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February 11, 2008

Strengthening UConn’s Value to Connecticut through Additional State Investment 2008 Legislative Priorities

UConn has a significant positive impact on the lives of increasing numbers of high achieving students, and as a result, on Connecticut’s economy. First and foremost, the University is reversing Connecticut’s brain drain. We are producing a talented workforce, graduating a range of professionals including doctors, dentists, nurses, engineers, teachers, lawyers, pharmacists and scientists, who contribute daily to Connecticut’s economy. Nationally renowned research activities, including stem cell, fuel cell and nanotechnology research, the technology incubator programs and the University’s work in training the next generation of entrepreneurs is growing and strengthening industry in the region. Through UConn, including the UConn Health Center, our strong research activities translate into attracting and retaining bright and highly skilled researchers who work and live in communities across the state.

A major component of the UConn contribution to the state’s economy is the UConn Health Center (UCHC). Founded in 1961, the UCHC is a unique entity within state government. It is the only public academic medical center in the state, one of 9 in New England and one of 125 across the country. The UCHC’s primary mission is education and research and is comprised of the School of Medicine, School of Dental Medicine and Graduate School in bio medical sciences. Researchers conduct more than $90 million per year of innovative basic science, clinical, epidemiological and biobehavioral sciences that are translated into advances in patient care, including ovarian cancer vaccines, hormone therapies for osteoporosis and stem cell research. The UCHC is host to more than 600 residents in training every year who practice and train in local hospitals. The UCHC includes the state’s only public hospital, John Dempsey Hospital (JDH), and its faculty practice, the UConn Medical Group. Because of its unique mission of education and research and translating that research to quality clinical care, the UCHC is a unique state asset, providing services that are distinct from any community hospital in the state.

The tremendous state investment of the UCONN 2000 and the 21st Century programs has helped propel the University of Connecticut to become the top-ranked public university in New England and a source of pride to the citizens of Connecticut who made it possible. UConn has constructed or significantly renovated scores of facilities, creating a statewide campus whose architecture has won numerous awards and whose physical improvement is keeping high achieving Connecticut students in-state for college. The UCHC has also begun to reap the benefits of the state’s critical investment in infrastructure. While the construction program has not been without its challenges, the University has a new construction management team in place that is implementing a corrective action plan and embracing the new accountability and oversight measures adopted into law earlier this year.

The results of UCONN 2000 are not just physical. Since the program began in 1995, not only has the size of our student body increased, so has the quality and diversity of our student body. From 1996 to fall 2007, average SAT scores for Storrs freshmen increased from 1113 to 1192. From fall 1995 to fall 2007, minority freshman enrollment increased by 100%. And this fall’s Storrs freshman class included 143 valedictorians and salutatorians bringing the total since 1995 to 928 at all campuses. Further, there has been a near-tripling in private support, and a near-doubling of externally funded research.

Dramatically improved infrastructure is not enough, however, for UConn to remain on its trajectory toward national leadership. The state must invest significantly in the operating budgets of the Storrs-based programs and the Health Center so that attracting outstanding students and recruiting and retaining excellent faculty can continue. U.S. News and World Report now ranks UConn 24th among all public universities in the country, yet our goal is to be in the top 20. Additional resources are needed to make that goal a reality. Funding is also vital to ensuring that UConn can expand its critical role in helping Connecticut as it builds a knowledge economy that will keep and attract industry to the region during the next century. A report issued by the Connecticut Economic Resource Center in 2005 indicated that Connecticut has had no net job growth in the last 15 years and no discernable business growth in the last 10 years. Increasing support for the technology transfer and commercialization of University research could reverse these trends.

To get UConn in the top 20 and keep Connecticut thriving, investment and attention is needed in the following key areas which will be explained in greater detail below:

  • Maintaining Current Services funding for the Storrs-based programs and the Health Center.
  • Obtaining Deficiency Funding as may be necessary at the Health Center’s John Dempsey Hospital
  • Securing Funding to Address the Disparity in Fringe Benefit Costs at the John Dempsey Hospital
  • Considering the results of the legislatively mandated study on the UCHC Clinical Facilities Plan as prepared by the Connecticut Academy of Science and Engineering (CASE) to address the long term problem at the John Dempsey Hospital
  • Funding for additional faculty.
  • Maintain and increase funding for eminent faculty researchers to spark economic growth.
  • Maintain funding for the Center for Entrepreneurship
  • Restoration of the Endowment Matching Grant Program by to reinstituting incentives for private giving that have made UConn’s fundraising efforts so successful and have lead to increased scholarships, endowed chairs and academic quality at the University.
  • Secure funding to expand UConn’s Nanotechnology infrastructure.

Current Services Funding for the University and the Health Center

First and foremost, State support for the Storrs-based programs and the Health Center must be at a level that maintains current services. Since 1991, the state share of the University’s total operating budget has diminished from 50% to 35% for the Storrs and regional campuses. At the Health Center, state support went from 20% in 1991 to 16.2% in 2006 to 18.2% in 2008. In order to maintain and improve the academic experience for students at UConn, continued current services funding is essential.

Maintaining Current Services Funding at the University of Connecticut Health Center (UCHC)

During the 2007 Legislative Session, we shared with you the many financial challenges facing the UCHC. To remind you, the fiscal year ending 2006 was the most financially challenging for the UCHC since 2000, when the state legislature supported a one-time appropriation to address the John Dempsey Hospital (JDH) deficit and additional funding to support biomedical research activities at the UCHC. With that financial assistance we were asked to focus programs and pursue operational efficiencies. Since 2000, we achieved $78 million in cost reductions and revenue enhancements. During that time, the hospital turned around financially and became the only profit center at the UCHC. However the revenues generated by the hospital were needed to subsidize the education and research programs. As a result, JDH had to forego fully funding depreciation and pursing capital reinvestment opportunities. Also, during the 2002 to 2007 time period, state funding for the teaching and research missions at the UCHC remained flat (state support, the mainstay of the academic enterprise, saw a total annual rate of increase of only 0.8%). As a result, from 2002 to 2006, it was the positive profit margin at the JDH that subsidized the teaching and research arms of the UCHC enterprise to the tune of $19.3 million in total. The hospital, at capacity, and suffering from the same low reimbursement structure that plagues hospitals statewide, in 2007 was no longer in a position to subsidize the “academic gap” (the difference between the costs associated with the research and education enterprise and the revenues received for that purpose).

The General Assembly recognized this challenge and responded by providing the necessary funding to fill the Academic Gap in both FY 08 and FY 09. This recognition and support of funds is critical to the financial stability of the Schools of Medicine and Dental Medicine and our research operation, because our hospital is no longer able to provide support for the academic program. This funding must be maintained.

Obtaining Deficiency Funding as may be necessary at the UCHC

The UCHC budget for FY 08 is $713 million. The State of Connecticut remains a significant resource, providing approximately 18.2% of our total budget. State support has traditionally been used exclusively to fund education and research, not clinical activity. The remaining 81.8% in revenues is generated from non-state sources (clinical revenue, research grants, tuition and fees, philanthropy and outside contracts). As we discussed last year with the General Assembly, the hospital faces a long term structural problem. It is very small, has a disproportionately low number of medical/surgical beds, suffers from the same low reimbursement rates as other hospitals statewide, has a unique cost structure by virtue of its status as a state entity and, as part if its public-service mission, provides a number of valuable medical services, including neonatal intensive care, inpatient psychiatry and dental clinics that unfortunately are reimbursed at a fraction of actual cost. The General Assembly recognized that there is a long-term problem at JDH that demands a long-term solution, and commissioned a study by CASE (The Connecticut Academy of Science and Engineering), which is nearing completion. The legislatively mandated study will analyze the UCHC clinical facilities plan, needs of the Medical and Dental Schools, as well as the impact on area hospitals and the region’s economy.

We knew that, given the structural financial problem at the hospital, FY 08, FY 09 and beyond would not be easy. This assumption has proven correct. The UCHC is facing another deficit. As of December 2007, the UCHC was facing a deficit of $10.3 million year-to-date. The key driver of the deficit is the hospital, and with only 108 medical/surgical beds it is impossible to break even in the current healthcare environment, particularly with state fringe benefits. Although the General Assembly appropriated significant increases in Medicaid, the distribution formula adopted by DSS provides virtually no relief to UConn. While the statewide hospital average of Medicaid increases is at 20%, JDH will only receive a 2% rate increase. Our present year end forecast estimates a deficiency at approximately $22 million.

We are doing everything we can to save money without sacrificing revenue streams. We have secured the assistance of PriceWaterhouseCoopers in this regard, but even they acknowledged that the low hanging fruit is gone with the cost containment revenue enhancement efforts of the last eight years. We ask the General Assembly to fund the likely deficiency and maintain the integrity of the Schools and clinical operations that support its education and research missions, while the CASE recommendations provide the blueprint for the structural change necessary to achieve a stable future.

Securing Funding to Address Disparity in Fringe Benefit Costs at the John Dempsey Hospital

It is important to note that while there has traditionally been no state support in the hospital, JDH pays state fringe benefit rates and participates in collective bargaining and statewide labor contracts by virtue of its public status. As a state entity, JDH has fringe rates significantly higher than other hospitals. For FY 06, the state fringe rate was 37.11 %, the CHA member average was 28.93%, and the dollar value difference between our fringe benefit rate and the CHA member average for the year was $6.3 million. The ’07 and ’08 state fringe benefit rate exceeds 40%. JDH has to support the cost of fringe benefits for its employees from clinical revenues.

Last session, the General Assembly for the first time, recognized the burden placed on the hospital and budgeted for the State Comptroller to pay from her fringe benefit account, up to $3.6 million of the fringe benefit costs for JDH employees who are members of a state-wide bargaining unit. We ask that this funding be maintained and increased by $7.4 million to cover the full disparity in fringe benefit costs at the JDH, estimated at $11 million for FY 09.

Clinical Facilities Plan at the UCHC

The John Dempsey Hospital (JDH) opened in 1975 and is the state’s only public university acute care hospital. It has had no major renovations or upgrades in its physical plant since it opened over 30 years ago. At 224 fully staffed and licensed beds, 116 are very specialized (Neo-Natal, Prison, Psychiatry, Maternity), leaving only 108 medical/surgical (flexible) beds. The second smallest academic health center hospital in the United States, JDH is undersized, outdated and inadequate to accommodate today’s evolving standards of care, technologies and patient/provider expectations throughout the institution, including operating rooms, inpatient rooms, neo-natal intensive care unit, outpatient diagnostic and treatment areas and support spaces. Demand for our services continues to grow: admissions, bed occupancy rates, and outpatient visits as well as emergency room, radiology and rehab visits, have been on a steady incline.

With necessary and significant state support in 2000 and 2001 and a University promise to improve operating results, the John Dempsey Hospital saw profits from 2002-2006 because of increases in patient volumes, expense management and revenue enhancements. Financial stability is now stymied by physical constraints. We must move on a long-term solution, because today’s financial losses will only worsen. The University’s new President, Michael J. Hogan, is considering a host of options with the region’s hospitals to find a solution, provided it contributes to building the quality of the Schools of Medicine and Dental Medicine. The strength of these schools, both in academics and research, is critical to the University’s growing national stature and to Connecticut’s economic development and healthcare delivery system. The State University hospital exists because of the schools and the research enterprise, but the status quo on hospital space is not sufficient to maintain the financial and service status quo. Equally compelling is our importance to the area’s citizens, who count on UCHC for care, and to the region’s other hospitals, who depend on us for the interns and residents who staff their facilities as well as our ability to help attract and retain high quality physicians and other health professionals to the region and state. A long-term solution is needed.

We believe the framework for a solution will come from the CASE study. We look forward to its recommendations and the opportunity for a complete dialogue regarding the future of the UCHC clinical facilities and the structural challenges facing the Health Center.

Funding for Additional Faculty to Meet Increased Enrollment

The University is requesting an additional $5.2 million in FY 09 in above current services funding to hire additional faculty to meet the academic needs of an ever-increasing student body. Undergraduate enrollment has increased by roughly 6,000 students since 1995 – from 14,667 students in 1995 to 20,846 today. During this same period, total enrollment in all programs increased from 22,973 to 28,677.

The University’s planned enrollment increase has understandably been a challenge. Our student to faculty ratio (based on the U.S. News &World Report formula) increased from 14:1 in 1995 to a high of 18:1 in 2003 following the state’s Early Retirement Incentive Program (ERIP). The ratio is currently 17:1. However, our goal is to achieve a student to faculty ratio of 15:1, similar to the ratios that exist at our peer institutions. To reach this goal, UConn would need to hire an additional 175 positions over the next five years. The hires would be made in areas that respond to student demand, offer greatest research opportunity and tie to the state’s economic development. The initial positions would be in the fields that conformed to the state’s workforce needs, namely science, technology and financial services. All new hires would be active in both instruction and research.

We need to continue to enrich the educational experience of our students and, equally important, strengthen our research and scholarly activity. The University’s plan to increase full-time faculty is designed to achieve four goals: enhance the quality of the student experience, further the state’s economic growth through research and workforce development, solidify the University’s growing national reputation, and maximize the investment of parents and all taxpayers by ensuring that undergraduate students can graduate in four years.

The University of Connecticut’s role as the State’s public research university imposes a special responsibility. Our faculty not only convey knowledge in the classroom or lab; they also generate new knowledge, contributing to the quality of life and economic development of the state and the intellectual vitality of our own institution. Strategic choices in faculty hiring will also generate more grant income which will, in turn, enable the University to invest more in the research enterprise. New facilities, private endowments and excellent new hires have led to a growth in Storrs-based research awards from $53.4 million in FY ’95 to $91.7 million in FY ’06. Though impressive, this amount of funded research falls short when compared to our peers. The level of research funding is important for two reasons. First, it stands as a proxy for the degree of advanced scholarly activity on campus. Second, and more concretely, research funding provides the non-State resources that also serve to enhance the academic program.

Equally important, our proposed increase in instructional capacity will help ensure that our undergraduate students graduate in four years as a matter of course. While our undergraduate students at Storrs on average graduate in 4.3 years compared to our 58 Public Research Peers’ average of 4.5, and our 6 year graduation rate is very high among the nation’s public universities, the goal for almost all of our undergraduate students should be completing a degree in four years. Facilitating timely degree attainment will make better use of state operating and capital resources, enable more students to take advantage of a UConn education—and, not insignificantly, save parents and students the costs associated with the need for an extra semester or more. This should make UConn’s already competitive price an even bigger value for Connecticut parents.

Maintain and Increase Funding to Attract Eminent Faculty Researchers & Spark Economic Growth

In today’s increasingly competitive global marketplace, Connecticut will only continue to prosper if it continues to support university research, innovation, and technology transfer. Following in the footsteps of other states like South Carolina and Georgia, which have made significant state investments in these economic development activities, Connecticut began the Eminent Faculty program in 2006 after the passage of the 21st Century Jobs legislation.

The Eminent Faculty program was established to attract faculty skilled in commercialization and technology transfer to UConn to promote economic development. $2 million was appropriated in both FY 07 and FY 09 to support the first Eminent Faculty research team. After an internal competition, the University made the very prudent, but difficult decision to commit all available funding to a sustainable energy, including fuel cell research team given the strength of the University’s Global Fuel Cell Center and the industry interest in the state. Due to generous corporate support from UTC-Power, the Northeast Utilities Foundation and Fuel Cell Energy, a $2 million industry match has been raised. Combined with the state funding, the industry support will allow UConn to recruit world-class researchers and additional faculty members with expertise in the area of sustainable energy, especially fuel cells.

However, one Eminent Faculty research team is not sufficient to promote long-term economic growth across a variety of industries in our region. It is for this reason that the University is requesting an additional $4 million in funding to support a second Eminent Faculty Research team. In fact, the Office of Workforce Competitiveness has recommended in its draft report entitled “Investing in Institutionally-Based, Shared Use Nanotechnology Facilities for Research, Education and Product Development” that the University be given an additional $4 million to attract an Eminent Faculty team in Nanotechnology to bolster Connecticut’s economic development in this important industry.

It is critical to maintain and increase funding for this program to enable the University to enhance existing research strengths and expand our commercialization efforts.

Maintain Funding for the Center for Entrepreneurship and Innovation

The Center for Entrepreneurship and Innovation (CCEI) was established in 2006 when the 21st Century Jobs Bill was enacted and funding was provided in the state budget. Created as a partnership between UConn’s Schools of Business and Law, the CCEI is already providing a pipeline of talented, knowledgeable, and skilled entrepreneurs to the State’s economy. The Center facilitates the development of technology businesses in Connecticut and enhances Connecticut’s business climate by helping new as well as existing companies solve the complex business and legal problems they often face upon a project’s start-up. Since the Center opened for business in January 2007, more than 130 companies, from a wide range of industries, have received assistance, with an additional 45 scheduled for the coming Spring. And the School of Business now offers expanded curricular concentrations in entrepreneurship at the undergraduate, MBA, and doctoral level, while the School of Law now offers a clinical course as well as an advanced fieldwork course in intellectual property law.

Restoring the Endowment Matching Grant Program

The endowment state matching grant program at the University began in 1995 and has been a valuable inducement to UConn donors. The program has helped the University increase its endowment from $50 million in 1995 to nearly $336 million today.

Unfortunately, in 2004 the state significantly scaled back the extremely successful Endowment State Matching Grant program to the point where the public colleges and universities could no longer use the state match as an incentive for donors to contribute to their endowments. The amendments enacted in 2004 prohibit the release of any state match for privately raised endowed funds until the State’s Rainy Fund reaches 10% of the General Fund budget. Currently the Rainy Day Fund level is $1.38 billion and it would need to be increased to $1.63 billion in order for the state match to be released. With no certainty as to whether or when the trigger amount would be achieved, the program has been rendered useless to the public colleges and universities as a reliable incentive for prospective donors. In fact, the UConn Foundation has discontinued communicating to donors about the expectation of receiving the state match and the Foundation’s independent auditors will no longer permit it to recognize the amount due from the State under this program as an Accounts Receivable on our balance sheet.

Clearly, the Rainy Day Fund trigger needs to be eliminated so that donors have an incentive to invest particularly since the UConn Foundation is in the beginning stages of launching a new major capital campaign. The success of the upcoming campaign is vitally important to the University’s goal of becoming one of the top 20 public research universities in the United States. While the University has seen dramatic growth in its endowment over the past 12 years – due in large part to the prior success of the matching grant program – UConn’s level of endowment is substantially below all other public research universities currently ranked in the top 25 by U.S. News and World Report. Currently, UConn is the only university in the top 25 that is reporting less than $1 billion in endowment at present.

The state endowment matching program has proven to be an effective incentive program and the University requests that the Rainy Day Fund Trigger be removed.

Securing Funding to Expand UConn’s Nanotechnology Infrastructure

The Connecticut Advisory Council on Nanotechnology identifies nanotechnology as “critical to the future competitiveness of Connecticut’s diverse manufacturing sectors – from aerospace to advanced materials to fuel cells to pharmaceuticals and biotechnology.” UConn is well poised to ensure that Connecticut’s industrial base is not left behind in this important field. Across its Storrs and Health Center campuses there are nearly 80 faculty members actively engaged in funded nanotechnology research and more than $25 million in funded nanotech research over the past three years, involving a broad range of nanotechnology areas from functional and structural materials, optoelectronic and photonicnanosized devices to biologically-related nanostructured materials and devices to nanomedicine. Additionally, the University has amassed a nanotechnology infrastructure of advanced instrumentation, cell modeling capabilities and clean room facilities valued at more than $38 million. [1]

Much more investment is needed, however, for Connecticut to maintain its competitiveness in this rapidly evolving field. In its draft report entitled, “Investing in Institutionally-Based, Shared Use Nanotechnology Facilities for Research, Education and Product Development,” Connecticut’s Office of Workforce Competitiveness calls for an investment in equipment of $10.2 million and $8.75 million ($1.75 million a year for five years) in technical support staff at UConn. This investment would allow for the purchase of state-of-the-art instrumentation critical to the manufacturing sector and provide technical staff to make the instrumentation available to industry, researchers, faculty and students.

[1] Office of Workforce Competitiveness Report entitled “Investing in Institutionally-Based, Shared Use Nanotechnology Facilities for Research, Education and Product Development