1. Why was the proposal for the infrastructure charge announced during the semester break, and were student leaders consulted and informed about the need for the charge?

The University Budget Council has been working since late October on a five-year financial plan for the University. This effort was prompted by general concerns about the near-term outlook on the part of the President and the Provost. This planning is at a significantly higher level of detail and involves a longer horizon than in the past. The effort is large and complex. A coherent budget picture, including possible remedies, was not available until Dec. 20, although it was clear by mid-November that there were sizable problems. President Faulkner alerted the Presidential Student Advisory Committee (PSAC) on two occasions last semester that there were serious issues to be addressed after the fall semester. The last PSAC meeting of the fall semester, on Nov. 26, was closed with such comments. The President similarly alerted the Faculty Council in a public session on Dec. 10.

The timing of the specific proposal was necessitated by the overall approval process and budget cycle. Implementation of the charge in 2002-2003 is essential if we want to begin addressing the urgent needs identified in the five-year plan. It was not possible to define the charge proposal before the latter part of December, because the forecasting and planning effort was not yet complete enough. However, for implementation next year, the charge had to be proposed at the Regents’ committee meeting in January, so that it could be considered for final action at the February meeting of the full Board of Regents. Copies of the President’s Jan. 10 presentation to the Board of Regents Academic Affairs Committee were delivered to student leaders over the semester break. Since the resumption of classes on Jan. 14, meetings have been held with student leaders, and open forums have been conducted and scheduled to address questions from the entire student body.

2. How does the modified infrastructure charge differ from the initial proposal?

The administration's modified infrastructure charge proposal reduces costs for current students by shifting some of the expense to future students, as well as those enrolled in summer school. The initial proposal recommended a charge of $230, which would increase by $50 a year for five years. The revised proposal, submitted after the administration consulted with student leaders, reduces the initial charge to $180 (see chart) for the fall and spring semesters and imposes a charge of $115 for the combined summer sessions. The initial five-year term during which the charge would increase annually would be extended to six years. Additionally, while the fall and spring semester charge is proposed to increase $50 annually each fall, the summer semester charge would increase by $32 annually each summer. The charge amount would be capped at $430 per fall and spring semester, and at $275 for the combined summer sessions.

By way of example, given that more than 65 percent of full-time students do not attend the summer session, under the modified proposal, these students will pay $100 less each year for the first five years of the charge. Also, given that 25 percent of full-time students attend the summer session but take fewer than 7 hours, these students will also pay less on a cumulative basis over the next five years.

Only 10 percent of the full-time student population is likely to pay more under the modified proposal but presumably those students taking a full hourly load in the fall, spring and summer will graduate sooner than others and thereby minimize this charge paid for their education. This means that under the modified proposal approximately 90 percent of the full-time student population will pay less than under the initial proposal.

The modified proposal over the six-year period generates for the University cumulatively $7.3 million less than the initial proposal. These monies are proposed to be used solely for the essential repair, renovation and capital budget needs of the university. In addition, the modified proposal includes the creation of a task force to identify, initiate and manage efficiency actions to help the university achieve its expense-saving goals. As part of the new proposal, the administration has pledged to reduce costs by $32.8 million over five years to help reach the goal of generating $150.7 million in new annual recurring revenue needed to address essential renovation and repair projects.

3. What is the significance of our comparison with “peer institutions” in terms of the quality of education at The University of Texas at Austin?

State appropriations plus tuition and fees and charges support the core academic enterprise of public higher education. UT Austin’s ability to compete with national leaders, that is the University’s ability to offer Texas and Texans educational programs and knowledge-based services equivalent to the best available in other states, rests upon financial resources similar to those available in other leading public institutions. In Texas, about 90 percent of students in higher education are enrolled in public institutions, so Texas relies heavily on its public universities to provide students with access to nationally competitive programs. A sound financial base from appropriations, tuition and fees and charges is required if UT (a) is to draw and retain top talent among its faculty and staff, (b) is to establish and maintain necessary facilities, (c) is to achieve a student/faculty ratio characteristic of nationally leading public universities, and (d) is to become a force in emerging areas (e.g. nanoscience or high-performance networking and computing) so that the state of Texas can seize national leadership relative to other leading states.

The five institutions used for comparison in the presentation, “Funding the Future of UT Austin,” are broadly recognized as being among the top public universities nationally. UT Austin consistently uses them to develop benchmarks of performance. Others could be added to the picture or could be substituted.

4. Is the annual increase of the proposed charge $50 per semester or $50 per year?

The proposed infrastructure charge is a flat charge assessed of all students beginning in fall 2002. If the Regents approve the proposal, the charge for the fall and spring semesterswill increase each fall by $50 and the charge for the combined summer semesters will increase by $32 each summer. Students who enroll next fall would pay $230. The same amount would apply for the spring semester 2003. In the fall semester 2003, the charge would become $280, and that same amount would apply in the spring semester of 2004. Students taking more than six hours in the combined summer sessions of 2003 would pay $115. In the summer of 2004, the charge would increase to $147. These charges would be increased annually each of the following five years and would be capped in the sixth year at $430 for the fall and spring semesters and $275 for the combined summer semesters.

5. If Regents approve this charge, will the university pursue additional charge increases over the next five years?

While new student chargess are proposed to cover less than one-third of the total funding gap of $150.7 million, President Faulkner has pledged to hold the line on charges during the next five years. If the plan currently before the Regents is approved, the President will propose no additional new campus-wide charges in that period. The university administration will seek other solutions to increase revenues needed to meet the projected funding gap. The President also pledges that annual changes in the infrastructure charge will follow the schedule defined in the proposal. Currently established fees and charges normally have a modest annual increase, mainly to support changes in salary costs covered by the fees or charges. That pattern is expected to continue.

6. What efforts is the university making to influence the Legislature to allocate more funds to higher education?

By law, university representatives cannot lobby. However, they can, and do, provide information about the University and its needs at the request of lawmakers. The UT System has the leadership role in informing the Legislature about the funding needs of institutions in the System.

7. Why are current students being asked to shoulder the burden of “catch up” regarding the university’s deferred plant maintenance, repair and renovation needs?

The infrastructure charge is only a part (less than one-third) of the plan to address the University’s overall 5-year gap of $150.7 million in recurring funding. The remedies proposed for the whole involve a partnership among students, alumni and friends, the State of Texas, the Regents, and the administration, faculty, and staff. All have parts in addressing the need. Focusing the student-financed part of the program on repair and renovation is compatible with the requirement in the Texas Education Code that requires charges to have a sharply defined purpose.

Costs of repair and renovation must be included in the larger picture. The university community has a responsibility to preserve the legacy of this campus. A substantial number of the university’s buildings were built in the 1950s-‘80s and require significant repair and renovation. The clock is ticking. Without immediate action, the aging of our facilities will result in further deterioration, meaning that costs of restoration will become even higher in the future. Some buildings may even have to be abandoned. In addition, there are significant renovations that must be made to address fire and life safety, water control and environmental health issues. We have an immediate obligation to fund these types of projects.

8. If the university does not obtain additional funding for its infrastructure needs, what will happen?

As indicated in the reply to the preceding question, the challenge is to cover the entire $150.7 million gap in recurring funding over five years. Infrastructure is just part of the picture. If the charge were not approved, just as if we failed to achieve success with any other large part of the plan, significant structural changes would have to take place campus-wide. These include choosing to operate under a continuing deficit, to become nationally non-competitive on salaries, to reduce services and programs, to allow buildings to deteriorate, to cancel or to defer essential building and safety projects.

UT Austin’s current base of resources will not allow it to remain as a representative for Texas among the real leaders of public higher education nationwide. If the overall funding gap can be solved, we can remain competitive. If not, we will have to reconcile our programs to lesser goals. Once given up, a position of leadership cannot be regained in less than a generation, so the issue at hand has long-term significance.

9. What will the university do to help students who can’t afford the charge?

An amount equal to 15 percent of the charge income will be designated each year for undergraduate scholarships to cover costs for students in need. The Office of Student Financial Services anticipates being able to cover the full cost of the charge for dependent undergraduates with a "Parental Contribution" (calculated under standard federal guidelines) of less than $6,000. A $6,000 Parental Contribution is equivalent to an adjusted gross income of approximately $55,000. Half coverage of the charge will be covered for dependent undergraduates with a Parental Contribution of $6,000 to $10,000. A $10,000 Parental Contribution is equivalent to an adjusted gross income of approximately $70,000. Half coverage will also be provided to undergraduates receiving federal financial assistance as independent students.

An additional amount approximately equal to 7 percent of the charge income will be designated for support of graduate students.

10. Will the charge affect graduate fellows funded by the University, teaching assistants and assistant instructors?

No. The plan will provide for tuition benefits equivalent to the amount of the new charge.

11. Have alternatives to the imposition of the new infrastructure charge been explored?

In the answers to Questions 6 and 7, emphasis has been placed on a program for covering the whole $150.7 million gap in recurring funding by means of a partnership among all constituencies of the University. A student share of one third is in keeping with the fraction of total educational cost that students now pay in the form of tuition and fees and charges. Other kinds of charges could be substituted for the infrastructure charge, so that the contribution from students toward the funding gap remains in the range of 30 percent, but the present proposal matches the charge well to specific applications of funds, as required by the Texas Education Code.

12. Why can’t the athletics budget be used to address infrastructure needs?

The entire budget for men’s and women’s intercollegiate athletics makes up only 4 percent of the university’s total operating budget. It is not large enough to finance a very big portion of the $150.7 million recurring funding gap. If the entire athletics budget were used in one year to cover about one-third of the recurring institutional deficit, these funds would not be available the following year, as the athletics program would cease to exist.

The UT Austin athletics budget is almost wholly self-sustaining. Because the program is so successful, the University allocates little funding to intercollegiate athletics – which is not the case for most universities in the country. Most have programs that are far from self-sustaining and that require large subsidies from sources that otherwise would be used to operate the academic enterprise. Several years ago, UT Austin began to provide a subsidy to athletics to finance new women’s sports so that we would comply with Title IX requirements. That subsidy is being gradually discontinued and is being replaced by funding generated by the athletics program itself. The discontinued subsidy will remain part of the university’s operating budget and will be redirected to help with the University’s recurring funding gap. In this respect, the budget for intercollegiate athletics will indeed be helping to solve the overall problem.

13. The University is raising $1 billion in its Capital Campaign. Why can’t this money address infrastructure needs?

The University is approaching its goal of raising $1 billion in gifts to enhance academic excellence and to undergird its position as a national leader in higher education. The fund-raising campaign is in the fifth year of a planned seven-year term, and the campaign effort will continue through the full term. The raised money will increase faculty endowments, add student scholarships and fellowships, support innovative research and programs, and provide state-of-the-art facilities for faculty and students.

However, the Capital Campaign yields, to an overwhelming degree, restricted gifts — designated for specific purposes by the donors themselves and not available to address maintenance needs, ongoing salaries, or other core operational aspects of the University’s work. Donors want to enable the University to do something special, not just to operate on a routine basis. Of the $960 million raised by Dec. 31, 2001, only $1.6 million were unrestricted funds. Also, unrestricted money is typically nonrecurring; yet the funding gap is a recurring gap.

14. What does the term “recurring” mean and why is it important?

Most of the University’s operating costs are recurring in that they happen year after year. Salaries paid to faculty and staff and the costs for electricity provide good examples. If a staff member is hired at a salary of $40,000 per year, then $40,000 will be needed this year, next year, and the year after that, just to sustain the work done by that member. There is a recurring cost of $40,000 for this activity.

A nonrecurring cost is a one-time expense. A good example is the cost for construction of a new building. While the building will have a recurring cost of operation, it must be built only once to gain many years of service.

Recurring costs need to be financed by recurring income streams (income that can be expected to be renewed annually). Examples include income from tuition, fees and charges and state appropriations.

Nonrecurring costs can be covered from one-time income, for example from a gift or proceeds from a sale of land.

The funding gap now under discussion is a recurring amount. Over the next five years, the University needs to find new recurring sources in the amount of $150.7 million.

15. Can gifts provide recurring funding?

Most donors give money either all at once or in installments over a short period; thus almost all gifts are intrinsically nonrecurring. However, a gift can provide recurring income to the University if the donor designates it for “endowment,” which means that the donor’s choice is for the University to invest the gift rather than to spend it. The endowment will earn income, much like interest on a savings account. Some of the income is saved by adding it to the endowment, so that the endowment value keeps pace with inflation. The remainder of the income can be spent for “current use.” Since the earnings are annually recurring, an endowment produces recurring income for current use. At present, endowments in the UT System yield about 4.5 percent of value for current use; thus a donor who provides an endowment gift of $100,000 to support student scholarships gives rise to a recurring (annual) income of $4,500 that can be granted to students.

16. UT Austin has a lot of money in endowments. Why can’t it be spent to cover the forecast needs?

Endowments are funds directed by donors to be invested, rather than to be spent. A donor makes this choice because he or she desires to produce a permanently recurring income to support a specific purpose. The donor of the scholarship discussed just above chose to create an endowment in order to assure that the scholarships would be funded every year, on an inflation-protected basis, perpetually. When the University accepts an endowment, it is obligated not to spend the invested sum (the “principal” or “corpus”). Of course, it can spend the current-use income, but only for the purposes defined in the original gift agreement. For this reason, income from established endowments is already committed and cannot have much of a place in the plan to remedy the recurring funding gap.

New endowments established in the current campaign can contribute toward the plan, and the plan includes a role for them.

17. What is the Permanent University Fund?

In the 19th century, the leaders of Texas dedicated sizable public lands for support of its leading institutions of higher education. Income from the land, mainly oil and gas royalties, has been required by the Texas constitution to be invested, rather than spent. The Permanent University Fund (PUF) is the large endowment that has been accumulated from that income. Like other endowments, the PUF itself cannot be spent. Only income from it can be spent. Its income is directed by the Constitution toward UT Austin, Texas A&M University, and other institutions in the UT and Texas A&M systems.

18. What is the AUF? How much of it supports UT Austin?

The Available University Fund (AUF) is the annual spendable income from the Permanent University Fund. One third of the AUF goes to the Texas A&M System and two thirds to the UT System. Of the UT System share, 45 percent is dedicated to UT Austin to foster excellence.

There is a common misperception that UT Austin commands the resources of the $7.5 billion Permanent University Fund. While the PUF is managed by the UT System on behalf of all beneficiaries, it is not even predominantly dedicated to UT Austin. One-third of the PUF supports the Texas A&M System. The division of AUF income by the UT System implies that a little over 30 percent of the PUF supports UT Austin. The effective value of the PUF endowment for UT Austin is about $2.5 billion.

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