Email from the Chancellor July 8, 2002 - FY 2002 & 2003 Budget Reduction Process

Email Response to Budget Concerns

JULY 8, 2002

Chancellor Harvey Perlman,
University of Nebraska-Lincoln

During the period leading up to the special legislative session to begin July 30, Chancellor Perlman has invited inquiries (via email) from the campus community, to which he responds in periodic emails-to-all. The following text is from Chancellor Perlman's email of July 8, 2002.

Dear Colleagues—

In response to my last e-mail I have received several comments or concerns from a variety of different individuals. I have responded to some below and will respond to the rest shortly.

  1.   Salary Issues

Several inquires related to the salary increase, my initial decision to withhold the notice, the later decision to implement the increase, and the content of the salary notice that we received. Several individuals supported deferring the salary increase, some objected. I am sure opinion is divided. However, the issue is no longer within our control. Policy decisions about salaries will be made for the system as a whole. Two colleagues wondered if "a decision is made to cut or lessen our salary increases in order to level the University's financial position, will it then affect everybody campus-wide, or just the office-service and faculty salaries? " and "whether or not UNL administrators would be subject to salary raise postponement or cancellation, should these have to be imposed on the UNL faculty." I understand the mistrust that many have of administrators. Let me be as clear as I can: On salary matters over which I have authority, administrators will receive no special preference over fa ulty, office/service, or managerial/professional personnel. I know there is lingering concern about administrative salary increases last year, some of which, including my own, were large. For those administrators who were initially hired last year (including me), the market-place affected the salaries when compared to our predecessors. We often have to do this when we hire faculty as well. The data continues to suggest that salaries for the academic administrators remains further below the peers than either faculty or staff salaries. For continuing administrators , the pool set aside for administrative increases is the same percentage as the pool for faculty. Thus, this year there was a pool of 4.56% for administrators and the total recommended increase did not exceed that amount. But, like other categories of employees, some individual administrators received more and some received less.

Here are additional questions relating to salaries: "Several of our employees are now questioning whether or not the University can "take back" money that they have already given us." The General Counsel for the University believes that because of the wording of the notice we received, the University could recapture the salary increase should the Legislature fail to provide adequate funding. However, attempting to "reduce" the 2001-02 salary base would raise additional legal questions and is unlikely to be considered. "Would it be possible to exempt the raises to our lower paid staff from the possible retraction should the Legislature not provide sufficient funds? These people have been impacted the most from the increasing costs in healthcare and parking." I assume some differentiation in this regard could be considered. You will recall that our salary increase guidelines this year required all satisfactorily performing employees to receive at least $600 in an attempt to respond to this concern.

Finally, one colleague was "shocked" that I would announce the possible postponement of the salary increase without faculty consultation. As I tried to indicate, the only action I took was to stop the notice of salary in order to provide time for consultation with faculty and others. The notice, if sent, would have foreclosed the matter. I am committed to faculty consultation but on rare occasions when things happen quickly it may not be possible.

  2.   Furloughs

Furloughs: Several suggestions involved one or more versions of a furlough--University employees would be given a few or several days off at no pay to make up the budget shortfall. We have looked at these possibilities. First you have to remember the difference between one-time funds and continuing funds. If we took a furlough it would create a pool of one-time money. This might be an option for getting us through this fiscal year but it would not affect the base budget and would not allow us to permanently save jobs or programs. At one point we thought that a state statute would require, in such circumstances, that we also reduce the University contribution to fringe benefits such as health care. Thus, not only would we not get the pay but we would have to pay more for fringes. We are taking another hard look at the statute to see if this is true and, if so, whether it could be changed.

  3. Foundation Funds

"Why can't the University of Nebraska Foundation help us out of this problem?" I know that many individuals both inside and outside the University think that the recent success of the University of Nebraska Foundation should somehow be able to help us solve the current financial problem. At least before the recent market decline the Foundation assets were over 1 billion dollars. But, for a variety of reasons it is just not possible to take this asset and use it to solve our current problem. First, over 96% of the funds given to the Foundation are designated for a specific purpose by the donor and the Foundation is both morally and legally obligated to comply with the donor's wishes. People do not give money "to run the University". They give it for scholarships, for professorships, for buildings, for specific academic program enhancements. Most of the discretionary funds which are small in amount are directed at specific programs, i.e., the law school, the teacher's college, and the Deans of these units have already made commitments for these funds to enhance their programs. There are not large pools of funds idly sitting around to be used now. Third, we have to come back to the distinction between one-time funds and continuing dollars. The policy for payouts on Foundation endowments is 5% of the average asset value over the past three years. To save the job of one office/service employee making $25,000 per year on a continuing basis would require an endowment of over $500,000. And currently the rate of return on investments is below the 5% figure.

Now in some ways the Foundation can and has been helpful to us beyond acting as a pass-through for donor-directed gifts. For example they have on occasion used the endowment to make "loans" to the University for specific purposes. Because they are required to invest the endowed funds in order to obtain a return, they have on limited occasions "invested" in the University. But when this occurs we are obligated to pay them back at a rate of return that is at least comparable to market rates. While in some instances this gives us the flexibility to pursue projects where there is a source of revenue, it is not an appropriate mechanism to fund the on-going costs associated with running the University.

It is important that you understand this issue because it is one that many people ask about, some in positions to affect our future, and it is critical that you are in a position to respond intelligently. I hope the above helps. If not, I would invite further questions.