Testimony to the Senate Budget and Taxation Committee Subcommittee on Education, Business and Administration and House Appropriations Committee Subcommittee on Education and Economic Development

R30B21 University of Maryland, Baltimore Budget for FY 2013
March 1, 2012 and March 5, 2012
Testimony of President Jay A. Perman, MD

Mr. Chairman and members of the committee:

Good afternoon.

I am Jay A. Perman, president of the University of Maryland in Baltimore (UMB). I am pleased to have this opportunity to briefly discuss with you the governor’s FY 2013 budget request for the University. Let me begin by thanking Governor O’Malley and the members of the Maryland General Assembly for your continued support. Founded in 1807, the University of Maryland educates and trains students in dentistry, law, nursing, medicine, pharmacy, and social work. We provide world-class medical, legal, and social work services for our patients and clients, and have historically served as a safety-net provider for medically and economically underserved populations from across Maryland. We compete successfully for substantial research funding and provide an extensive array of outreach services. As the state’s public academic health, law and human services university, we play a major role in workforce development, research and delivery of services throughout Maryland and around the world. We are committed to partnering with other USM institutions to enhance the research economy of Montgomery County and the I-270 corridor. We are committed to partnering with the University of Maryland Medical System to develop clinical care models in Prince George’s County, southern Maryland and the Eastern Shore.

The University’s new strategic plan, “Redefining Collaboration,” is a document of which we are all proud, especially the hundreds of faculty, staff and students from each of our schools who played a role in its development. The resulting overarching document will direct this University for the next five years. The major themes of the plan focus on the central tenets of our mission of pre-eminence in research, education and clinical care, interprofessional education and economic development for the state. They also support our commitment to community, from developing a dynamic university community to outreach to our local and global constituencies.

This university recognizes the challenges and choices that Marylanders face. We know that innovation and economic growth flow from a highly educated citizenry. We therefore urge you to support the University of Maryland Alliance, a formal, structured collaboration between the University of Maryland College Park (UMCP) & UMB. It will leverage the combined resources of our founding and flagship universities to better address Maryland’s workforce needs through joint academic programs. It will help attract more research funding to the state, creating more opportunities for innovation, technology transfer, and commercialization. Our students and faculty, and indeed the state of Maryland, will all benefit from this new alliance.

Research is a major industry in our state and federally-supported R&D is an important driver for Maryland’s job growth. UMB and the other research universities have put forward an ambitious agenda for the next 10 years to support economic growth for the state. This University recognizes this challenging future and we are ready to adjust and focus our efforts to do our part in building a bright future for Maryland.

Overview

Today, this University has emerged as one of the country’s pre-eminent public research universities, competitively capturing nearly $600 million in grants and contracts. We occupy over 71 acres of land, housed in over six million gross square feet in 65 buildings, and have developed a BioPark in west Baltimore. We have programs at the Universities at Shady Grove in Montgomery County, a dental clinic in Cecil County, and myriad health care, law and social work service delivery sites throughout Maryland. The University’s reputation attracts outstanding faculty and students devoted to leadership and excellence in professional and graduate education, research, public service and patient care.

Leading Economic Growth

Our faculty, students and staff appreciate the state’s continued investment in higher education and health care. Our return on investment is a driver of Maryland’s economy:

  • $1.4 Billion Enterprise: 2/3 of revenues come from research, grants and patient care
  • 23,000 Jobs: 7,000 direct employees
  • $70.5 Million: State tax revenues per year
  • $2.9 Billion: Impact on Maryland’s economy

Our researchers collaborate extensively with 300 pharmaceutical and biotech companies to bring new drugs, diagnostics, and medical devices to the market. Over 140 companies are working to commercialize technologies invented by our faculty. These efforts are creating more jobs in Maryland, where 28 companies and research centers in the UM BioPark employ 550 people.

Workforce Needs

Your investment in our University enables us to educate and train 60 percent of Maryland’s dentists, lawyers, physicians, and pharmacists and the majority of graduate nurses and graduate social workers. Many of our graduates are practitioners in local physician practices, pharmacies, dental clinics, law offices, hospitals, nursing homes, and non-profit organizations. In short, our graduates are the front-line practitioners in Maryland communities. Over the past several years, we have increased enrollment with limited resources in recognition of significant workforce needs but this has resulted in added pressure on our budget.

Enrollment in Educational Programs

ENROLLMENT20062011
Dental Hygiene (BS)7087
Dental (DDS)456513
Law (JD)830959
Medicine (MD)621651
Nursing (BSN, MS, PhD, DNP)1,4621,691
Pharmacy (PharmD)480643
Social Work (MSW, PhD)879988
Other Graduate Programs*783781
Total5,5816,313

*Other graduate programs include graduate degrees in dentistry, medicine, pharmacy, genetic counseling, physical therapy and public health.

Despite our increases in enrollment, there remain workforce shortages of nurses, physicians, dentists, pharmacists, physical therapists, biomedical researchers, and other allied health professionals. There are acute shortages of primary care and specialty providers for rural and underserved areas and we are concerned that those shortages will worsen with the surge in Medicaid enrollment beginning in 2014. We are hopeful that the recommendation of the Governor’s Health Care Reform Coordinating Council calling for comprehensive workforce development planning will help to ensure sufficient providers. We look forward to assisting in that effort.

Currently, many of our students graduate with heavy debt loads which affect their choice of practice, as you may have heard from our students when they visited with you this winter in your Annapolis offices. Although a number of students aspire to primary care practice and to working in rural and underserved communities, they seek other more lucrative positions when they realize the significant debt burden they will carry when they graduate.

Graduate & Professional ProgramsFY 11 Student Debt LoadsMonthly Repayment
Nursing and Social Work$ 51,000 - $ 62,000$ 601 - $ 731
Law & Physical Therapy$ 88,000 - $124,000$1,037 - $1,462
Medicine, Dentistry & Pharmacy$134,000 - $175,000$1,580 - $2,063

*Monthly debt calculated at 7.35 percent interest with debt to be repaid over 10 years

Tuition Affordability

Tuition affordability is very much a concern at the University. Unfortunately we do not benefit from the “enrollment initiative” which provides state support in lieu of tuition increases for undergraduate in-state students. The majority of our students are graduate and professional students, so we see very little tuition replacement funds. Meeting our FY13 mandatory expense increases, with a small student body, requires an across-the-board tuition increase of 5 percent.  We are concerned that substantial increases in tuition could be a barrier to entry into our educational programs, particularly those that address workforce shortage areas. We plan to work with the chancellor, USM regents and the administration to determine the most appropriate way to address tuition affordability and offer more financial support for our graduate and professional students who are saddled with increasingly large debt burdens.

UMB Funding Trends in Millions

Funding Trends

Over the past five years, while state support has remained relatively flat, a larger portion of the University’s budget has been supported by tuition. As illustrated in the chart above, our entrepreneurial revenues have also continued to grow.

A Driving Economic Force for Maryland

The University is a catalyst for new businesses and innovations in health care and returns $15.52 for every $1 of state General Funds invested. The direct university employment of 6,996 is augmented by an estimated 15,812 jobs supported or created through indirect impacts, for a total employment impact of 22,808 jobs. In addition to employing thousands of Marylanders, our research provides the foundation for new medical treatments and diagnostic tools. Our entrepreneurial efforts have resulted in:

  • $588 million in sponsored research in FY11, a 4 percent increase over FY 2010
  • 1,200+ clinical/research trials
  • Nearly 100 new invention disclosures
  • 26 patents issued on UMB technologies
  • 14 licenses executed in FY11

One hundred fifty UMB technologies are licensed to companies in Maryland, throughout the United States, and in Europe, Japan, and India. Illustrative technologies on the market include an additive in Sensodyne toothpaste to help strengthen teeth, software to target radiation treatment to tumors, and stroke rehabilitation equipment. Other technologies to treat prostate cancer, cholera, celiac disease, and traumatic brain injury are in late stage clinical trials. Many other technologies are still being developed for the marketplace. In addition to improving healthcare, these commercial ventures are beginning to create jobs in Maryland and in the future could generate revenues for the university.

Our technology transfer office has been historically underfunded. Last year, we increased its budget by more than $400,000 and provided permanent operating funds for a $1 million annual technology licensing budget. Although the full benefits will take years to be realized, we have already seen a 50 percent increase in invention disclosures and a 25 percent increase in licenses executed since July 2011. Our budget request for this year includes an additional $500,000 investment in technology transfer. This is critical for us to meet our goal of creating 100 new companies by 2020.

Two other initiatives are critical to the success in expanding technology transfer:

  • Maryland Innovation Initiative (HB 442/ SB 239), which will bring focused resources to move new technologies to the market.
  • University of Maryland Alliance, our new structured collaboration between UMB and UMCP, which will put in place programs to more effectively identify, support, and promote commercially promising research discoveries.

Need for Research Facility (HSF III)

In FY 2011, we generated $588 million in research funds, but face major limitations to grow the research enterprise due to a significant shortage of research space. A new research facility, Health Sciences Facility III (HSF III), will have an enormous economic impact: a $265 million construction budget will result in 3,653 jobs over the several year construction period; 666 permanent new jobs on campus; an additional $7.6 million in state and local tax revenues; and $77 million in new research activities each year. We appreciate your recognition of our need for this new facility by including initial planning funds in the Capital Budget during last year’s session. To continue moving HSFIII forward, we urge your support for $10 million in the FY 2013 Capital Budget, which we will match.

Ability to Retain Key Staff – Negative Impact of Restrictive Salary Provisions

There is a very disturbing trend regarding faculty and staff recruitment that has been reported by leadership in our high-profile programs. Top-tier recruits are reporting that the lack of historical and future flexibility in compensation is steering them away from opportunities at this University. The best candidates, who are initially attracted to our programs and then selected as our first choice, ultimately make other choices for their careers. We know that many factors impact a decision to accept a job offer, and we try to be as comprehensive as possible within our financial parameters. It is disappointing to learn that state restrictions have impacted our ability to recruit.

We are in the third year of restrictive salary provisions. This situation continues to negatively impact the School of Medicine’s ability to retain and attract top talent. The Institute for Genome Sciences (IGS) continues to struggle with the retention of bioinformaticians and computational biologists. The demand for these individuals is strong throughout the country, and market salaries are on the rise. We have initiated new job classifications for these professionals to match the changing market; however, this method cannot fully address the recruitment dynamics for this particular discipline. We have lost staff in this area to local competitors who offer a 20 percent salary increase. IGS was started in 2008, and since the salary restrictions went into place the following year, this group has not experienced a base increase during their tenure here. The institute supports 80 percent of their salaries from competitively awarded grants and contracts (i.e., non-state sources) and the grants and contracts contain annual salary increase provisions, which the employer cannot access due to the current state restrictions. This is illustrative of the situation across the medical school and we can ill afford to lose highly successful staff.

We are also experiencing significant retention challenges in the University of Maryland Marlene and Stewart Greenebaum Cancer Center. Departures of faculty this year were partially the result of salary restrictions continuing into a third year and the reduction in Cigarette Restitution Funds (CRF). We lost a very experienced and well-funded basic science cancer researcher and two senior clinicians in the last six months. The clinicians took local opportunities for substantial increases and will now compete directly against our program for patients and research funding. We ask your help in restoring CRF monies and the flexibility to take salary actions to retain our highly competitive faculty and staff.

With the impending increase in health care benefit costs, last year’s increase in employee pension contributions, temporary salary reductions and furloughs, and the four years of no merit increases and no COLA, the average take home pay of state employees has significantly eroded, at a time when the cost of living has continued to increase.

The UMB BioPark

Six years after the University of Maryland BioPark opened its first building, 1,200 students are being trained and 550 employees work among 28 tenants, which range from early stage and emerging life science companies to strong bioscience industry service providers. In the last two months alone, we have had a series of important announcements, including:

BioPark tenant Paragon Bioservices was awarded a $32 million contract from the Department of Defense to develop and manufacture a vaccine candidate to protect against the Ebola virus and the Marburg virus. The University of Maryland Center for Vaccine Development is a partner in the contract. Paragon is rapidly hiring new employees to fulfill the contract. By the end of 2012 they will have over 80 employees, a 160 percent increase since Paragon moved to the BioPark in 2009.

Ablitech, Inc. moved from Mississippi to the BioPark in January after considering other East Coast biotech regions. Ablitech is developing a gene therapy product that blocks cell division of pancreatic and bladder cancer cells in laboratory tests. Ablitech has 10 employees and is currently recruiting additional researchers.

The Maryland Proton Treatment Center was approved by the Board of Public Works last month. Construction will begin this month. This $200 million project is being privately developed and it will create 300 construction jobs and 125 permanent jobs. This will be the first proton center in Maryland and it will treat 2,000 cancer patients a year.

At final build out, the 10-acre BioPark on the west side of the University will boast nearly two million square feet of lab and office space in 12 buildings, plus garage parking and landscaped parks. Capital investment will exceed $1 billion and 2,500 people will work in the BioPark.

UMB’s implementation plan in support of the System’s strategic plan calls for increased technology transfer and company building activity – key drivers of economic growth and job creation for the state of Maryland. These two areas have historically been underfunded in our University’s budget. Last year we increased funding of these areas, however, any investment in this area requires significant reallocation of funds from other critical student and research support areas. State investment in this critical function can yield big returns for Maryland.                                                                                                                                                                                                   

FY 2013 Governor’s Allowance and What it Supports

The FY2013 governor’s allowance for UMB includes $184 million in General Funds and Higher Education Investment Funds, a decrease of about $237,000 from our FY12 appropriation. The allowance also includes tuition and fee income of about $113.7 million, an increase of about $5.6 million over the previous year. As currently structured the allowance includes no funds for compensation adjustments, and just enough to meet increases in fringe benefits, financial aid, and other mandatory expenses.  After three straight years of budgetary reductions we are struggling to find funding for program development within existing resources without negatively impacting critical student and research support services. The University remains committed to efficiency and cost saving efforts, but these opportunities are increasingly difficult.

The recommendations to reduce USM’s allowance by $11.6 million and the USM office allowance by $4 million would be a direct budget reduction to all USM institutions. This would be a severe additional burden at a time when we are already struggling to continue to provide access and critical support to students and to continue to grow research as an economic engine for the state. We want to work with the governor and state legislature to support your efforts so that we can continue to produce a talented workforce, attain new research grants and contracts, commercialize our research into treatments and cures for our citizens, and provide the momentum to enable Maryland to achieve a robust economic recovery.

Legislative Audits and Internal Controls

I want you to know that I am committed to ensuring that the state dollars that we are appropriated are adequately controlled. In April 2010 we created the Department of Management Advisory Services to follow-up on the February 2010 Legislative Audit Report. Since then department staff have conducted interviews, reviewed documentation and identified needed corrective actions to help ensure report items are not repeated. A mandatory training session on internal control has been developed to educate those with administrative responsibilities about issues that have been or could become audit exceptions if not properly controlled. This department also monitors the Legislative Audit Reports of other agencies to determine if there are other areas we should be monitoring.

In addition, last year we initiated an Enterprise Risk Management Program. Twelve subject matter area groups were formed with more than 100 experts from throughout the University who worked together to identify and document more than 400 potential areas of risk and their current controls. Of these, 100 potential priorities were identified, and ultimately 34 were brought forward to the executive leadership of the University. With the input and endorsement of the executive committee we are now moving into the “treating risk” phase of the program, with the subject area groups developing mitigation plans with timelines and resource requirements to address the areas identified as most important.

Summary and Conclusion

I appreciate the very difficult balancing act this subcommittee must perform in meeting the state’s needs for funding health care, public safety, juvenile justice, and elementary, secondary and higher education, all of which are critically important. However, the budget cutbacks have constrained our ability to expand many of our professional programs to train Marylanders for many high paying career opportunities. In addition, national health care reform requires a sufficient workforce to ensure access to care, but the additional health, law, and social work professionals that the reform effort calls for as early as next year are not even in the pipeline.

Unfortunately, with the current economic recession, our faculty and health care providers have absorbed the burden of more and more patients enrolled in Medicaid -- uninsured or underinsured – and that has posed additional significant fiscal challenges. We will continue to work closely with the legislature to support the state’s health care workforce needs as the Affordable Care Act is implemented in Maryland.

Our university is meeting its end of the bargain in terms of efficiency and effectiveness. Our entrepreneurial faculty already raises some two-thirds of our revenues. While research and clinical productivity and their ripple effects on the state’s economy continue to be strong, there are disturbing signs that the furloughs, salary reductions and restrictions are taking their toll. While the state’s current fiscal position is particularly challenging, UMB continues to make reallocations of costs and other steps to address annually our own structural deficits on the order of several million dollars.

We very much appreciate your continued support. State funding is critical to our success. On behalf of this University, I respectfully ask that the subcommittee approve the University System of Maryland’s allowance as proposed by Governor O’Malley and the Board of Regents. At a time when our state and nation grow ever more dependent on the knowledge economy that UMB faculty help create, the health, law and social services workforce we educate, and the research, public service and clinical care that we provide, we rely on your support for our budget.

Again, thank you. Unless there are questions, I will address the issues that the analyst has raised.