Open Mike: President outlines a tale of two universities

UO President Michael Schill

UO President Michael H. Schill sent the following message to the campus community on Jan. 13:

Dear University of Oregon colleagues,

Conversations I regularly have with students, faculty, staff, donors, and community members often go one of two very different ways. The vast majority of conversations are incredibly positive and optimistic. They are about the excitement of opening the Phil and Penny Knight Campus for Accelerating Scientific Impact, hiring new faculty and academic advisors, opening new buildings and residence halls, celebrating the football team’s Rose Bowl win, or making programmatic investments in prevention science, environmental humanities, data analytics, and more. They focus on this transformational time for the university and its bright future.

But I have other conversations with some who are rightfully concerned about budget cuts made over the last few years, rising PERS costs, the annual drumbeat of rising tuition, and how we can best make the case to state lawmakers to boost state funding for the university, which currently receives the second lowest state assistance per student of any of our 64 AAU peers despite several years of state funding increases.

So, which is it? Is the UO a financially challenged school that struggles to balance the budget, keep tuition low, offer fair compensation to our employees, and provide strong student support services? Or, are we a school with sufficient resources to construct new buildings, hire more professors, and invest in new, cutting edge research and teaching programs? The answer is that we are both.

I want to use this Open Mike to talk through the factors that contribute to what sometimes feels like a tale of two universities. I believe the positive things happening at the UO and investments we are making will begin to address some of those persistent challenges. Bear with me, though, because these are complicated issues to explain, and solving many of our challenges is something that will take patience, determination, discipline, and a stiff spine.

Let’s start with the education and general budget, sometimes called the E&G budget, which is overwhelmingly comprised of tuition and state funds. This year it is estimated to be around $554 million. We also have separate auxiliary budgets for parts of the university that must generate and live within their own revenue sources to fund operations—areas such as housing, food services, the health center, and athletics. The goal is to have each of these auxiliary budgets break even so that they are not drawing on precious tuition or state dollars. The E&G budget funds most of the educational costs of the university as well as most financial aid. It covers everything from faculty and staff salaries to heat and water for academic buildings. This budget is continually under pressure because the primary sources of revenue (state funding and tuition) are often insufficient to fully fund increases in compensation or inflation.

Now, there are three other important funding streams: sponsored research, donations from alumni and friends of the university, and borrowing for capital expenditures. Sponsored research—which in fiscal year 2019 equated to $126 million in grants, contracts, and competitive awards—is restricted by contracts or grant agreements to pay for specific projects or research activities. Each year, the university raises approximately $200 million in philanthropic donations. Almost all of this money is also restricted by contracts (known as gift agreements) to purposes the donor specifies. When it comes to buildings, sometimes those restricted donations are matched with state-paid bonds (Knight Campus) and sometimes donor funds, state bonds, and/or our own borrowing are used to construct the building (Tykeson Hall, Pacific and Klamath hall renovations). On occasion, student fees support capital projects (the EMU, Health Center expansion) and once in a while we borrow 100 percent of the capital costs ourselves (Bean Hall and Walton Hall renovations).

If the E&G budget is starved for revenue, then why can’t we just take some money from the donations and borrowing that fund the construction of these new buildings? Money is money, isn’t it?

Alas, the answer is no. None of these one-time sources of revenue (restricted donations, state-funded bonds, our own borrowing) can be used to pay on-going operating expenses or to reduce tuition. If I were to authorize the use of state-allocated construction dollars for employee compensation, it would break the law. If I were to take restricted donations and use them for another purpose, then the university could be sued by the donor for breach of contract.

Surely, though, couldn’t I convince the donors who make restricted capital gifts to instead give money to keep our lights on and pay our employees? It turns out that this is every president’s dream—a big gift that is entirely unrestricted. But, with some notable exceptions, it is almost always a dream. Donors give to the UO because they love our university. Major donors also want to use their giving as a way to help the university get better and, in some cases, transform itself. It is the rare donor who responds to a request from a president to help him tread water or avoid sinking.

That isn’t to say that donors don’t care about the high cost of college or the importance of faculty research. Many, many donors give to scholarships. In our current campaign, we have received over $373 million in gifts for scholarships, student support, and student success initiatives. Of that, $245 million is for scholarships. Similarly, we often receive gifts to support faculty research and teaching in the form of endowed chairs. These gifts do not usually cover the salary of faculty members, but instead support summer compensation, research expenses, and graduate students. The gift of Penny and Phil Knight to create the Knight Campus was an unusual and wonderful gift; its endowment yield (along with federal contracts) will pay for faculty start-up costs, salaries, as well as the new campus’ facilities and operations. Over the long term, as we near completion of our $3 billion campaign goal and our institutional endowment continues to grow, I believe the returns generated by the endowment can play a role in helping stabilize the funding challenges we face from tuition limitations and cost increases not covered by state funding.

A related concern I have heard was that even if new buildings on campus are not funded out of the E&G fund and thereby don’t affect tuition or salaries, their maintenance would. It takes money to heat and cool buildings; we need to pay staff to keep them clean and in good working order. For a number of new capital projects—such as the Knight Campus, Hayward Field, and new residence halls—operation and maintenance costs will either be charged to the gift or to the auxiliary that built them. They will not burden the E&G fund. But it is true that we will need to fund a portion of the day-to-day expenses of Tykeson, Pacific, and Klamath halls out of tuition or state funds, which is completely appropriate.

The UO needs to invest in the future. Indeed, one of the reasons we needed to invest in renovating our science laboratories over the past five years is that most hadn’t been touched since they were built. To be a great research university—to attract and retain top faculty members, to provide world-class education to undergraduates, and to train graduate students—we must provide facilities and equipment that allow the people inside them to produce knowledge. And to fulfill our commitment to students that if they come here they will graduate in a timely fashion, we must provide them with a place to get advising. If the maintenance of these facilities or some of the debt service hits our E&G budget, that is a good investment that benefits our students and faculty.

Let me finally turn to the place some members of our community have suggested could relieve the pressure on the E&G budget—athletics. I would like to start by clearing up a misconception—that the athletics department doesn’t already pitch in to relieve pressure on our educational budget. It does. Many of our peer institutions waive tuition for student-athletes. We don’t do that at the UO; athletics pays full tuition for the resident and nonresident athletes, which equates to about $12 million annually that flows back to the E&G budget. They also contribute over $3 million in administrative overhead each year. In recognition of the unusual schedules and time constraints that student-athletes encounter, the UO provides about $2 million per year out of the E&G budget for academic support services. The vast majority of universities in the United States subsidize, sometimes deeply, their athletics departments. We are one of the lucky few—the only public institution in Oregon—that has a self-sufficient athletics department.

Taking money from athletics could come with side effects, particularly if it were to have a negative impact on the playing fields or courts. Prior to my time here at the UO, I might have said that would be okay. But, as president of the UO, I see day after day what athletics means to our university. Not only does it enrich our student experience and provide a rallying point for our alumni and community, but it also provides us with a powerful front porch to the rest of the nation. Those benefits were driven home quite poignantly by our recent win at the Rose Bowl, which drove measurable increases in traffic to our recruitment and admissions websites. Although the UO is increasingly recognized for all of the wonderful faculty and research going on in Eugene, athletics remains one of the principal ways prospective students first hear about the UO. And those students, especially those drawn to the UO from outside Oregon, serve as the central lifeblood of our operating budget. A strong athletics program is synergistic with our academic program and, through its impact on enrollment, actually benefits our efforts to keep tuition low and fund decent wage increases for our faculty and staff.

If you have stayed with me thus far, you can see there is no silver bullet for our fragile operating budget. It isn’t lost on me that the UO can appear to be two universities—one in which new, gleaming buildings and ambitious programs grow and another where tuition goes up and expenditures need to be reduced or at least controlled.

Ultimately, it is vital that we make sure that the investments we are making pay off, because these are the programs, people, and initiatives that will set the UO up over the long term to solve our budget and operational challenges. The research and teaching that will take place in these buildings will enhance the reputation of our school, add new and innovative curricula, and fuel enrollment growth in what promises to be an evermore competitive environment. The focus and attention given to student advising and career counseling in Tykeson Hall will enable us to achieve our mission of student success with similar reputational advantages. These changes may not happen next year or even in the next five years, but I believe the steps we are taking now and the excellence we are building will position the UO to move into a new era of financial stability in the future.

My hope in writing this Open Mike is to be as transparent as possible about this challenging issue. On that topic, we have recently launched a new transparency website to provide our community with easier access to all of our financial, student, employment, and other data. We also try in the FAQs to answer similar questions such as the one posed in this Open Mike, albeit more briefly.

In closing, I have great hopes and aspirations for our university. I am excited about working with those of you who, like me, see the endless possibilities of our university as we get better and better. The effort will require hard work, not silver bullets. But it is achievable.

Michael H. Schill
President and Professor of Law