Statement on the Governor's Recommended Budget and the Economy

December 10, 2008

Dear Colleagues:

It's been two weeks since we began to get specific information about how the national economic downturn will affect Oregon State University and other public agencies in this state, and in that brief period, some clarity has emerged. I offer it today in hopes that it will both provide reassurance for you as we approach this holiday season and insight as to what the next biennium may bring for our university.

First, the 1.095 percent budget cut for the current fiscal year that the Governor has mandated for all state agencies will be handled at OSU through an across-the-board reduction. Individual units will meet that target through reduced expenditures on services and supplies and by holding open vacant positions. Given the dire financial circumstances that so many public and private organizations face nationwide, including many here in Corvallis and elsewhere around Oregon, our situation this budget year might have been far worse. I'm grateful that a careful, conservative approach to managing our finances will make this mid-year cut manageable rather than the crisis it could have been.

Second, Gov. Ted Kulongoski's recommended budget for the 2009-11 biennium, announced last week, includes good news for OSU and the rest of the Oregon University System, especially when compared to many other state-supported enterprises. The Governor has called for a budget increase for our campuses, including provisions that allow work to move forward on a number of capital construction and deferred maintenance projects from 2009 through 2013. Those projects include renovation of Education Hall and Strand Agriculture Hall, construction of the Hallie Ford Center for Healthy Children and Families and many more.

The Governor's budget is a good starting point for deliberations in the 2009 state legislative session, but it still presents challenges for OSU. While there is a small increase in the overall recommended budget, it is not sufficient to cover projected operating costs, both for statewide public service programs and general revenue funds devoted to classroom education and core university operations. It also includes a possible $16 million reduction in funding to the University System unless the Legislature votes to release money from its reserve funds. Finally, it relies on passage of tax proposals that cannot simply be assumed. And all of this is proposed against an economic backdrop in which the effects on the Oregon economy are still unfolding. We'll all know more when the next state revenue forecast is released in February, and there is much ground to be covered between now and then. Over the coming months, you can be assured that we will be working as hard as we can in Salem and Washington, D.C., on a number of the recovery issues under consideration in both venues.

There has been a great deal of discussion in the media about the seriousness of the financial challenges we face as a nation, and comparisons to the Depression have been common. Actions that have been taken by the Treasury and the Federal Reserve Bank have been clumsy, but basically on the right track. The forthcoming stimulus package being discussed in Washington and actions proposed by Gov. Kulongoski for Oregon are of the right magnitude to move the economy forward, and they are focused in the right direction. Still, the economy will deteriorate further before it improves. Current estimates suggest that economic activity could decline between 1 and 2 percent in 2009 and that the national unemployment rate could rise to 8.5 to 10 percent by the early part of 2010, as unemployment always peaks at the end of an economic downturn. These are stark and troublesome possibilities, and the human hardship they would engender for some of our colleagues and for others around us is something we should all seek to reduce. But we should not succumb to fears about another depression.

It never ceases to amaze me, however, that in times both good and bad, the constant here at OSU is the amazingly productive and consistent work of our faculty and staff. Even as state and national economic conditions deteriorated earlier this fall, for instance, our faculty researchers were earning a record $34.5 million in contracts and grants for the month of October. More than 30 awards were received of $300,000 or more. This comes on the heels of yet another record year in sponsored research in which our programs were awarded $231 million -- $25 million more than the previous year. Such success is the mark of an exceptionally creative and entrepreneurial faculty; those virtues not only will serve OSU well during the current economic downturn, along with our traditionally disciplined approach to financial management, they will ensure that we are able to make forward progress as a university despite the hard times.

Which brings me to my final point. As difficult as our current circumstances and future state-funding prospects may be, they pale in comparison to those of many other organizations here and around the nation. Some 2 million jobs have been lost across the country this year - more than 500,000 in the most recent quarter alone. Some of the most familiar names in American business have ceased operations, declared bankruptcy or stand on the brink of insolvency. It is timely that we are updating our strategic plan at a time when we will be challenged to manage our resources wisely without losing sight of our aspirations for this wonderful university. Friends and alumni continue to strongly support The Campaign for OSU, reflecting their belief in the importance of the work you do. And, we continue to make progress in building a genuinely diverse and inclusive community here at OSU.

I encourage you in these difficult times to reach out to those around you who are facing far greater challenges during this holiday season. May we all enjoy the best in friendship and fellowship that the season has to offer. The outstanding work and scholarship we do here has made OSU an important and positive part of the lives of those we serve for 150 years. I look forward to continuing to work with you in the new year to advance that important mission.

Edward J. Ray
President
Oregon State University