U. plans 1999 budget of nearly $2.9 billion

Research funding fueled a 9.8 percent increase in academic spending. The University will spend a grand total of about $2.9 billion next year, according to the operating budget approved by the University Trustees last month at their annual summer meeting. For Fiscal Year 1999 -- which began July 1, 1998, and ends June 30, 1999 -- the University has a planned operating budget of $2.871 billion, of which $1.284 billion will be divided among Penn's 12 schools for academic expenditures. An additional $307.8 million was delegated for the University's capital budget, which goes to fund projects like Sansom Common and the planned Wharton School facility at the current site of the Book Store building at 38th Street and Locust Walk. The $1.284 billion academic budget constitutes less than 45 percent of the University's total operating budget, with the rest -- nearly $1.6 billion -- belonging to the University of Pennsylvania Health System. Still, the figure represents nearly a 10 percent increase over last year's $1.17 billion in academic expenditures. The total operating budget, including the Health System, jumped 4.6 percent from last year's $2.745 billion. With undergraduate tuition and fees growing by only 4.5 percent next year, University Budget Director Michael Masch attributed the large jump in academic funding to a large increase in government support for research projects at Penn. "The largest factor contributing to the increase in this budget is the increase in research funding," Masch said. "We'll have to do really well to top last year's performance." While the University had counted on $239 million in funding for Fiscal Year 1998, Penn researchers actually received $265 million from the government. Masch said that $294 million -- or 23 percent of the entire academic budget -- is expected to come from those grants this year. An additional benefit of the growth in research funding is that for every research dollar granted, the government gives the University an additional 59 cents to help run the school. But as Masch noted, an increase in funding is financially a double-edged sword. "As the research spending grows, we'll have to spend more to outfit labs and run payroll," he said. "There's a reason why they give us that overhead." Masch also said that this year's budget will benefit from a large increase in "spendable endowment income," the portion of the University's $3 billion endowment that can be spent every year. Masch said that approximately $51.2 million will be allocated, mostly for designated projects like endowed professors' chairs. Masch said that this year's budget represents an improvement over past years' expenditures, as more of the it will go to the schools' academic programs than in years past. This year's budget gives 71.2 percent of the academic budget directly to the University's 12 schools, as opposed to the 68.5 percent that went to the schools in Fiscal Year 1993. "That says to us the administrative units are a lower portion of the total," he said. "That says we're moving in the right direction." Masch noted that the key is not to necessarily cut administrative expenses, but to constrain the rate of growth to as close to zero as possible. While administrative spending is being restrained in the University's operating budget, new spending on University facilities from the capital budget is poised to vastly increase the size of campus -- from the ground up. "What we are planning to do over the next two years is add 1.3 million square feet," Vice President for Facilities Services and Contract Services Omar Blaik said. "That's 10 percent of our current total." The largest single portion of the $307.8 million appropriated this year will go to the new $120 million Wharton building. An additional $23 million will be spent on the School of Dental Medicine's Schattner Building, $6.5 million on the Law School's Silverman Hall and $6 million on Phase II of the Sansom Common Project. According to the University's spending formula, not all of the money set aside this year will actually be spent in 1999. Rather, approximately $100 million from this year's capital budget will be spent in each of the next three years, while most of the money spent in this fiscal year -- on projects such as the Perelman Quadrangle and the Institute for Advanced Science and Technology -- will come from previous years' expenditures. But according to Vice President for Finance Kathy Engebretson, projects planned for the future are putting limits to what the University can do financially. "While we are in good shape for this fiscal year, you look at what everyone has on their plates," she told the Trustees last month. "That's really about a billion dollars over five years and that's really more than we're able to do."