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President's Q&A, April 2015
April 21, 2015
Dr. Perman held a group Q&A on April 21 at the School of Dentistry. The session included a legislative update by Kevin P. Kelly, JD, chief government affairs officer and associate vice president, who discussed the recently concluded General Assembly session. Excerpts of that and questions and answers that followed appear below.
Dr. Perman: I thought we would start by having our leader in governmental affairs, Mr. Kevin Kelly, give us an update on what happened in Annapolis this past session, so we all are starting from the same information. And then we’ll see what’s on your mind related to matters in Annapolis, or anything else that you have for me, which I’ll be glad to entertain.
Kevin Kelly: Thank you, Dr. Perman. When I was putting this presentation together, I looked at one I did last year around this time called Future Challenges, and I listed a bunch of things we need to be concerned with starting back to May 1 of 2014.
The first thing was the state budget. We’re still facing a structural deficit. We were looking at $235 million in Fiscal Year 2015, $395 million in FY16. Now we walk into FY16 on Jan. 1 with an $802 million deficit. I underestimated that, as did our leaders.
The Maryland economy is still flat. Last year, the Department of Legislative Services said to reach a point where revenues are actually meeting expenditures, we need about a 5.2 percent increase in the Maryland economy.
The growth in the Maryland economy is not there, and it remains to be seen how well this will grow over the next 12 to 24 months.
We also were looking at a turnover of one-third in the Maryland General Assembly. Instead of the predicted 37 seats of 188 changing we had 69. So we had a lot of new players, including a new governor, and a new state government administration.
We’ve had a huge turnover in all phases of the hierarchy of higher leadership in state government. They’re starting to get their feet on the ground, but it’s been an interesting time.
We walked into 2015, on Jan. 7, when the Board of Public Works decided, along with the governor, to approve $197 million in midyear reductions due to the fact that we were already facing a fairly significant deficit.
This included a $40 million reduction to the University System of Maryland (USM), which I believe equated to $5.6 million to UMB. Included in that reduction was $7.5 million to our academic health centers via the Cigarette Restitution Fund. Just for background, the academic health centers, which are Johns Hopkins and the University of Maryland, get about $13 million in cancer research funding through the Cigarette Restitution Fund.
That was cut to about $5.4 million. We already were starting in the negative for Dr. Cullen, who was trying to figure out how he was going to fund that gap. In addition, we had reduced provider rates, which affected our Faculty Practice Group.
Originally, they were funded at 100 percent for Medicare reimbursement and that was reduced down to 87. Not only did we face the reduction due to an overall USM $40 million reduction, we also faced some reductions in some of our programmatic funding.
Fast forward to about two weeks later, the governor introduced a budget and set a time to address the remaining $650 million structural deficit. He eliminated the 2016 merit increases, and essentially rescinded a 2 percent COLA (cost of living adjustment) that was initiated on Jan. 1, 2015, for state employees. I’ll get back to that shortly.
The new administration proposed $1.2 billion in general funds for USM, as the governor said that this represented an increase of $15.4 million, but the reality is, that was basically an increase over the reduced FY15 budget, after the midyear reductions.
The good news was that the General Assembly did not take any further funding. It did not take any fund balance, which it had done the last three or four years. They essentially fully funded the governor’s proposed budget, but at the end of the day, USM has concluded that we’re still about $47 million short of meeting all our mandatory costs.
As we all were aware, the governor rescinded the COLA, so the legislature took a fairly unusual step. The legislature cannot add to the governor’s budget, it can only reduce. In certain cases, it can redirect.
What they did in this case, they took about $400 million in general reductions and fenced off about $200 million and told the governor, we have certain priorities that we think you need to fund — one of which was the reinstatement of the COLA.
The legislature provided $68 million for the cost of education index for K-12, provided an increase in the Medicaid reimbursement from 87 percent to 92 percent for all primary care and specialty physicians. Plus a $15 million operating grant for Prince George’s County Hospital and some various other health initiatives.
The General Assembly basically said, “Governor, these are our priorities. We have fenced off some money, but it’s up to you to decide are you going to fund them or not.”
As we’re all aware, the governor has not made any decisions just yet. Right now, I think it’s a 50-50 proposition. He has up to June 30 to decide whether he’s going to fund these initiatives, including the COLA.
If he does, he has to go through what is called a budget amendment process in which he essentially says, “Legislature, I agree with what you’re asking me to do. Here’s the money. You guys need to approve it.” The committees will have 45 days to do so. In this case, probably much shorter if, in fact, he agrees to do that.
Unfortunately, we’re in a holding period until it gets decided. If the governor decides not to fund it, then it reverts back to the general fund and he comes into the session next year with about $200 million in revenues.
Good news. We received our fourth year of construction funding from the state for $81 million for the continued construction of HSF III. We were also pre-authorized for next year’s funding, which is about $70 million, and then the final year, which is $2 million.
Overall, the legislature came through for us in tremendous fashion.
Funding, $8.5 million, was provided for the Maryland E-Novation program, which matches state funding for endowed chairs. That’s specifically designated for universities in the state. We received money for the governor’s Wellmobile Program, which is operated by the School of Nursing.
For some other economic development efforts, we got a little bit of a haircut. Usually, we get $5 million, we got $4.9 in the Maryland Innovation Initiative. We got $10.4 million for the Maryland Stem Cell Research Fund. The governor funded $9.4 million, but still, not too bad.
Legislative highlights, we had over 2,000 bills introduced. About 600 were passed. Some 150 of them were signed last week by the governor. Still a lot more to be signed. I don’t know if any of them will be vetoed, but there may be one or two.
Some of the pieces of legislation that came across was a bill that would prohibit a law clinic affiliated with a law school at a constituent institution of USM from initiating or participating in litigation opposing, contesting, or seeking judicial review of an act, a decision, or a determination of a state agency, department, or board. Typically, our clinics represent people who are opposite of a lot of state agencies, Maryland Department of the Environment, state parole boards, and so on. This would have prevented us from doing that. We testified in front of the legislature. The committee voted unfavorably against the bill.
There was a bill put in that would not allow our medical schools to use either live or dead animals in medical training. That died in committee.
There was a bill that passed that gave protection for interns. This bill extends prohibitions against specified discriminatory acts to include acts against interns and applicants for internships. It put them on, essentially, the same status as a hired employee.
There was a piece of legislation that would allow candidates and campaign volunteers to have access to private residential areas, including dorms. The bill died.
There was Pay It Forward, which would study a possible program that would allow state funding of student tuition. Under this model, rather than paying tuition to attend public institutions, students would pay a fixed percentage of adjusted gross income for a set amount of time after graduation into a trust fund. Essentially, the state or university system would function as a bank. They tried it in Oregon, and it was basically given a thumbs down by both the legislature and the state there.
There was a lot of focus on sexual assault policies, probably 11 or 12 different pieces of legislation. USM worked very closely with the sponsors and the budget committees. We have a Senate bill that passed and budget committee language that essentially calls for a climate survey every two years, pursues formalized agreements between institutions of higher education and law enforcement and rape crisis centers, and some other policy issues that are in there. It’s a good first step in a continuing discussion.
That’s essentially a very, very brief overview, and I’m ready to answer your questions.
Q: With the group of items that include the COLA that they’re still deciding on, is that an all or nothing, or can the governor pick and choose and say, give back the COLA, but that K-12 goes away?
Kelly: I’ve heard two different theories. First, I’ve heard it is an all-or-nothing proposition. However, the latest has been that he could pick and choose and send back the budget amendment saying, I’m going to fund these five things, but these other two things I’m not going to fund. I believe the latter is true at this point.
Q: Thank you for coming to the School of Dentistry. I have a question for President Perman related to the $6.9 million midyear reduction at UMB. How is that going to impact each school?
Perman: We went to each school, plus the central units, and asked for a reduction plan. In the meantime, I held all hiring at the University until plans were in place from each of the schools to decide how they would manage what we needed to start doing to achieve this $6.9 million midyear reduction.
Midyear actually slipped into February because it takes time to make these reductions. I’m glad to say that each of the schools, in response to your question, decided on their own how they would propose to manage the reduction. Those needed to be approved by me.
Once they were approved by me, then the schools can go ahead, and I think all of the schools are in this position now. So we are carrying on business as before, but with reductions in place.
Now, we’re trying to size the additional reduction to the campus in conjunction with the just passed FY16 budget. We anticipate our share of the reduction to be an additional $5 million.
That includes mandatory costs. We get a bill for our collective health insurance, for example. We have to pay that. In fact, that’s the challenge given what we’ve been dealt from the legislature.
The governor, yes, he put some money back compared to the reduction we started with. It’s just that it’s not enough to fund the things that we’re told have to be funded. That’s the gap that we’re dealing with.
The better news is that we anticipated an additional $5 million in cuts for FY16. That’s going to be more along the order of $3.7 million. It’s still a lot of money, but it went in the right direction for us.
Once again, I’ve taken a management team around me, which includes the deans and the vice presidents, and we’re in a process right now, and we’re taking input. We’ll have a mechanism for input from the University in general.
What we need to do is, ideally, find things that we could do at a larger-than-school level. In other words, things that several schools, or all the schools, can agree to do to reduce costs.
The usual drill when reductions come from the state is use a formulaic means and say you get this share of it to each school or unit. It’s more than time to start to act like a group, like a single organization.
Ideally, we want to find things that we can do collectively. There are examples emerging already that I’m beginning to see. I think two of the deans, the dean of this school and the dean of the School of Nursing, are exploring a way to share an administrative position. That’s the kind of thinking that we need. We need to find more ways to do that together, rather than apart.
Q: There’s still a hiring freeze in place?
Perman: No, there’s not a hiring freeze in place. Having said that, you know what I’m going to say. We have to be thoughtful about what we’re doing, in terms of layering on expenses.
Q: Is there a different process in place for renewing hiring requests than there has been?
Perman: The hiring process is back to being managed at the school level.
Q: I’ve heard that in attempts to deal with the budget shortfall, furloughs were taken off the table. Is that correct?
Perman: Let me address the furlough situation in several ways. When we dealt with the first of the budget cuts, the entities in the University System of Maryland had a discussion with the chancellor about how to deal with these things.
Quick ways to take care of a hole, which in our case was $6.9 million, is, one, raise the tuition, and/or two, pay for it ourselves by taking furlough days. I decided, on behalf of UMB, to do neither.
Quite apart from the philosophy of how I feel about taking something away from employees, or adding something that was already agreed to, in terms of the number on the backs of our students, the most practical concern I had about doing either of those things is that they’re only one-time fixes.
I made the decision to find long-term solutions, as painful as they could be, and would be. That’s where we’ve been.
Q: I’m curious about the media focus on Baltimore police, and the situation that happened recently, how the University is monitoring that, involved, responding, anything along that line.
Perman: Very thoughtful, timely, appropriate question, and in fact, I asked the same question yesterday of our public safety leadership. I was assured, and I’m going to assure you in return, that our campus police are very closely aligned in terms of communication with the city police, so they’re closely monitoring the situation in the city. We don’t know of any issues that will impact the campus. I have heard that there will be a march to the Western District police station. We’ll keep a sharp eye and hope for peace on our campus and in our city.