MEMORANDUM TO: Alumni Legislative Council, Campus Faculty Senate Representatives, Employee Relations Advisory Board, President's Staff FROM: Hank Dye, Vice President Public and Government Relations SUBJECT: Governor's Proposed 2007-2008 Budget DATE: February 21, 2007 On Tuesday, February 20, Governor Phil Bredesen delivered his proposed 2007-2008 budget to the General Assembly. Commissioner of Finance and Administration Dave Goetz appeared before the House and Senate Finance Committees to provide legislators with an overview of the Governor's budget. The budget is based on moderate economic growth and proposes that 90 percent of all new K-12 and higher education operating increases be derived from a $.40 per pack cigarette tax increase. It is, of course, too early to determine the outlook for that tax proposal. With regard to higher education, the recommendation maintains the current percentage level of funding, including suggested holding tuition increases to no more than 5-6 percent. The Governor proposes raising the HOPE Lottery Scholarship award by approximately 5 percent ($3,800 to $4,000 annually). The Governor further proposes free tuition for students attending community colleges immediately after high school and for students with at least an ACT composite score of 19 as well as a 19 on the math and reading portions of the test. Both of these proposals would be paid for from lottery program revenues, not appropriated tax dollars. Specific items of note include: Operations/Salaries (For All Higher Education) $48.3M Increase for Operations - The increase comes with a suggested tuition increase limit of 5-6 percent. Of the amount, $37M is allocated for formula units (academic operations and units) and $11.3M for non-formula units (Institute of Agriculture, Space Institute, Health Science Center and Institute for Public Service. Of the $48.3M, UT would receive $18.4M. Note: The possibility of a tuition cap is of concern to University officials given that other University requests such as faculty/staff salary increases (5 percent pool - $23.5M) were not included. The University is strongly opposed to removing responsibility for setting tuition levels from the appropriate policy body, the Board of Trustees. Higher Education Salary Increases - The proposal includes a 1 percent base salary increase, combined with a 2 percent one-time bonus. Employees also will be responsible for an estimated 9 percent health insurance premium increase effective January 2008. Note: The University had hoped that all state and higher education employee raises would be in the 2-3 percent range. In addition, UT requested a salary pool of $23.5M, or 5 percent, to address classification and compensation issues. This would enable the University to better align various positions and salaries with the education market. The University believes this alignment is critical to recruiting and maintaining faculty and staff. $8.3M Post Geier Access and Diversity Initiative - Of this amount, UT would receive $2.7M for faculty and student recruitment. Capital Projects $21.7M for UT System-wide Maintenance - Fully funds first 10 maintenance projects on UT's request list from all campuses and the Institutes of Agriculture and Space. $32M for Cherokee Research Campus (UT System research facilities) - Funds UT's top capital priority request for early development of one of the nation's premier academic research complexes. $40.7M for Biofuels Refinery Construction and Research - One-time funding for the construction and start-up costs of a pilot cellulosic ethanol refinery and research facility capable of producing 5 million gallons annually in three years. Also recommended for FY2008 is $8,250,000 in non-recurring operating funds to support this project. As a continuing funding commitment $3M is recommended for the UT-ORNL Biological Sciences Institute Equipment. Note: UT had anticipated funding recommendations for two additional capital projects not included in the Governor's budget proposal - a $30M request for the UT Knoxville Music Center (to match a private $10M gift the University received for this project) and $48M for the new UT Chattanooga library. The Biofuels Project represents a special economic development partnership with the state for agricultural producers and rural jobs. Funding for this transformational project was requested separately from UT's annual capital projects. In the upcoming weeks, the University will be working with members of the General Assembly to support the Governor's recommended budget. We will also attempt to make the case for additional funding in the areas of faculty and staff salaries, for additional capital needs and to maintain tuition flexibility. We applaud the Governor's expressed commitment to higher education and strongly support the emphasis he has set forth. Hank Dye V.P. Public and Government Relations 821 Andy Holt Tower Knoxville, TN 37996