Old Main file

A student walks across Old Main Lawn Friday, Feb. 7, 2020.

Penn State President Neeli Bendapudi has been tasked with "balancing the budget" at Penn State by 2025. In other words, she needs to neutralize a $140 million structural budget deficit in the $3 billion Education and General Funds within the next three years.

Penn State's current financial situation was Bendapudi's biggest surprise upon taking on the presidency last year, as she said during the economic development discussion in February. Penn State is a $8.4 billion operation.

According to Bendapudi, “these are complex issues,” so the university tries to make “data available so people can go back and see and learn.”

“The more all of us learn these problems are bigger than just one individual — the more all of us learn we can all be part of the solution,” Bendapudi told The Daily Collegian. 

The board’s first step in tackling the deficit is restructuring the budget model the university operates on by creating a new “formula-based” model for determining how money is allocated throughout the university.

According to a release, "the model is used to determine the amount of funding — primarily from tuition and state funding — that Penn State will provide to colleges, campuses, student support and administrative units."

Sara Thorndike, senior vice president of Finance and Business at Penn State, said via email that Penn State’s model needed to evolve, and this process has been underway before Bendapudi’s plan to correct the structural deficit.

According to Thorndike, the effort to create a new allocation model goes back to 2018 with former Penn State President Eric Barron’s creation of a Strategic Budget Task Force, charged with looking into Penn State’s current budget processes.

However, Thorndike said many factors have caused the university to need to “accelerate” the introduction of a new model — including the coronavirus pandemic, changes in enrollment, inflation, tuition freezes in three of the last five years as well as demographic challenges within the state’s college-going population.

The pandemic alone cost the university $400 million and caused lower enrollments and lower revenues.

Another challenge Penn State faces is low state funding, as it has received the lowest per-student funding of any state-related institution in Pennsylvania for over 50 years. The university’s state funding hasn’t increased in four years and is actually lower than it was 12 years ago.

To combat this, Penn State has requested a 47.6% increase in funding for the next fiscal year, which, if approved, would raise its annual appropriation to the same level that Temple University receives.

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“State appropriation is critical to helping Penn State attract and retain the types of students who choose to remain here after graduating and help Pennsylvania prosper,” according to the 2023-24 Appropriation Request document.

Pennsylvania Gov. Josh Shapiro recently proposed a general funding increase of 7.1%.

"The model in itself is not going to balance the budget," Thorndike said at the Faculty Senate meeting on Nov. 29, 2022. "But the model will provide us with information so that the amount of money that goes into the central allocated units to the campuses and to the University Park colleges reflects what they generate in tuition and state appropriations."

The formula-based budget model is designed to be more adaptable, according to a statement written by Bendapudi, by allocating funding to units based on student credit-hour production, student headcount and research productivity.

Matt Jordan, department head of film production and media studies in the Donald P. Bellisario College of Communications, said the old model didn’t allow for the university to allocate resources to units that were performing well.

“The next couple years are going to be fairly brutal as we close this gap between what we’re going to get and what we need,” Jordan said.

He said the university needs to “figure out ways of understanding different types of fields that need smaller classrooms,” citing music education as one of these fields that includes a lot of one-on-one teaching.

Jordan said he felt that in terms of the College of Communications, updates from Dean Marie Hardin have been “very transparent.”

However, he said, “In a university this big, it would be very messy to make [this] a completely transparent process because some of these are tough decisions that just have to be made.”

He said a lot of people are “anxious” about this process — and “for good reason.”

Models using similar measurements are used by other Research 1 universities like Michigan and Ohio State.

At the Nov. 29 Faculty Senate meeting, Sara Thorndike explained Penn State has $962 million to operate, and "one third of it is sitting in the Central Reserve." 

In July 2022, the university had $350 million in reserves and was using more than $100 million per year.

According to Bendapudi, Penn State wouldn’t have been able to fund core operations like payroll and utilities in just three years if this rate of use had continued.

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The reserves cannot be used to cover the structural deficit because they are needed for other expenses, and they’re important for Penn State’s financial ratings as a university, according to a release from the Office of the President.

 "The solution is to come together to manage our costs and to run our organization more efficiently while continuing our pursuit of new revenue," Bendapudi wrote in a statement to the Faculty Senate.

According to Thorndike, the plan will include all tuition and financial aid into the model. 

"The model itself, all it does is give the amount of money that comes from central to the units themselves," Thorndike said.

The university has no plans for mass layoffs or closing colleges/campuses, and no unit will receive an increase of more than 4.6% or a cut of more than 4% each year, according to a release.

However, an internal memo from the office of President Bendapudi stated that some units “addressing significant historical financial issues” will have “additional needed reductions” past the previously stated 4%.

The Budget and Finance Office released the percentages of reductions and increases for each college for fiscal years 2024 and 2025.

Because the board has chosen to avoid an across-the-board reduction, colleges and units will be affected differently.

The following colleges will experience 4% budget cuts both years: Agricultural Sciences (general funds), Arts and Architecture, Earth and Mineral Sciences, Education, International Affairs and Nursing.

Michael J. and Aimee Rusinko Kakos Dean in the College of Arts and Architecture, B. Stephen Carpenter II, said the college “plans to reduce its expenses in a number of areas” and is planning to “avoid layoffs.”

“We have focused on reducing nonpersonnel expenses such as decreasing the amount of internal seed grant funding and not rehiring some vacant positions,” Carpenter said.

Colleges that will only experience budget increases include: Communications, Health and Human Development, Information Sciences and Technology, and Eberly Science. All will have 4.6% increases for fiscal year 2024 and 3.2% increases for fiscal year 2025.

The following units will not experience any changes in budget for fiscal years 2024-25: Educational Equity, Enrollment Management, Government and Community Relations, Millennium Scholars Program, Research, Strategic Communications and University Health Services.

Units not funded by general funds aren’t included in the table published.

Information regarding the operating budget as well as employee headcounts and salary data is required by law to be reported by Pennsylvania public institutions, like Penn State, through Act 61 of 2008.

This information is found through the Stairs Report, which focuses on the financial disclosure reporting required of the state-related universities for the reporting year.

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