June 20, 2017

Dear Colleagues,

Now that the legislative session is over, I wanted to offer you a quick analysis of the state-funded budget along with our strategies for moving forward in regard to this year's budget.

I must say that the University of Houston fared better than most and certainly as well as any other university. However, the state simply did not have enough revenue to fund higher education to the desired or even the needed level.

Operating Budget

The bottom line for UH shows a 2.9 percent increase in the amount of state dollars allocated for this biennium; however a closer look will reveal the following:

1. The base budget of the University remains the same as in 2015. In other words, we are funded in 2017 for exactly the same number of student credit hours for which we were funded for in 2015. This means that there was no additional funding for any new students we enrolled in the last two years.
2. All special items were reduced by 35 percent for a total reduction of approximately $11 million.
3. The UH College of Pharmacy received one-time special funding of $10 million. Why? The UH College of Pharmacy has been receiving far less funding per student from the state as received by other pharmacy schools in the state. The reason behind this inequity is that the UH College of Pharmacy is funded under the General Academic Institutions Funding Formula while the rest are funded under the Health Related Institutions Funding Formula. We had asked that this inequity be fixed by adjusting the funding formula. The state was unable to fix the formula during this session; however, it was able to appropriate $10 million of one-time funding for this biennium with the hope that the formula can be fixed the next session.
4. UH received one-time funding of $10.6 million.

In a nutshell, the University received no increase in base funding and the only new money received is for one-time use only. However, we have many strategic priorities, the most important being student success, which must be supported. Therefore, I am implementing a base budget reduction for all units (2.5 percent for academic units and 3.5 percent for non-academic units). It is half of what we all had prepared for; nonetheless it will require all of us to look for efficiencies. The funds collected from implementing the university-wide budget reduction will accomplish the following:

1. Permanently invest in wage and benefit changes to employees. If you recall, the Department of Labor made changes to the Fair Labor Standards Act (FLSA) rule and UH was required to change its compensation last year in response to a change in the federal FLSA requirement for exempt employees. In subsequent months, this federal FLSA requirement was challenged and the mandate from the federal government was put on hold; however, we decided not to reverse the salary changes made to employees because we felt that it was the right thing to do.
2. Fill faculty and staff searches that have been completed to absorb new students. We remain fully committed to student success and national competitiveness
3. Build a permanent pool of funds for Graduate Tuition Fellowships (GTF). Historically, the GTF has been funded from fund balances but the size of GTF ($14 million) makes it impossible to do so going forward.
4. Please note that auxiliaries are self-supported on our campus, which means that they may add or subtract staff based on needs, priorities and revenue estimates.

Capital Budget

Since capital dollars used for construction and renovation are separate from operational dollars in the state budget, we do not anticipate any change. The projects currently underway include the following:

1. Renovation of six core academic buildings at a cost of $100 million.
2. Construction of the academic classroom building to accommodate program growth in Sugar Land, with $54 million designated by the state for this purpose.
3. Construction of a new campus in Katy, with $46.8 million designated by the state for this purpose.
4. Planning of Life Sciences Enhancement project that will include renovation of our space in Texas Medical Center, renovation of Science/Research I & II, and possible construction of HBSB III. Anticipated cost is $150 million, designated by the state for the purpose.
5. Replacing Quads housing with new apartment and townhouse style housing (no state dollars)
6. Completion of Fertitta Center, Baseball Club House and Indoor Football Practice Facility (no state dollars)
7. New Parking Garage (no state dollars)

Senior Vice President for Academic Affairs and Provost Short and Senior Vice President for Administration and Finance McShan will follow up with operational details on the process. Thank you for your dedication and commitment.

With warm regards,
Renu Khator
President