STATE OF THE UNIVERSITY:
SPRING 1998

I appreciate the opportunity to speak with you this afternoon and I thank all of you for coming.

First, let me bring you up to date on the status of the education budget in the Alabama Legislature. The budget has now passed both the House and the Senate. Because there are differences in the budgets passed by the two bodies, the budget will go to the conference committee for resolution of the differences. The House provided for a 4.6 percent increase for higher education, while the Senate version has a 6.2 percent increase. It is anticipated that the final budget will contain an increase somewhere between these two percentages. The legislature will meet three days this week and will reconvene for its final day on April 27.

With the expected increase in our state appropriation and an anticipated savings in the institutional contribution to the Retirement System of Alabama, it is our objective to provide employees with a significant pay increase, effective with the 1998-99 fiscal year. It is our hope that we will have a salary pool from all sources of 8.5 percent. I will ask the Budget Advisory Committee for a recommendation as to how the salary funds should be divided between across-the-board, merit and equity segments, once we are able to determine the funds available.

Additionally, we are optimistic that the Agricultural Economic Development Bond issue will be approved. It has cleared the House and should be approved by the Senate this week. If so, it will then be placed on the ballot for a vote. This bond issue would provide Auburn with about $30 million in capital improvement funds to address important facility needs in Agriculture. In addition, the General Education Bond issue still has a chance. If approved, it would provide about $15 million for AU and $3 million for AUM for other capital improvements.

Next, I want to address a number of actions taken recently by our Board of Trustees that are of interest to all of us. These actions need to be understood within the context of the economic and political environment in which we operate. So let me set the stage for the most recent events that occurred this month.

The past three years have been difficult, and demoralizing, for Auburn University. While states all around us have been increasing their funding for higher education, Alabama has been cutting back. On top of chronic underfunding that Auburn has received for most of its history, these cuts were particularly hurtful. As a result, our faculty salaries as a percentage of the regional average for doctoral-level institutions have fallen to 87 percent at our latest measurement. The backlog of facility needs for repair and renovation (what we call deferred maintenance) has grown to over $250 million. And we have had no funds to support areas that are growing or to enhance those that have the potential to achieve national stature.

The 21st Century Commission, in defining the institution's strategic direction for the immediate future, acknowledged the challenges present and provided a framework for these problems to be addressed. In a specially-called Board of Trustees meeting in July, 1997, I presented to the trustees a sharply focused plan that we felt would allow us to significantly reduce these problems over the next five years.

We concentrated on those matters over which we had control, assuming only that the growth in state support would keep up with inflation and recognizing that even that might be an optimistic forecast.

Let's review the basic elements of that plan. The most important goal that emerged from our planning effort and a goal that should be an overarching concern as we implement this plan is to maintain and where possible, selectively enhance the quality of Auburn's academic programs, thereby protecting and improving the institution's reputation for academic excellence.

The first major component of the plan is to raise additional revenue by increasing Auburn's tuition to the average of doctoral-level institutions in the Southern region over the next five years and by increasing to 25 percent the proportion of our students who are paying out-of-state tuition. The net result of these two changes will be to substantially increase our revenue, an outcome that is clearly needed because of the fewer dollars per student that Auburn has to work with than does our competition. Our goal is to bring faculty salaries up to 95 percent of the regional average by 2003.

The second major element of the plan is to reduce our costs. This is an effort which has been underway for the past three years. And, even though our costs per student are substantially below our competitors, this is a process that must continue. Whenever we have an administrative vacancy, we must look for ways we can perform those responsibilities without filling that position. We have and will continue to look at ways we can consolidate units to reduce our administrative overhead. And we need to consider contracting out any auxiliary operation where we have the potential to increase our net return and any activity that could be performed at a similar level of quality at a reduced expense by external agencies.

The third major component of our plan is to review our academic programs. Over time all of our programs need to be reviewed. We are currently concentrating on those that are less than 75 percent of the viability standards that have been established by the Alabama Commission on Higher Education. We are committed to a strategy of phasing out programs that are non-viable or consolidating them with other appropriate programs in such a way that will allow us to achieve an acceptable level of productivity and efficiency.

The final element of the plan is to reallocate resources. We are committed to a plan to reallocate 1 to 2 percent of our budget each year as a means to move dollars from low to higher priorities. The commitment this year is to use the 1 percent as a part of our salary pool because of the need to strengthen this area after three years of neglect. That is a significant reallocation. One percent this year amounts to $1.6 million.

This plan was accepted, even praised, by the board and we set about the process of implementing it, including the appointment of a committee to review all the academic programs that were below 75 percent of the viability standards.

At the January meeting, we presented a recommendation that tuition for 1998-99 be raised by 7.6 percent, a move calculated to be consistent with the plan that was approved. The board elected to table the issue of a tuition increase until it had heard the results of our review of academic programs. During this discussion, statements were made that the university had done little or nothing to reduce its costs.

At the beginning of the April 3 meeting of the trustees, I took the opportunity of responding to that accusation. Let me share with you some of my presentation.

"There was an implication at the January meeting that the university has done very little to reduce its costs and to improve its efficiency over the last few years. I believe that a careful examination of the record will indicate that substantial effort has been undertaken and that significant results have been achieved.

First, let me indicate that, in spite of a significant reduction in state funding and the resulting per-student resources substantially below our competition, we have managed to achieve a balanced budget in each of the last six years. We are financially sound, just significantly underfunded.

A look at the year-end financial statements will reveal that our personnel costs were reduced by over $15 million from 1994-95 to 1995-96. This was the result of the incentive that we provided for employee retirements and the conscious decision made not to fill many of the positions that were vacated. Overall, we reduced the number of positions by 348 for a savings of over $10 million, with most of the reduction occurring in non-teaching positions. The personnel cost has increased slightly from that initial hit, as we have allowed some positions to be refilled and we have provided some increases in compensation over the last two years. But, the personnel costs are still over $8 million less than they were three years ago. I would consider that to be a major cost reduction.

Over this decade, a total of 91 academic programs have been terminated or merged with other programs. This represents a reduction of 28 percent in our program inventory.

In addition, as was reported at the July meeting, we have taken a number of other steps to reduce costs and improve efficiency including:

The consolidation or elimination of six research and outreach centers, the movement of retirees to PEEHIP and the contracting out of the operation of our student health center.

At the same time, our data shows that Auburn's faculty have been more productive than their peers in this region , with a Student Credit Hour per full-time faculty equivalent (SCH/FTE) ratio that is 10 percent higher on the average and as well as more effective with student retention and graduation rates that are higher than regional averages at every juncture.

It is not my contention that further reductions in costs cannot or should not be achieved. But we do need to acknowledge that Auburn, according to comparative data from U.S. News & World Report, is one of the most efficient national universities in the country. This comparison is on the basis of educational expenditures per student, which is the accepted measurement of efficiency in higher education.

In fact, additional analysis indicates that Auburn spends fewer dollars per student in each area of its operation: instruction, administration, and total expenditures. The record is clear. Auburn is efficient and productive and has been even more so over the past few years.

Following my remarks, Dr. Paul Parks presented a report of our review of academic programs that were identified as non-viable. Before introducing Provost Parks, I made the following comments:

"As shown earlier, our analysis indicated that 91 degree programs had been discontinued over this decade, many of which were terminated with the others being merged into other programs. It should be noted that the cost reductions associated with these program terminations and mergers have been minimal because we have simply reduced our inventory of programs by dropping or merging those for which there has been very limited demand. However, this process has allowed us to make more efficient use of our resources. That is a process that should continue. It should be recognized that these actions represent significant cost avoidance i.e., we avoid the cost that would be necessary to build and maintain an academic program of acceptable quality. By discontinuing the programs, those costs are not incurred. We don't need to invest our scarce dollars in areas where the demand is low and where the need is not clearly demonstrated.

"To go beyond what we are currently doing and to drop academic programs that are viable, i.e., programs for which there is a clear need and a healthy demand, will require a conscious and deliberate change in the university's role and mission. That should be done only after very careful thought and a weighing of the costs and benefits of such action. I make that observation for two reasons.

"1. A land-grant university, more so than any other state institution, has an obligation to serve the needs of all people in the state. Dropping a program for which there is a significant demand would deprive a large number of citizens of services that they desire.

"As an example, I would cite our nursing program here at Auburn. One could argue that this program is less central to the university's land-grant mission than are other programs and that there are ample opportunities for students to earn a degree in nursing at other institutions in the state. Both observations would be true. However, a significant number of students obviously want to earn their degrees in nursing from Auburn, as indicated by our current enrollment of 430 students. Nursing, by comparative analysis, is a program of high quality here at Auburn and it is offered at a reasonable cost per student credit hour compared to other disciplines on our campus. One would need to weigh carefully what would be gained by dropping such a program. As an alternative to dropping the program, an attempt was made to reduce the administrative cost of nursing and to achieve better coordination of the nursing programs on our two campuses by consolidating nursing at AU and AUM into one school. But that proposal was not approved by the board, thereby discouraging other attempts at consolidation.

"2. Auburn is the most comprehensive university in Alabama. This is a status that has been achieved over a period of 140 years, in spite of inadequate funding and support. The transformation from the East Alabama Male College to the Agricultural and Mechanical College of Alabama to Alabama Polytechnic Institute and to Auburn University has not been easy. A decision to retreat from this comprehensive classification would represent a clear shift in mission. While such action may, in the final analysis, be warranted, that is a decision that needs in-depth analysis and wide input from the constituencies involved.

"The administration has given serious thought to actions the university might consider taking beyond the elimination or merger of non-viable programs, including major restructuring or reorganization of the institution. Along with the actions we have already taken, we believe that any changes of that nature should be sensitive to the long-term challenges facing the university while sustaining the essential character and mission of the institution.

"In conclusion, let me summarize my major points:

"1. I believe that Auburn University is a well-run, highly efficient institution. We are accomplishing more with less than, perhaps, any institution in the country.

"2. We feel that we have a plan in place, formulated through the efforts of many people over about a four-year period, that offers the best chance for us to deal with our problems in a realistic, but meaningful, way and preserve the academic quality of the university.

"My request to you is as follows:

"1. Approve the tuition increase that is presented to you today. That is the first step in the plan you approved.

"2. Allow us to fully implement the plan we have in place.

"Should you feel that further action is necessary that what we have proposed is not sufficient to deal with the problems we confront I ask you to consider the following approach:

"1. The first step would be to determine how much additional needs to be cut? How many programs, colleges, or schools need to be dropped? How many additional dollars need to be cut from the budget? Having a dollar figure to work toward would be helpful.

"2. The next step would be to determine what could be accomplished by this action. Where would the money saved be used and how would it make Auburn a better university? Can it be allocated to areas where there is a real potential to achieve national or international stature and/or to areas where there is strong and increasing demand. Those areas need to be identified in a careful way, using accurate and relevant criteria.

"The issues before us are of utmost importance. They require our careful attention and thoughtful response."

Provost Parks then presented the recommendations of the Academic Programs Review Committee, indicating that the administration had accepted and planned to implement these changes. The Committee proposed that 27 of the 41 programs reviewed be closed out or merged into other programs; three other programs are still under review. The remaining programs were recommended to be retained because they have the potential to become viable and/or were deemed to be central to the university's mission. Both Dr. Parks and I were impressed with the serious and conscientious way the committee, headed by Professor Drew Clark in English, did its work.

In spite of these significant steps, a majority of the board felt that further and more dramatic cost reductions were necessary and adopted a resolution, establishing a Commission to Review the Role of the University in the 21st Century. This commission, comprised of five trustees and five university representatives, had its first meeting yesterday.

The Role Commission has the authority to look at further program reductions and/or organizational structure changes that might tighten or reduce the institution's role and mission. This is a serious matter that demands careful analysis and deliberate action. I have pledged to the commission my cooperation in its work and will look forward to their report in September.

The board, subsequently, approved a tuition increase for this campus of 7.6 percent, allowing us to move ahead with our plans for revenue enhancement. We also need to proceed with other elements of that plan, which has not been abandoned. The trustees merely decided that we need to go beyond the recommendations of The 21st Century Commission and the plan we have in place to determine whether we can achieve our goals more rapidly.

The good news, then, is that it appears that funding this year will allow us to make significant progress toward our goal of bringing faculty salaries to a more competitive position. The not-so-good news is that the long-term impediments to adequate funding for higher education in this state have not been removed. The Commission to Review the University's Role will be examining, hopefully with full input from the faculty and administration, what additional changes need to be made at Auburn, given the economic and political environment in which we operate.