More difficult work lies ahead as Temple prepares its case for increased state support in the years to come. It is critical to ensure that the 2009-2010 appropriation is based on Temple’s original appropriation for this year, rather than the new downward adjusted value. The university’s most recent budget request to the Pennsylvania Department of Education for 2009-2010 calls for a 7 percent increase in state support from the amount originally appropriated for this year.

Of overriding concern however, is that over the past several decades, the annual increases in the state appropriation have not kept pace with inflation. The university’s original Education and General appropriation increased just 1.5 percent over fiscal year 2007-2008. This does not account for the proposed cut.

“Having sustained real cuts and slower than inflation growth since 2002, we’re now at the point where we’ve lost $35 million in actual buying power from the state appropriation,” said Wagner.

The decline in state appropriations is also illustrated by the university’s increasing dependence on tuition revenues over the past four decades. In 1972, about 34 percent of Temple’s budget came from tuition and 60 percent from state appropriations. This year, 68 percent comes from tuition and 25 percent from state appropriations.

Despite this declining state support, the university has remained steadfastly committed to affordability. Over the past 10 years, among peer institutions, Temple had one of the lowest rates of cumulative tuition increases at 69.4 percent, compared to 81.3 percent at Drexel and 110.8 percent at Penn State. And our tuition remains below or comparable to our peer institutions. Still, students at Temple and nationwide are facing an increasing burden of debt.

“Everyone recognizes that Temple plays a major role in educating Pennsylvania’s residents and preparing its workforce, in attracting young people to the commonwealth from out of state and in contributing to the region’s economic vitality,” said Wagner. “And this is due, in large measure, to ongoing support from the commonwealth. We will continue to work closely with the governor and General Assembly to fulfill our important mission. For now, that means we must find ways to do more with less and brace for the possibility of even steeper cuts to come.”