UA President Peter Likins

Editor's note: in an attempt to keep the Perspectives section an open forum, the Arizona Daily Wildcat accepts guest commentaries. Today, UA President Peter Likins addresses the university's concern with state budget shortfalls.

As we entered the era of budget rescissions, we invited money-saving suggestions from the campus community. Our Financial Planning Bulletin No. 1 requested that ideas for savings be forwarded to our vice president for executive operations, Patti Ota. She has been systematically processing proposals and suggestions. We are grateful for the helpful ideas and contributions from members of the university community.

Along with those suggestions, many people have asked both Patti Ota and myself some serious and thoughtful questions about the University of Arizona budget and the way it operates. After responding at length to many individuals who posed essentially the same questions, it occurred to me that I should seek a more efficient way of providing the answers. In what follows, I'll paraphrase a number of probing questions that I've received recently and attempt to recapture my answers.

Essentially almost every question is the same: "How can you spend money on Project X when you are cutting my budget?" Many of the answers are also the same: "Money comes in many different colors."

Q. Why do I read in the same newspaper an article about laying off people and an article about building a parking garage?

A. The parking garage will be built with borrowed funds, with the debt paid off with parking fees. We must provide more parking in this area because we are clearing space to build residence halls to accommodate students now denied university housing. In a similar way, we will pay for the residence halls by borrowing money and retiring the debt with residence halls fees. (Both residence halls and Parking and Transportation are operated as independent "auxiliary enterprises," with revenues matching expenditures.)

Q. How can you justify exorbitant salaries for coaches when we can't afford to pay adequate salaries for faculty, staff or graduate teaching assistants?

A. The department of athletics pays coaches' salaries at market rates with revenues generated by athletics. These revenues cannot be used outside of athletics without jeopardizing the generation of the revenues. The Intercollegiate Athletics Department is primarily (but not precisely) another auxiliary enterprise. The budget is approximately $30 million annually.

While recruited student-athletes with grants-in-aid paid by athletics also receive tuition waivers, their enrollment generates revenues from the state budget like any other student. The revenues generated by enrollment, about $1.8 million annually, go to the university, not the athletics department.

Also, within the athletic department's budget of $30 million in revenue is about $200,000 from tuition and about $1.3 million from the state general fund. This sum is reduced each year by $100,000 to pay debt service for the student union. Over five years, retained tuition provided to athletics will drop from $495,000 annually to zero in order to finance the student union.

On the expenditure side of the athletics department's $30 million budget is about $1.1 million paid to the university for "administrative services." In addition, the Department of Athletics must pay for its own capital improvements, so the additions and renovations of McKale Center, for example, are paid for entirely with gift funds.

Q. Why don't you stop all of these construction projects now underway so you can use the savings to meet rescission obligations?

A. No construction project now under contract can be halted without paying substantial damages to the contractor and then paying again when the project is finally finished.

Q. Wasn't it a mistake to build all these new buildings? Don't you wish you had that money now for rescission payments?

A. Every construction project has its own explanation, but almost never is a building paid for with funds that could have been used instead for salaries or rescission payments. For example, some projects are paid for entirely with gift funds such as the McKale expansion, the SALT Center, Sarver Heart Center and the Cancer Center. Other projects are partially gift-funded. Two-thirds of the Gittings project, nearly one-half of the pending Drachman Hall (for Public Health and Pharmacy) and one-sixth of the student union will be paid by gifts. The balance of the student union debt service will be paid by UofA Bookstore revenues and commercial activities within the union and by athletics revenue until 2011. At that point, unrestricted funds now being used to retire earlier loans will, upon retirement of these loans, shift to union debt service.

The Integrated Learning Center debt service has been matched entirely by augmentations of general fund allocations from the State, as has one-third of the Gittings project. The pending expansion of the Meinel Optical Sciences building will be debt financed with Proposition 301 sales tax revenues in combination with indirect cost revenues (revenues generated through research contracts). Among current or recently completed construction projects, only the Learning Services building (to serve humanities), now going up on Vine Avenue and First Street, is to be paid for with unrestricted funds ($375,000 per year).

No, these buildings could not have been traded for the required rescission payments.

Q. Why can't we defer purchases until next year to meet this year's rescission obligations, rather than leave positions open or lay off employees?

A. Our rescission obligation at the current 4 percent level is to actually give back $13.9 million to the state. We can't give money back if we defer a purchase until after June 30, and then still plan to use the same money to make the same purchase later. When we have an open position, the salary saved can be returned to the state.

Q. Why doesn't the university implement stringent utility conservation across campus and consider more closures to reduce utility costs and use those savings towards the rescission?

A. An energy conservation project is underway, and our folks at Facilities Management are looking at many ways to reduce utility usage. Over the past several years our utilities costs have been increasing without benefit of additional state funds to compensate. Last year, the campus utility cost overran budget by approximately $6.5 million. So while utility conservation is needed in order to balance the budget, and saving electricity will help the campus, it will not contribute to meeting our rescission obligations until we first save enough to scale back to currently budgeted expenditures. This is an important idea for long-term savings, but it won't help this year.

One simple way everyone can help is to be systematic about turning off lights and computers when away from their offices during the workday. This doesn't sound impressive; however, if everyone on campus adopted this habit, there could be significant savings.

Facilities Management is also analyzing the potential savings related to the possibility of a four-day workweek during summer months. This sort of remedy will require significant coordination and communication to verify viability. Should this option be viable, it would result in major utility savings of approximately $1.5 million.

Q. Why are you picking on Arizona International College? Is every college that doesn't make a profit now at risk?

A. Arizona International College is a unique concept, unlike any other college of the university. AIC was conceived as an independent, public liberal arts college, established initially on the campus of the UA Science and Technology Park in 1995. The UA initially financed its start-up phase.

When I arrived in 1997, AIC was on the brink of collapse, with very low enrollments and rapidly rising costs. Rather than shut it down then, we created for AIC a temporary home on the main campus in an incubator setting, agreeing to support it academically and financially for three to five years as it prepared for independence. We arranged for a state-financed building on a new Pima Community College campus in Northwest Tucson to be called "UA North" to match UA South in Sierra Vista (which is proximate to Cochise Community College). We had hoped to use AIC enrollments to jump-start UA North operations, but that would require academic as well as financial self-sufficiency, both of which seemed to be unachievable.

As we confronted the harsh realities of rescission this year, we made the difficult decision to recommend to the Regents that we end this noble experiment. We will instead design other programs for UA North, if the state funds the building, following the patterns established by UA South to manage enrollment growth that was once slated for AIC.

Q. How can you be struggling to give back $13.9 million in rescission when you just received a comparable sum in new sales tax revenues made available by Proposition 301?

A. Proposition 301 generates sales tax revenues to be used by Arizona's public universities strictly for purposes of "economic development" as that term is interpreted by the Arizona Board of Regents (ABOR), to which agency that money flows. The 301 budget approved by ABOR last spring has not been altered to accommodate the rescission, nor would that be consistent with the will of the people as interpreted by ABOR.

Q. Rather than deny jobs to people with small salaries, why don't you require everyone who makes more than $100,000 to give that "extra" money back to the state?

A. Although well-paid employees of this university frequently give back to the UA in the form of charitable contributions, such voluntary actions are far removed from the suggested mandatory reductions in salaries, even temporarily. We live in a country in which salaries are determined by the marketplace, and the UA is not exempt from the laws of economics. While every employee is entitled to the same respect and human dignity, and we try to assure the least compensated of our people a decent wage, not every employee will get the same paycheck. Unless our most well-paid employees offer voluntarily to accept temporary reductions in salary to help solve our problems, I will not support the imposition of such responsibilities on the people who deserve so much credit for our success.

Any public research university relies upon a complex pattern of revenues from many different sources, each constrained in its intended purposes. Research contract dollars and gift dollars are restricted by their sources. Revenues generated by auxiliary enterprises are restricted by good business practice, which limits spending. Dollars from tuition and the state general fund are the least restricted and, therefore, the most precious. We husband these dollars very carefully and use them as our last resort. Unfortunately, it is the state general fund dollars that are reclaimed by the state in a budget rescission, and we cannot meet these obligations with money of a different color.