Penn State chief sees threat in health care, pension costs

STATE COLLEGE, Pa. - Rising health-care costs and a looming state pension-funding crisis threaten to add more financial uncertainty to Pennsylvania State University's already tight budget, university president Graham Spanier says.

The school on Friday received a portion of $334 million in state subsidies and federal stimulus funding that had been held up for months by legislative gridlock in Harrisburg. But appropriations have been shrinking, and the university isn't sure what will happen when stimulus money dries up.

The financial future has been made more complicated by long-term concerns about health care and the State Employees Retirement System.

That pension system is expected to require massive infusions of cash in coming years, and Penn State could be forced to find tens of millions of dollars annually to make up for shortfalls.

Throw in uncertainty about the economic recovery and this year's race for governor, and Spanier's outlook for the future gets more cloudy.

"Right now, I would have to say we have our highest level of uncertainty in doing long-range planning than we've ever had in my 15 years as president of Penn State," Spanier said during a break in a meeting of university trustees Friday.

He did confirm that Penn State would not need to raise tuition at midyear to make up for current budget pressures. As he spoke about financial issues, he was informed that the school had just received about $150 million in state funding, a lump sum of roughly six months' worth of funding held up in the legislature. The rest is to be paid in monthly installments.

That funding primarily helps in-state residents pay lower tuition than out-of-state residents. For instance, a full-time, in-state freshman or sophomore at Penn State's main University Park campus pays $6,800 a semester, while an out-of-state freshman or sophomore pays more than $12,500.

"If we didn't have that, in essence what we would be doing is turning all students into out-of-state students," Spanier said.

Penn State has an enrollment of more than 94,300 at its 24 campuses and online, including roughly 44,800 at University Park.

The university is considered a "state-related" institution, with 8 percent of its income coming from state funding. Appropriations have gradually become a smaller source of revenue, declining 1 percentage point each year, Spanier said.

Tuition dollars are the biggest revenue source, about 34 percent, followed by hospital and medical-services revenue and research grants. Applications for enrollment continue to increase, and Spanier said the other areas "are in pretty good shape right now."

Private donations are also expected to pass state funding as a revenue source soon, he said. The school received more than $58 million in donations in December, a one-month record for the university.

Spanier is scheduled to appear before the legislature in the coming months to talk about the school's budget requests, which ask for a 3.9 percent increase in funding to $360.9 million.

The school projects that receiving that amount would limit tuition increases to between 3 and 5 percent.

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