Chairman Clements, members of the Appropriations Committee, good afternoon. My name is Ted Carter and I am president of the University of Nebraska System. Thank you for the opportunity to be with you.
I’d like to spend a few minutes walking you through the university’s budget request and the steps we have taken to manage our finances. Afterward I will be happy to answer your questions.
This is an exciting time to be serving in higher education. Most days I pinch myself that I get to be part of a university with such a long tradition of improving the lives of Nebraskans and creating economic growth in every corner of the state.
This is also a period of significant and rapid change in our industry. I was a Naval Officer in my previous life, so allow me to use a Navy analogy. When I think about the challenges that we at the University of Nebraska are facing, along with many of our higher education peers across the country, “headwinds” is the word that comes to mind. Although with Senator Lippincott sitting across from me, I might be wiser to borrow from the Air Force and say we have “turbulence” ahead.
Either way, the challenges are real. Forty-year-high inflation is squeezing our operations, just as it is for all Nebraska families and businesses. It costs more for us to keep the lights on, make repairs to our buildings, and it is putting pressure on our wages as we try to recruit and retain the very best faculty and staff to our campuses. And based on what we’ve heard from Federal Reserve Chairman Powell, it may be some time before inflation comes back down.
At the same time, new revenues to the university are limited. While our budget has many components, there are only two sources of revenue that can fund our day-to-day activities: Tuition and state appropriations. Other elements of our budget that you may read about – like private gifts, or funds in Husker Athletics – do wonderful things for our students and the state, but they are not available to support our general operations.
When it comes to tuition revenue, enrollment unfortunately is not where we want it to be. Of course, this is not only a budget issue, but more importantly it’s about meeting Nebraska’s workforce needs. The chancellors are working hard to reverse the declines we have experienced in the past few years and we view this as an all-hands-on-deck effort.
But the demographic reality is that declining birthrates in Nebraska and around the country mean we will have a smaller and smaller pool of prospective students from which to recruit. Growth is our goal, but we will almost certainly need to have a conversation about what “right” looks like when it comes to enrollment at the University of Nebraska.
State funding, meanwhile, has historically not kept pace with inflation. I want to be very clear. We will not ask the state to compensate for our enrollment declines. And we will not ask the state for more dollars than we absolutely think we need.
The university has not always taken this approach. Some may suggest I should have inflated our request in hopes that you would settle somewhere in the middle. That’s not my style. When I submit a request to you, as stewards of the taxpayers’ money, I want you to know it’s because I have studied the numbers carefully and believe it’s exactly what we need and not a penny more. As long as I am in this chair, as I have promised Governor Pillen and Chairman Clements, we will be responsible partners when it comes to our budget requests.
The request before you today, for 3 percent funding increases each of the next two years, represents what we determined, with the support of our Board of Regents, to be a modest and prudent request. It would cover some, but not all, of our core operating expenses, including the 3 percent salary increases that we have negotiated with our faculty bargaining units and increases for other faculty and staff to help us compete for talent. It would allow us to keep tuition affordable for students and families and continue to invest in financial aid.
Even if funded in full, our request would require us to make reductions. But we are willing to look inward to tighten our belts in order to be good partners to our elected leaders who we know are working very hard to balance the state’s many priorities.
We are fortunate in Nebraska that the state has historically recognized the importance of an affordable, accessible, high-quality public university, and we are grateful for your partnership. By providing a stable base of support, you have helped us deliver to Nebraskans a combination of value and quality that I think you’d be hard-pressed to find anywhere else.
Governor Pillen has continued this trend of stability and we are thankful that his budget recognizes the value of the University of Nebraska. We are particularly appreciative of the Governor’s support for the UNK-UNMC rural health facility in Kearney, which we believe will be a transformative project for the quality of life and workforce in rural Nebraska. And we thank the Governor for continuing the state’s investment in the Nebraska Career Scholarships, which will expand opportunities for students to pursue degrees in high-demand fields in our state.
In short, the Governor’s recommendation put us in a very good position leading up to our conversation with you today.
Our request was carefully considered, balancing the basic needs of the university with our commitment to being good partners to you. I ask that you support it. Your partnership plays a crucial role in the success and momentum of the University of Nebraska. It is a great point of pride for us that we deliver $9 in economic activity for every $1 that you invest in us. We are working every day to grow that ROI even further.
We also fully recognize that taxpayer dollars cannot and will not be a cure-all to the headwinds coming our way. A “business as usual” mindset will not be enough to maintain our trajectory in this context of an evolving and challenging landscape for all of higher education.
Those challenges that I’ve just talked about might be summed up in a simple math equation… Rising expenses plus limited revenues.
The question for me, for our Board of Regents, for our Chancellors, is how we solve the equation for the long term – so that the quality, affordability and competitiveness of our university is preserved for Nebraskans today and well into the future.
We could let the headwinds carry us along, in which case it is easy to anticipate some of the consequences. I just read a report from Moody’s that predicts more than half of public universities in the U.S. will operate at a deficit in fiscal year 2023. Another 20 percent will only break even.
Could the University of Nebraska be in that group? We could, if we choose a path of little resistance.
But Senators, that is not how we are going to do business. Nebraskans do not expect their university to operate in the red.
We are fortunate that thanks to conservative fiscal management by our Board of Regents and administration, we are on solid financial footing today. Our balance sheet is strong, as confirmed by Moody’s and other ratings agencies. We have adequate cash on hand, as any responsible business should. These one-time dollars can provide a temporary cushion, but as I remind our teams, once we spend cash, it’s gone. In other words, using cash doesn’t do anything to address recurring budget gaps.
A few other points about cash, since I get these questions from time to time. When it comes to cash, I think of the Goldilocks principle. We don’t want too much, but we also don’t want too little, as that would put our bond ratings at risk. We want our cash position to be “just right.”.
I would tell you that I believe we have found that sweet spot. The University of Nebraska today has about 220 days of cash on hand. That is exactly at the median among Big Ten institutions and other Aa1-rated universities – which is to say the top 10 percent of financially rated universities. We are proud to be part of that esteemed group. Of course, good bond ratings aren’t just a talking point, they are a benefit to Nebraskans: Our rating allows us to borrow money at lower rates, saving students and taxpayers millions of dollars.
I know 220 days of cash might sound like a lot. In reality, a great deal of the cash on our balance street is restricted or committed. For example, most of you know that the university runs a full-fledged farming operation. That requires working capital to buy next year’s seed, livestock, hay and other needs. Could we spend this cash to address budget shortfalls? We could, but that would be eating our seed corn.
Our cash on the balance sheet also includes football season ticket renewals that are paid in advance. These funds will be part of the Athletics budget for the upcoming year. I suspect Husker fans aren’t renewing their tickets with the expectation that we will use that money to pay for general operations.
In short, after factoring in those kinds of restrictions, the university typically operates with 60 to 90 days of cash. For a $3 billion enterprise, I would suggest that’s very efficient. Using our cash reserves to fund ongoing operations would only set us up for a future fiscal cliff – and I could not in good faith spend one-time dollars and then turn around and come to you with a deficit request.
We intend to remain on solid financial footing, even with new challenges ahead. And so, as I have shared with our leadership teams, we are going to have the tough conversations necessary so we don’t become one of those universities that Moody’s predicts will operate in the red.
That starts with strong cost controls. Conversations about budget cuts are rarely easy. If there was low-hanging fruit, most of it is gone. We have cut $75 million in spending over the past five years in order to keep our budget balanced, including consolidation of business functions like IT, purchasing and facilities. In my office, we have reduced our staff by 20 percent.
The university’s current operating budget as approved by the Board held year-over-year spending growth to 1.3 percent – the same yearly growth that our former regent, now Governor Pillen, has brought to state government overall. The university built a conservative budget plan to weather the fiscal challenges brought by the pandemic and I am pleased that our discipline is showing results.
Candidly, the conversations get more difficult from here on out. The process of cutting our budget takes time and we have not yet made any major decisions. Our guiding principle will be to direct our resources where they will create the most impact – accessible and high-quality education, world-class research and workforce development. We will need to become more nimble, more creative, more adaptable to make the most of every dollar that Nebraskans entrust to us.
Meanwhile, we have been able to provide predictability to students and families by freezing tuition over the past two years. We will talk with the Board of Regents about whether the tuition freeze is sustainable. It is too early to know what kind of tuition increase we might bring to the Board. We will not make that decision until after you and your colleagues have completed your work. But I can tell you that we will not balance our budget on the backs of students. As you will hear from several University of Nebraska students who will follow me, accessibility for Nebraskans is a fundamental part of our mission and a key factor in students’ decision to enroll.
Members of the Committee, there is a reason we are willing to face the headwinds and have the tough conversations. The reason is this. The University of Nebraska is as important to the growth, competitiveness and quality of life of our state as it has ever been in our 154-year history.
Nebraska’s workforce challenges are significant and urgent. The Board of Regents met several weeks ago and we heard a report from our Center on Public Affairs Research that I hope set alarm bells off for every person tuning in.
Not only is Nebraska’s “brain drain” persistent and worsening, but we are not competitive in the share of our population with a bachelor’s degree or higher. We rank just 26th in the country – at the very time when the fastest-growing, highest-paying jobs, like those in healthcare, IT and engineering, are those that overwhelmingly require a four-year degree.
No entity in the state can deliver that kind of skilled workforce like the University of Nebraska. No other entity delivers research on the scale and depth of the University of Nebraska – in cancer, agriculture, national defense and so many other areas that are immediately relevant to the lives of our citizens. We are prepared to think differently about how to continue to deliver those kinds of results for Nebraskans. We are fortunate to benefit from your partnership as we chart the path forward.