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Background

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Background

The housing crisis led to a credit crisis that led to an economic crisis and a financial market crisis.  At this point in time we do not know how deep it will be or how long it will last.  We are quite certain that this too will pass.  It is our job to make sure the University of Oregon emerges from the crises poised to prosper and serve the people of Oregon and beyond.

Sister institutions have already seen significant impacts.  Some of the most famous privates have announced budget cuts of $50,000,000; $80,000,000; and even $90,000,000 due to loss in endowment value.  The Seattle Times recently reported that the University of Washington is facing a 20% budget cut from the state ($167 million).  California schools have faced significant rescissions and are reducing student count for next year.  Recent estimates of state budget deficits are >$11 billion in CA, >$5 billion in WA and about $1 billion in OR (so far).  Note that proportionately to population we are better off than our neighbors at this time.  However, the full impacts on our state may lag due to the taxation structure.

So why are CA and WA hit so hard?  They both rely on sales tax to a great extent for funding.  When the nation’s economy seized in October, their revenues dropped precipitously and instantly.  Oregon’s tax system is income tax based so we won’t know the full impact until tax receipts are realized in the spring.

The impacts on the University of Oregon are varied – some positive and some negative.

  1. The financial markets have fallen in value between 30 and 40%.  Due to excellent management by the UO Foundation, our endowment is down a mere 18%.  This fiscal year there will be little impact of this reduction in value since the payouts have been set.  However, next year payouts will be calculated on what may be a smaller base. Units funded by endowment earnings may see a reduction in FY10, though the impact is moderated by a three year averaging .

  2. The contractions of universities in CA and WA have heightened the interest in attending UO among students in those states.  Last fall was our largest demand ever, and applications for next fall are running well ahead of last year (we are not taking that many though – looking to improve quality).  Hence, tuition revenues are up this year and will be up further next year.

  3. The State will need to pass some of its deficit to the university system.  This will come in a combination of rescissions this year and budget cuts for next year.

State Cuts

We have recently been informed of a small rescission to be implemented soon, likely between $1,800,000 and $2,200,000.  We were out in front of this one with small cuts for the schools, colleges and administrative units in October.  Any further disruption of the schools and college will be relatively small.

A further rescission is possible, though not yet determined.  This would be necessary if the tax revenue forecasts continue to degrade.  Since we do not know if, when, or how much such a cut might be, we cannot speculate on the impact yet.

The third wave is cuts to the budget for the next two fiscal years.  The Governor has stated many times that he intends to protect higher education as much as possible.  The unknowns are whether or not circumstances will allow him to stick to that, and what the legislature does with the Governor’s budget.  The Governor’s first pass at a budget is due December 1.  That will be our next indication of how things look.

Philosophy of Cuts

Though we do not yet know if there will be significant cuts, there is a high enough chance that it behooves us to begin a discussion of how we might make them.  There are many perspectives to this question – that of the Provost (what is best for the University), that of individuals (what is best for me), that of the system (what is best for the state of Oregon).  Some initial thoughts on prioritization include:

  1. Protect the academic core – make relatively fewer cuts that have direct impact on teaching and research
  2. Cut strategically – in accordance with the academic plan
  3. Protect excellence – make relatively fewer cuts to units that are renowned
  4. Protect people – layoffs hurt real people

All of these are important (what others should we be considering?).  The order of their importance depends on your perspective.  This is an ideal time to hear what you are thinking.  We are not facing significant cuts, and not under great time pressure.  Let’s make sure we are prepared and have had this discussion before (if) that happens.