Faculty and Staff:

The process of cutting $5,610,200 from our budget has been most difficult. Countless hours have been devoted to reviewing every aspect of our University budget and assessing how we might best make a reduction of this magnitude. The most difficult aspect of this process has been trying to determine how we will find $5.6 million with only five months left in the current fiscal year. Nearly two-thirds of the University's budget has already been spent this year, yet the total cut must be achieved before June 30. Of the $5,610,200, $3,228,600 is a recurring cut and must be taken from our base budget on a permanent basis. The non-recurring cut is needed to balance the state's books this fiscal year. The recurring cut is needed to reduce the total state budget.

As Regent Earl Fischer reminded me, however, the spirit of Western has been built on numerous constructive institutional responses to difficult challenges. With that in mind, it is appropriate that I describe for you the objective process we have followed. Three weeks ago, I met with the Vice Presidents, Division Heads, and Deans and their respective budget personnel to begin the process of making reduction decisions. At the outset, I described my desire to avoid across-the-board cuts, and to protect our core academic programs and the physical integrity of our campus. I also pledged to protect all spending in the academic quality initiative which the Board approved last fall. As the process moved along, I added an additional intent which was to limit each division's cut to an amount not to exceed that division's percentage share of the total University unrestricted budget. Even as decisions have become more difficult, we have been able to accommodate these objectives.

At my first meeting with campus leadership, I distributed to everyone present a list of all campus education and general expenditures and the amount of money budgeted throughout our various academic and administrative departments. I asked each of the participants to take the rest of that week to identify functions, programs, and operations which could be reduced or eliminated and to achieve a total University reduction of $7 million. I stressed the importance of objectivity in this exercise. Upon receiving written recommendations, I tabulated the responses in an attempt to find a degree of consensuses regarding targeted functions. After ruling out academic majors and minors, I returned to the group a list of targeted areas which they collectively had produced. We spent many hours going through these potential cuts before settling on the items included in this document.

While these discussions failed to identify program reductions and eliminations sufficient to achieve our total budget cut requirement, we were able to get nearly halfway there in both non-recurring and recurring dollars. Perhaps more importantly, however, we were also able to identify a series of policy changes which will allow us to operate as a more efficient university and to generate additional dollars to fund future institutional priorities.

When it was determined that we had achieved as much consensus as possible with regard to centralized university-wide cuts and policy changes, we then turned to the divisions to make reduction decisions equal to a proportionate share of the remaining dollars needed.

Before going into the list of reductions, it is important for the campus to understand the need for efficiency in areas which were not reduced. We chose not to simply apply across-the-board cuts to college or departmental budgets or accounts within departmental budgets. Our primary intent was to identify programs that we could reduce or eliminate, thereby protecting as much of the operating capacity for our priority programs as possible. It is essential for all departments to be exceedingly thoughtful with travel and other operating expenses. There are six areas, however, that need specific departmental attention.

The first area is organizational dues and subscriptions. Much of our annual investment in dues and subscriptions are in Library budgets which is to be expected. Most departments, however, also spend significant sums on dues and subscriptions. We will eliminate $42,000 in organizational dues which have historically been paid out of general institutional expenses. I would encourage all departments to review your total budgetary expenditures for dues and subscriptions and see if there are some memberships or publications you can live without.

A second area relates to food and departmental dining expenses. It is impossible to make administrative decisions regarding efficiencies related to food without knowing the departmental needs and intentions with each expenditure. We do, however, spend a lot of money each year on food and dining expenditures. While no reductions were made to these budgets, I would encourage all department heads to closely review dining-related expenditures and see where efficiencies might be achieved. I would also encourage as much on-campus dining as possible as WKU auxiliary programs receive revenue from campus food services which is in turn invested in improved campus dining facilities.

The third area that received considerable discussion but no specific action relates to wireless telephone usage. Many departments have already exceeded their budget allotments for telephone service with nearly half the year remaining. I would encourage all department heads to review their approved cell phone list and decide who needs a cell phone to effectively address University duties and who does not.

The fourth area of concern and an area which will be monitored closely in the future is the matter of postage expenses throughout our departments. It was determined that each department should curtail (except in emergency situations) home delivery of departmental mail for employees. All units are encouraged to use campus mail delivery.

The fifth expense which departments are being asked to reduce relates to advertising for vacant positions. We can dramatically reduce our campus expenditures for ads in commercial papers. Evidence shows that ads in commercial newspapers are the least productive method for producing candidates for faculty and senior administrative positions. Restrict your search communication, whenever possible or practical, to web-based methods and professional journals related to the position and the discipline. Office associates, skilled trades, and facilities positions, which rely on the local job market, may need local advertising. The Office of Human Resources can assist in such decisions.

The sixth area which needs departmental scrutiny is printing expenses. Departments are encouraged to review the quantity and frequency of publications. Set strategic priorities and use electronic methods when practical.

All of these departmental expenditures (dues and subscriptions, dining, cell phones, postage, newspaper advertising, and printing) can be reduced. Funds saved in these areas will not be captured by any central budgeting process. All savings from reduced activity in these areas will accrue to the benefit of the department which has identified the savings. Therefore, each department has the incentive to achieve savings in these areas.

Energy Consumption
Another area which received considerable discussion is the matter of energy consumption and utility-related expenditures. Our utility costs are going up each year. We engaged in considerable debate as to whether to reduce utility budgets and force savings or try to achieve efficiencies to minimize year-end deficits in utility accounts. We chose the latter. In order to reduce our expenditures on utilities (and minimize the need for increased utility expenditures in FY 04-05), we will immediately implement the following utility savings measures.

Electricity: With campus safety being our guide, we will reduce unnecessary interior and exterior lighting. Electricity represents 65 percent of our total utility expenditure and lighting represents 30 percent of our electrical use. We will immediately implement the following actions:

Gas and Steam: Reduce building air and water temperatures especially during off hours, i.e., nights and evenings. Specific actions include:

Water and Waste Water: Explore low cost/no cost solutions for reducing water usage and negotiate credits for water not entering the municipal sewer system. Specific actions include:

POLICY CHANGES
The following action will be presented to the Board of Regents at a called meeting tomorrow, Friday, February 13. The Board will be asked to take action on a series of institutional policy adjustments which will affect our capacity to maintain a stable budget, particularly over the next two years. These matters become even more important now that we know there will be little, if any, additional state funding in the coming biennium. Some of these policy changes result in efficiencies which help meet our recurring or non-recurring budget reduction target. Others are being implemented to provide future central revenue or future departmental revenue. A few are intended to reduce bureaucracy and a growing volume of costly transactions.

1. New Budgeting Format
One of the most important changes coming out of this process will be a new budgeting format. Our current budget does not lend itself to accurate tracking of expenditures. Many departments are using lapsed salary dollars to fund departmental operations and using operating dollars to fund personnel expenses. Before the FY 04-05 budget is complete, we will create specific account titles and require that money in those specific accounts be used for the purposes for which it was intended. In this way, we will be better able to track where our money is appropriated, how it is spent, and, specifically, how the university's needs are being met from a financial standpoint.

2. Carry Forward Money
For the last five years, we have been allowing each division to retain all of its carry forward dollars from one year to the next. Even though nearly all of it is designated for specific purposes, it was an easy target for a state budget-balancing action. Beginning in FY 04-05, a new carry forward policy will be followed. Divisions will be able to retain 50 percent of their fund balance at the end of the fiscal year and 50 percent will be forwarded to the central fund balance. The central fund balance will then be allocated and spent on university priorities. Requests from divisions to earmark dollars being sent forward to the central fund balance will be considered. Revenue-dependent and grant/contract accounts will be excluded from this policy.

3. Vacation Day Accrual
Effective immediately, WKU is reducing its unused vacation day carry forward policy. The number of unused vacation days an employee can carry from one fiscal year to the next is being reduced from 24 days to 20 days with any excess being converted to sick days on June 30. Our current vacation day carry forward policy is an unbudgeted expense to the university of some $255,000. The new policy will produce a one-time savings of approximately $50,000 and will reduce the University's unbudgeted expenses.

4. Credit Card Charges
The University has been paying the bank charges when families charge tuition and fees to a credit card. A Request for Proposal (RFP) will be issued as soon as possible to contract with a third-party vendor through which tuition may be charged to a credit card. The third-party vendor will charge the appropriate credit card usage fees to the consumer who chooses a credit card method for the payment of tuition. Credit card payment is a consumer convenience and the consumer often receives benefits from credit card companies. By creating a third-party partner for these transactions, we will no longer have to pay service charges. This will produce a savings of approximately $200,000.

5.Tuition Payment Plan
We will initiate a Request for Proposal (RFP) process to select a third-party payment plan partner for students and families who seek an option to spread tuition payments over a monthly, quarterly, or semi-annual payment plan. It is impossible to predict the financial efficiencies which this policy will provide, but it is predicted that it will reduce our collections expense and default rate. It will also provide a more convenient payment option for many families who have difficulty paying tuition all at once at the beginning of a semester or summer term.

6. Vacant Positions and Fringe Benefits
Vacant positions must be filled within two years of coming open or lose the dollars in the position salary line. This will not produce specific dollars to meet our budget cut, but it will do two positive things. First it will allow departments which are currently using personnel dollars for operating expenses to transfer those dollars into a true operating account. It will also force departments to move searches along in a more expedient manner or determine that a specific position is not needed. We will also cease to allocate fringe benefit money to vacant positions. When the positions are filled, the fringe benefit money will be added to a salary line. When a position is vacated, it will be withdrawn. Fringe benefit money will only be reallocated for employee fringe benefit purposes. The intention here is to more accurately reflect accrual of personnel costs and expenditures. This policy will be evaluated over time.

7. Medical Insurance on Flexible Benefits Positions
Effective immediately, we will change one policy related to university contributions to the self-insured medical insurance fund. When an employee waives medical coverage two things happen. First, $191 is directed into a flexible spending account for use by that employee during the fiscal year. Second, the rest of the university's contribution, $190, is deposited into the medical insurance plan. In years when revenues exceed expenses, this deposit adds to the medical insurance reserve fund. We will discontinue the $190 deposit into the medical insurance plan. With 180 employees (including Auxiliary) in our flex program, this will result in a savings of $34,200 per month, a non-recurring savings of approximately $385,000. Our health insurance program is currently stable and has accumulated a sufficient reserve fund. This action will not affect any current premium rates or health insurance coverages.

8. Unrestricted Annual Gifts
Since creating the WKU Foundation several years ago and building a development program, the university has allowed most unrestricted annual gifts to be spent by the Development Office as an investment in a growing development program. In the future, all unrestricted annual gifts from university donors will be forwarded to the University for budgeting purposes where the need is greatest. This will not help meet the current budget cut, but it will produce future revenues which can be budgeted by the University.

9. Overtime
The University's 03-04 budget includes $251,163.50 for overtime costs. So far this year, we have spent $364,324.44, and last year we spent $632,283.18 on overtime expenses. We must reduce our expenditures for overtime costs. We can no longer afford such significant budgetary deficits. A new policy states that overtime expenses are to be incurred only on an emergency or must-happen basis. Any overtime charges must be accrued by the department creating the overtime and all overtime budgets will be reduced by one third, saving approximately $83,000 per year.

10. Vesting Period for Optional Retirement Program Employees
Beginning July 1, 2004, we will implement a "vesting" period of five years for new employees who select the optional retirement program. While this will not produce savings to meet the current budget cut, it will produce approximately $240,000 within five years and approximately $50,000 in University savings each year thereafter.

11. Service Fee on Revenue-Dependent Accounts
Beginning this fiscal year, we will begin charging a service fee on revenue-dependent accounts at a rate of three percent on revenues generated. Heretofore, revenue-dependent accounts have been able to keep and carry forward all of their unspent revenues. All revenue-dependent programs benefit from their affiliation with the University—some from use of facilities, some from university-salaried employees, and all from the overall image, reputation, and familiarity of the University as it relates to a program's customer base. It is reasonable that these programs pay a modest service fee in return for the value addedness of being part of the University community. A three percent service fee will produce approximately $115,000 per year.

12. Restricted Tuition Accounts and Fees
Effective immediately, we will change the policy through which restricted tuition accounts and fees generate additional money from tuition. Approximately 10% of tuition revenue is restricted to specific university functions which at one time were financed through dedicated student fees. When fees were rolled into base tuition, these became restricted tuition accounts (RTAs). The only true fee currently in place is the athletics fee - which is required by the City and by the bond companies to be dedicated to the debt service for the Diddle Arena renovation. Currently, the RTA's receive an annual increase equal to the Higher Education Price Index (HEPI), a higher education inflationary calculation. The RTA's also benefit when enrollment goes up and more students are paying tuition. In the future, we will calculate the HEPI increase for each RTA and fee. If enrollment growth produces an increase in revenue to the RTA's equal to or greater than the HEPI increase, then we will forgo the HEPI increase for that year. If enrollment growth produces revenue for RTA's and fees which are less than the HEPI increase, then we will forgo the enrollment growth increase. Either way, RTA's and fees will benefit from either the HEPI or enrollment growth (but not both), whichever is greater. The unused variable reverts to the University's contingency fund. RTA's and fees will return the HEPI increase for the current fiscal year to help meet the current nonrecurring cut. This will produce approximately $393,100 toward the nonrecurring cut requirement.

13. Alumni Grants
Our current policy for alumni grants is to allow alumni who reside out of state to send their sons and daughters to Western for in-state rates. The policy will be changed to match our tuition incentive program (TIP) rate structure for students in selected counties in bordering states. The TIP policy, and now the alumni grant policy, calls for the in-state tuition rate plus 25 percent. This will allow a reduction in University expenses for the alumni grant program of some $80,000 per year.

14. Part-time Employee Scholarships
Effective this summer, we will eliminate central funding for the faculty/staff scholarship privilege for part-time employees. Part-time employees will, therefore, be required to pay part-time or full-time rates for courses they take. This will produce savings in the University budget of approximately $20,000. Departments which hire part-time faculty or staff and wish to provide a scholarship benefit to its part-time employees may do so at departmental expense.

15. Faculty-Staff Athletic Ticket Discount
The faculty-staff discount on athletic tickets is being eliminated. The University is currently spending approximately $50,000 per year to cover the costs of the faculty-staff discount for athletic tickets. This has been a good benefit for employees over the years but when forced to cut such a significant amount from our budget, we can no longer afford to cover the cost of this benefit for employees.

16. Retroactive Salary Actions
Effective immediately, we will stop "retroactive" salary and stipend action. Henceforth, additional compensation follows final presidential action in all existing or new positions. It is also understood that presidential action is followed by recommendations to the Board of Regents and the governing board can reverse a personnel action at any time.

17. Benefits Effective Date on New Hires
Effective immediately, all employee benefits for new hires will be effective on the first day of the first full month of employment. This change will reduce benefit costs and contribute $80,000 toward the permanent budget reduction. This policy will be studied closely this year especially as it relates to faculty appointments at the beginning of the academic year. If the hiring of new employees is compromised, then the policy may be further adjusted.

18. Insurance Management
We will immediately issue a request for proposal (RFP) for an insurance program manager which will, at the selected insurance agency's expense, shop all university insurance policies and monitor market pricing and efficiencies in our overall insurance management program. This will allow us to eliminate the operating expenses for our Office of Risk Management.

19. Tuition Refund Policy
The tuition refund policy will be changed to allow Western's refund policy to be more in line with other Kentucky universities and reduce the length of time in which a student can withdraw and receive a full or partial refund. A student may currently go through the eighth week of classes and still receive a refund of up to 25 percent. A new policy will allow a student to withdraw in the first six days of classes and receive a 100 percent refund; at the end of the second week, a 50 percent refund; at the end of the third week, a 25 percent refund; and then after the third week, zero dollars will be refunded. This will generate approximately $450,000 in additional revenue next year.

20. Transcripts
All official hard-copy transcripts will cost $4 each when retrieved in person and $6 each when received through the mail.

21. Graduation Fee
The graduation fee will be increased from $30 to $35 with the additional revenue being used to offset the cost of two commencements each year.

22. Drop/Add Fee
A $20 charge per class will be levied when classes are added or dropped after the sixth day of classes in each term. Western has an unusually large number of class enrollment additions and withdrawals each semester. This fee will generate modest revenue (approximately $20,000), but its primary intent is to reduce the number of class changes during the early weeks of each semester.

23. Per-Credit-Hour Rate for Course Loads Over 18 Hours
Our current tuition policy provides for a full-time rate and a part-time per credit hour rate. Full-time status is achieved when a student is enrolled in 12 or more hours. Therefore, students do not pay additional tuition for extra hours above the full-time rate. Effective this summer, students will begin paying an extra per-hour rate for enrolled hours greater than 18. This means full-time students will be allowed to take two free courses over the 12-hour full-time load but will have to pay the per-credit-hour rate (currently $169 per hour) for all hours over 18. This policy is based on equitable treatment for students and it is intended to reduce the number of students who sign up for more courses than they intend to complete. This practice has led to an excessive and expensive quantity of class withdrawals. Part of this policy also limits the benefits for students on a full academic scholarship at 18 hours; i.e., students on full-tuition scholarships will also need to pay the per-credit-hour rate for enrolled hours above 18.


ACTUAL EXPENDITURE REDUCTIONS

1. Allocate unbudgeted tuition revenue currently frozen in anticipation of a recurring cut--$1,450,000 recurring

2. Reduce charge card expenses--$200,000 recurring

3. Reduce central payment of dues to various organizations--$42,000 recurring

4. Charge a service fee to revenue-dependent accounts of three percent--$115,000 recurring

5. Change alumni grant to in-state rate plus 25 percent--$80,000 recurring

6. Eliminate central funding of tuition benefits for part-time faculty and staff--$20,000 recurring

7. Reduce budgeted overtime costs by 33 percent--$83,000 recurring

8. Eliminate central funding of 50 percent discount for faculty-staff athletic tickets--$50,000 recurring

9. Eliminate operating budget for Office of Risk Management--$8,000 recurring

10. Eliminate budget for the Board of Advisors and most of the funding for the annual President's Circle Gala--$38,100 recurring

11. Eliminate university subsidy for the Institute for Economic Development--$83,000 recurring

12. Fund benefits for new hires on the first day of the first full month of employment--$80,000 recurring

13. Reduce general fund support for Preston Center--$50,000 recurring

14. Reduce the CPE-appropriated "action agenda" budget--$275,000 non-recurring and recurring

15. Eliminate the University's contribution to the health insurance fund based on employees who waive participation in the health insurance program and receive the flex benefit contribution--$385,000 non-recurring

16. Reduce budget for Center for Excellence in the College of Education--$30,000 recurring, $20,000 non-recurring

17. Reduce vacation day accrual policy from 24 to 20 days--$50,000 non-recurring

18. Change the annual budget enhancement policy for restricted tuition accounts and fees - eliminating the lower of the HEPI or enrollment growth revenue enhancements--$393,100 non-recurring, future revenues to be devoted to University contingency funds

19. Draw from the University's emergency reserve fund--$1.2 million non-recurring

20. Reduce on a one-time basis revenue from 2003 summer school--$354,900 non-recurring

21. Charge a service fee to auxiliaries of 2.7 percent --$362,900 non-recurring; and, 0.8 percent--$107,800 recurring

OTHER DIVISIONAL CUTS
1. Academic Affairs' budgets are collecting non-recurring funds from revenue-dependent accounts, the Provost's office budget, lapsed salaries from vacant positions, Action Agenda funds, general instruction, and carry forward funds from colleges and departments. Recurring cuts are being applied to the elimination of some vacant positions and central funds for academic instruction and operations.

2. Student Affairs and Campus Services' budgets are contributing non-recurring funds from auxiliary revenue, carry forward money, lapsed salaries in vacant positions, reduced travel, Preston Center reserves, and energy savings. Recurring cuts will come from revenue-dependent fund contributions and overtime reductions.

3. Cuts in Information Technology are coming from carry forward funds devoted generally to departmental services and training support and cuts to travel. IT recurring cuts are being made to travel budgets, computer replacement funds, and reduced hours for computer labs.

4. Athletics non-recurring cuts will come from operating fund balance reductions, deferral of equipment purchases, marketing funds, and team travel. Recurring cuts will come from permanent reduction of operating budgets and the elimination of the cost of city police traffic control before and after games.

5. Institutional Advancement's cuts include reductions to the University advertising budget, a planned giving newsletter, and travel.

6. The President's Office, Governmental Relations, General Counsel, and Chief Financial Officer are absorbing general recurring and non-recurring cuts to basic office operations including travel, supplies, etc., reductions in carry forward funds, and President's Home expenses.

RESULTS
This budget reduction process, while difficult, has led to significant policy changes which will allow Western to be a more efficient and effective campus in the future. Our budgeting process in the future will have more clarity and preciseness. Our dollars will be easier to track and monitor. We will be more efficient in our enrollment and course management programs.

We were able to preserve most employee benefits. No employees lost their jobs, and only a few vacant positions were eliminated. No students will be forced to pursue a different major or transfer to another institution because a particular field of study has been reduced or eliminated. We will continue to maintain our buildings and grounds and continue to rebuild our campus. We have dealt with this process in a thoughtful, thorough, and strategic manner. We now put it behind us and move on to future opportunities and progress.