Penn State Officials Talk Budget Deficit, Tuition Increases During Virtual Town Halls

Throughout two virtual town halls on Wednesday, Penn State President Neeli Bendapudi bluntly said balancing the university’s budget could be the biggest challenge of her young tenure.

Penn State operated at nearly a $200 million deficit throughout the 2021-22 fiscal year, prompting a new university-wide “strategic hiring freeze” that’s expected to stretch through at least summer 2023. Many factors increased that deficit, officials said, including enrollment declines, limited state funding, COVID-19-related economic pressures and nationwide inflation.

Bendapudi said the university received an exception from its Board of Trustees to approve its next fiscal year budget in September rather than this past July, when fiscal budgets are typically considered each year. The board gave Penn State until the summer of 2025 to balance its budget entirely.

“It’s a structural deficit, meaning it’s not a one-time deal. We need to figure out an answer,” Bendapudi said. “The board is not the bad guy here…No one can run up a deficit forever. We need to be good stewards of our resources so we can invest in our students, invest in our faculty and staff and make Penn State better.”

The University’s Budget and Operations

Sara Thorndike, Penn State’s senior vice president for finance and business, said Wednesday that the university’s balance sheet is “very healthy.” Current budget revisions for the upcoming fiscal year will include a 3% rescission from previous terms, which should save the university about $46.2 million. The university is also working with the National Association of College and University Business Officers (NACUBO) to examine how other institutions have navigated financial pressures, on top of reconsidering its current budget allocation model.

A notable challenge Penn State faces, Thorndike said, comes from its endowment funds, including the $2.2 billion raised through the university’s “A Greater Penn State for 21st Century Excellence” campaign. Only about 1% of the endowment is unrestricted, preventing the university from using it to curb rising tuition rates or offset budget challenges. Endowment funds typically support student success by establishing scholarships and providing other financial aid.

Thorndike said Penn State has temporarily countered its mounting deficit in recent years by drawing on its central financial reserves to cover recurring expenses. That process, she said, is not sustainable if the university hopes to successfully balance its budget and grow over the next three years.

“This is a challenge, but it is not a crisis,” Thorndike said. “We really have some runway here to get our operating budget in order and work with everybody to do that. I’m confident we’re taking the steps forward that will get us in a great place.”

Despite Penn State’s financial duress, officials on Wednesday reiterated the university is not planning to trim back its large scope. Justin Schwartz, the interim executive vice president and provost, said Penn State has no plans to cut academic programs, while Benapudi said her administration is not considering closing any Commonwealth Campuses.

This past spring, Penn State Altoona said it would cut at least six academic programs that observe shrinking enrollment, according to the Altoona Mirror. Discontinued programs included mathematics and political science courses, plus a few associate’s degree programs.

Jennifer Wilkes, Penn State’s interim vice president of human resources, said the university is not considering implementing university-wide furloughs.

“We have no plans for mass layoffs. There may be some personnel changes in units, largely based to attrition or not backfilling vacant positions,” she said. “And while some reductions in some units are possible, we are not planning for any mass layoffs.”

While its hiring freeze continues, Penn State has not halted recruiting altogether. The university is still committed to filling “critical roles,” including those that support safety, student success and compliance, according to its announcement in August. The hiring freeze does not affect student jobs, graduate assistantships or positions that are funded entirely by external grants or contracts.

Penn State drew scrutiny recently when, amidst the strategic hiring freeze, it announced a high-profile hire. Matt Melvin, a former executive at the University of Kansas, was brought on as vice president overseeing a new, university-wide Enrollment Management Office. The office’s creation comes after the university estimates its Commonwealth Campus enrollment has declined by about 20% over the last five years.

An ‘Unavoidable Need’ to Increase Tuition

The second and final town hall Penn State hosted on Wednesday focused on student concerns, namely rising tuition rates. In July, university trustees agreed to raise 2022-23 University Park tuition rates by 6% for Pennsylvania resident undergraduates and 6% for non-Pennsylvania resident undergraduates. Commonwealth Campus tuition increased by 2% and 3% for in-state and out-of-state undergraduates, respectively.

Penn State students whose families annually earn $75,000 or less will receive grants to offset tuition increases, keeping rates flat for the 2022-23 year. During Wednesday’s town hall, Thorndike said the university would “love” to continue that policy moving forward but couldn’t commit to doing so until it gets a better grip on its budget.

University officials said there was an “unavoidable need” to raise tuition due to Penn State’s budget deficit, as well as limited state funding. This summer, Pennsylvania’s General Assembly kept Penn State’s general support appropriation at $242.1 million for the third straight year. Those funds are used solely for the university’s education budget, allowing Penn State to restrain in-state tuition rates and support academic programs. Still, Penn State’s tuition for in-state students remains the highest among the Big Ten’s non-private institutions.

Penn State requested a $12.1 million increase to its general support funding, which gained support from Governor Tom Wolf. That appropriation last grew when the university received a 2% increase for the 2019-20 fiscal year.

“Think of how unfair it is, in a way,” Bendapudi said. “When we get a Pennsylvania student that we educate, we get far less support from the state, per student, even though we educate more Pennsylvanians [than other schools].”

Wolf plans to direct more than $30 million in American Rescue Plan funds to Penn State, Pitt, Temple and Lincoln University — the commonwealth’s four state-related institutions. Penn State would receive the $12.1 million it had originally requested as a general support increase.

On Wednesday, university officials said they had not yet received those funds from the governor’s office, although they confirmed that the one-time funds are on the way. Penn State did not say how the money would be used but noted it will “support student success.”

“We still have not received those funds, and we don’t yet know exactly when we will. It’s a challenge to budget for that money when we haven’t yet received it,” said Zack Moore, Penn State’s vice president for government and community affairs. “It would really not be prudent to plan multi-year or long-term budget expenditures based on one-time funds.”

Penn State’s raised tuition rates were announced just a few months after the university increased room and board rates for the 2022-23 academic year. The average Penn State student — one living in a standard double room with a mid-level meal plan — will pay $212 more per semester to live on campus.

This week, U.S. News & World Report rated Penn State the 207th-best school for value out of 223 national universities. It ranked last among all Big Ten institutions.

What’s Next?

Although the university is managing a handful of strategies to balance its budget, the next significant step comes later this month when trustees will meet to propose and potentially approve the university’s 2022-2023 fiscal year budget.

The board’s Committee on Finance, Business and Capital Planning will vote on whether to recommend the proposed budget for approval during a meeting on Sept. 22 at the Penn Stater Hotel and Conference Center. If approved, it will move on for full board consideration on Sept. 23.

September’s Board of Trustees meeting will begin at 1 p.m. on Sept. 23, at the Eric J. Barron Innovation Hub in downtown State College. A full agenda is available online. The meeting is open to the public and will be available via an online stream.