The United States and State of Indiana are in the midst of the worst economic crisis since the Great Depression, with more than 15 million Americans out of work—about double the number just 19 months ago. Unemployment in Indiana now stands at 9.6%, with some counties reaching as high as 14%.

Though Indiana entered this recession in better financial shape than most states, it is now unfortunately rapidly catching up with the rest of the country. Just before the holidays, it was announced that State revenue is expected to fall $1.8 billion below previous projections for the biennium, a 6.9% decline. In fact state revenue this year is expected to fall back to what it was in fiscal 2006.
Put at its bluntest, over the next few years the State cannot afford to fund IU at past years’ levels. Though the State had sought to cushion education from harsh cuts, the significant decline in State revenues means this is no longer possible.

Hence, in late December we were informed that our State appropriation would be cut by almost $59 million for this and next year. This comes on top of an earlier $29 million cut in our biennial budget, which had been temporarily cushioned by one-time Federal stimulus funding. Combined, these reductions amount to a 6% decrease in State funding.

Clearly, this presents IU with a very serious challenge. We have already been working aggressively to manage costs, and these efforts have allowed us to reallocate spending to our highest priorities. But further expenditure reductions will now have to be made.

These cuts will undoubtedly bring some pain. But I believe this situation presents an opportunity—perhaps unprecedented since the time of Herman Wells—to move IU forward in substantial and innovative ways. Our goal must be to address the present very difficult situation in such a way that it ultimately strengthens IU.

To do this we must adhere to two principles.

First, we must protect and strengthen the academic core of the university. This means retaining and hiring even more of the best and most promising faculty. They represent IU’s future and will ensure its continuing excellence in teaching and research. We must also take advantage of a national situation in higher education that is far worse in many other states, where jobs are few and it is a hirer’s market.

Second, excellent facilities for research and education are essential if IU is to reach its full potential as a research university. In the last year or so, the costs of construction have fallen by an unprecedented 24%—and on some smaller projects by as much as 40%! Along with our favorable bond rating, this positions us well to aggressively pursue projects that maintain and add to our facilities.

In short, we must continue strategic hiring and keep building if we are to make genuine progress on our academic agenda. These principles should be regarded as the highest priority for all deans and administrators.

Another priority will be cutting costs. Though the university has been well-managed, many of our academic and administrative structures have remained unaltered for years. These structures reflect the accreted wisdom of many generations. But in some cases, they also reflect inefficiencies that gradually accumulate over time. For example, we need to carefully review how each campus subsidizes activities that are not central to its basic mission. We also need to look for ways to consolidate and reduce administrative functions wherever possible. In these difficult times, we simply cannot do all we once did. We must take a careful, systematic, creative and—frankly—hard-nosed look at our inherited organizational structures to determine how they can best support our core missions.

In this context, today we are announcing a program of new university-wide spending cuts and administrative changes. These changes, in total, have enabled us to lower our base operating budget by $29.3 million. In addition, I have directed all IU campuses and administration to reduce spending over the next 18 months by another $58.9 million.

We are also facing the challenge of unavoidable cost increases for employee health care coverage and utilities. These are projected to total $30 million. We simply have to do more to reduce these costs because they take resources from the core academic mission of the university.

Thus, I have directed University Human Resources to begin implementing a new initiative that will give employees an opportunity to hold down their share of future premium increases by meeting health and lifestyle objectives that are proven to lower health care costs over the long term. Details of this new incentive program will be announced in the next few days. 

In addition, university engineers are identifying major energy savings projects in dozens of IU facilities. Supported by recently passed legislation, these projects will provide savings that not only support the cost of the utility renovation projects but also provide an immediate reduction in energy expenses. In coming months, we will also begin developing a long-term integrated energy master plan to provide a roadmap for sustainable and efficient energy systems. 

In regard to new revenue, we will redouble our efforts to attract private philanthropy and competitive research grants, which can help support the university’s strategic priorities in these difficult times. I have also directed all academic and administrative units to look creatively at untapped revenue sources. We will continue to focus on affordability and maintaining reasonable tuition rates for Hoosier students and their families.

The size and breadth of these cost-savings initiatives demonstrate the seriousness of the situation. They will require hard work and difficult choices at all levels of the university and on every campus. We have to tighten our belts just like Hoosier families and businesses. I am fully confident that all of us will do our part.

Just a few days ago, IU was recognized by Kiplinger’s as a “Best Buy” for higher education. Nearly every week it seems IU or a member of the IU community receives some sort of major accolade. This kind of recognition reflects the greatness and quality of the work of all IU faculty and staff. And by using this opportunity to intensely focus on our priorities of strategic hiring and building, while reducing all other costs as we must, IU will emerge an even better, stronger and greater university.