Photo by Andrew Shurtleff

U.Va. President John T. Casteen III

Focus on budget crisis
Casteen: Standing fast in hard times

This year’s fall letter has been a challenge to write. The mood on Grounds is a complex story because we have the combination of what may be the strongest entering class ever, a serious regional drought, a record year for alumni and donor support, and the worst state budget crisis in Virginia’s history. …

…Most states face revenue shortfalls this year. Several have reduced allotments, including allotments to their public colleges. In this sense, Virginia’s problems resemble problems elsewhere.

At the same time, Virginia’s problems predate the collapse of the technology bubble or the economic crisis that followed Sept. 11, 2001.

First, Virginia assumed financial responsibility for much of local government in 1998 when it began phasing out an unpopular local property tax on automobiles. For the first few years, the massive surplus that Governor Allen left behind as he finished his term disguised the real cost of this buy-out. Then, as the surplus dissipated and anticipated state revenues failed to materialize, this new cost (now said to approach $1 billion per year) became a massive, unfunded state obligation. Politicians argue about the rate of overspending in 1998-2001, but estimates that seem valid to me suggest that real state revenues grew by no more than about 10 percent while state expenditures grew by about 37 percent. It was inevitable that the state would sooner or later hit the wall.

Second, Virginia delayed alerting the public about its revenue shortfalls for so long that by late 2001 the state had slipped into an unrecognized deficit: revenues were simply not meeting expenditures. The new Governor, Mark Warner, and the General Assembly addressed the problems that they knew early in the third fiscal quarter, when we and most other agencies absorbed budget cuts. Our first reduction was $4.8 million on a former General Fund (i.e., tax) appropriation of $166.3 million.

Third, and perhaps most serious of all, as the national recession cut state revenues the state’s revenue prediction model failed to predict state income accurately. Accordingly, quarter-after-quarter the state has had to reduce spending. The shortfall for the biennium that began on July 1 has grown to some $6 billion or ca. 15 percent of the state’s predicted revenue, and the Governor and General Assembly have had to make additional, deep cuts in allotments.

For the University, this will mean losing (by the end of the biennium) cumulative funds now estimated at $98.2 million since 2001-02 ($51.6 million for 2003-04 alone). Tax support will fall to $116.4 million from an original appropriation of $166.3 million. (The 2002-03 reduced state appropriation of $125.9 million represents 9 percent of the 2002-03 total University revenues.) So far as I know, no state has ever furnished such a small proportion of its flagship university’s budget as will remain after these cuts (perhaps as little as 7 percent) and still claimed that university as a public institution. I wish I could tell you that this is the end of the problem. In truth, I cannot. As I write, state revenues continue to deteriorate.

Inverting Dickens’ phrase, these are the worst of times and the best of times. The worst in that state support has now declined so sharply that no one is predicting when recovery may come. In a single year, the state took away no less than one-quarter of its former appropriation per in-state student. Over three years, the state predicts that it will take no less than 31 percent of the original 2001-02 appropriation. As of 2001-02, the most recent year for which we have statistics, the University of North Carolina at Chapel Hill had $24,178 in state money for each in-state student. The University of Michigan had $17,082 per in-state student. The University of California at Berkeley had $22,309. These are our nearest peer institutions, our competitors. Our state appropriation per in-state student for 2001-02 was $12,695. It is now $9,711, and it will drop to $8,860 next year.

Yet these are also better times than one might guess. … This year, the state … restored to the Board of Visitors its statutory authority to set tuition. The Board added about 9 percent at the start of this year, bringing the charge back to roughly its level in 1993, and the sum of tax and tuition support per in-state student to 74.5 percent of the total cost of education. As all of Virginia’s boards are, ours is deliberating an unusual mid-year surcharge to replace about half of what the Governor has had to take from us in the last several days. The Board’s plan includes financial aid increases for all students with unmet need.

Other factors make the times better also. Despite understandable alarm about jobs and salaries and support moneys, faculty and staff members have addressed these crises with remarkable wisdom and confidence. … faculty forums have addressed the issues with dignity and purpose. Faculty and staff views coincide closely with the Board’s vision and my own of the mandate to sustain quality despite the losses.

Perhaps more surprising, students generally have favored the mid-year surcharge as the only available way to sustain quality in this strange new environment. The Cavalier Daily endorsed the concept. Student leaders have spoken for it in their conversations with the Board. Parents, many of whom have sent advice and expressions of concern in e-mails and letters, have almost universally urged us to do what we must to maintain academic quality. … So the University’s people are standing fast in a hard time.