Messages from the Executive Vice President
June 16, 2004
UConn Health Center FY2005 Budget
To: The Health Center Community
From: Peter J. Deckers, M.D.
Executive Vice President for Health Affairs
Dean, School of Medicine
Over the past several months, many in the Health Center have been engaged in the development of the fiscal year 2005 (FY05) capital and operating budget. The capital budget process was completed in February and the FY05 Capital Spending Plan totaling $58 million was approved by the Board of Directors and the University of Connecticut Board of Trustees in March, 2004. It will become effective July 1, 2004.
Via the capital budget, the infusion of UCONN 21 dollars for education and research facilities will result in significant new capital activity across much of the campus including planning and design of a new research tower, renovations of the Patterson and Blue auditoria and the Link Room, upgrades to dental teaching clinics, major IT initiatives in Health Sciences Education, InfoEd, and IT infrastructure improvements. In addition, the clinical portion of the capital budget provides for clinical space expansion and significant new clinical equipment investments. This is the good news!
On the operating budget side, the Health Center’s Board of Directors approved our proposed FY05 $595 million operating budget at their June 14th meeting. The approved FY05 operating budget provides for expenditure increases that are 6.4% over FY04 projected expenditures of $559 million. Again, the good news is that the Health Center is on target toward meeting its FY04 budget projections and is expected to end FY04 with a small net gain. This result is largely due to the increasing profitability of the clinical operation evidenced by the turn-around of a $6.5 million FY02 loss in UMG to breakeven status in FY04 and a positive gain in the overall clinical operations of approximately $2.4 million for FY04. The FY05 operating budget projects the continuation of these highly favorable trends, resulting in net positive gains for the clinical operation. I personally credit the outstanding leadership of Dr. Steven Strongwater, his administrative and operational team, indeed, every member of the staff throughout the clinical operation, for this phenomenal financial turn-around. Everyone in the clinical operation is working smarter and harder with more energy and enthusiasm and, thereby, producing positive results to the clinical bottom-line. This ultimately benefits the entire Health Center organization. Thank you!!!
Sadly, the financial picture for the academic enterprise is less positive largely due to our heavy reliance on State funding to support our research and education activities. Just 36 years after the first classes matriculated, the Health Center is a still relatively young institution. Older academic health centers have had several decades to build and grow substantial endowments essential to support and underwrite the critical academic work. A number of our peer institutions have been able to build endowments that are 2 and 3 times the amount of ours – an important asset in providing needed support on a yearly basis for education and research. As we mature as an institution, I believe our increased focus on development efforts will one day provide a similar significant revenue stream for our academic programs. Today, and for the foreseeable future however, we must rely heavily upon State funding to support and underwrite the growth and development of our research and education programs.
As some of you may recall, the Legislative Session of 2003, which set the Biennium Budget for Fiscal Years 2004 and 2005, ended late with the passage of a state budget in August 2003, almost two months after the beginning of FY04. That session delivered upon the Health Center:
1) A reduction to our General Fund resulting from the adoption of an Early Retirement Incentive Program (ERIP) giving the Health Center only 50% of the dollar value of the general funded positions vacated by employees who took advantage of this incentive. This action impacted both FY2004 and FY2005;
2) A reduction to our General Fund as a result of a redistribution of the expected budget savings from a proposed consolidation of another higher education organization which did not include UCHC. The reductions were redistributed to all existing higher education organizations. This action impacted FY 2004 and FY 2005;
3) A reduction to our General Funds for FY 2005 of $2.0 million. The sequence of events is outlined below:
|FY 2004||FY 2005|
|The Governor’s proposed budget initially recommended that the General Fund appropriation for current services of -||$ 75,137,689||$ 76,584,516|
|1) ERIP reduction for the value of 50% of the positions vacated -||$ ( 1,144,873)||$ (1,194,963)|
|2) Redistribute expected Budget Reductions for all Higher Education Organizations (UCHC portion)||$ (243,972)||$ (529,607)|
|3) General Fund Reduction||$ -||$ (2,000,000)|
|Total General Fund Appropriation before 2004 session – mid-term||$ 73,748,844||$ 72,859,946|
|4) Mid–Term Adjustment; add for AHEC||$ 250,000|
|Total General Fund Appropriation||$ 73,748,844||$ 73,109,946|
|Reductions from Current Services||$ (1,388,845)||$ (3,474,670)|
This $3.5 million reduction is further compounded by the fact that, as our State appropriation has decreased, our fixed costs (including contractual wage increases) have added $ 8.5 million obligations in new fixed expenses for FY05 alone - together creating a nearly $12 million appropriation gap. Based on the CPI Medical Care Services Index, the gap between the level of State appropriation increase needed to meet current services and our actual FY05 State appropriation is over $14 million. This impact is illustrated in the following chart of the State’s general fund appropriation to us over the past several years.
Click on image to enlarge.
The FY05 operating budget incorporates many difficult choices – delay and/or deferral of critical new positions in support of our Signature Programs and research strategic plans, further reorganization of administrative functions in the Schools, and careful analysis of the institutional subsidy for academics in all departments and centers. Through the FY05 budget process that all have contributed so well to in the past several months, we have been able to reduce the $14 million current services gap to ($2.5 million). Hence, we find ourselves once again facing a serious financial shortfall which will require imposing very difficult cost reduction measures over the next several weeks and months if we are to achieve a balanced budget for FY05.
- An FTE reduction plan involving the elimination of roughly 30 filled and/or vacant positions will be implemented over the summer.
- Effective immediately, the Personnel Review Committee will implement a
freeze on current recruitment, recruitment requests, and/or position hiring
unless it meets one of the following conditions:
- Is critical to health and safety;
- Is a revenue generating or quality of care enhancing position within the clinical operation;
- Is a position within the Correctional Managed Health Care;
- Is a position fully funded from established research grants.
Continuation of the above restrictions beyond September 30th will be determined at that time when we should be able to assess whether these new measures successfully achieved budgetary targets. I have charged Susan Whetstone with responsibility for moving forward these measures.
I regret that it is necessary to implement these personnel actions. In a close-knit community such as ours, these are especially difficult and painful decisions. Nonetheless, we must continue our commitment to advancing the contributions of the Health Center to the people of our State within the fiscal constraints that have been imposed. I ask for your help in our efforts to achieve a balanced operating budget for FY05 and to demonstrate the Health Center’s capacity for meeting this next challenge.