University Budgeting and Finances: The University’s Money
In my last blog post, I talked a little bit about the costs you incur as a student to attend Penn State. But you might be wondering how that relates to the money the University has to spend. In addition to tuition, the student initiated fee, and housing & food services, there are a few other major revenue sources to the University:
#1: Appropriations
Definition and Resources
Penn State has a mutually beneficial relationship with the commonwealth that dates back to its founding in 1855.
The state provides annual appropriations to Penn State, as a public institution, to help us achieve our mission of teaching, research, and service. For the 2022-23 fiscal year, Penn State’s appropriations totaled $354.3 million.
These appropriations are broken up into different sections of support for the University:
General support appropriation: currently equals about $5,400 per Pennsylvania student, is the lowest per-student appropriation of any public university in Pennsylvania and well below the national average
Penn State Agricultural Research and Extension: Agricultural research and extension programs are not supplemented with tuition dollars, so funding increases are necessary. Penn State’s agricultural education and research serve rural communities, and provide research-based solutions to address the challenges facing Pennsylvania’s agriculture industry.
Pennsylvania College of Technology: Penn College is a special-mission affiliate of Penn State with a focus on applied technology education.
Invent Penn State: The University continues to strengthen and grow the LaunchBox and Innovation Hub Network, expand established entrepreneurship training programs with additional staffing and support services, and increase access to the Pennsylvania Technical Assistance Program to support more businesses.
Penn State Health and the College of Medicine: They provide access to high-quality medical care through medical assistance funding, with a portion of the funds to support the preparation of medical students for careers in primary care and rural medicine.
Who makes decisions on this?
Key People: Zack Moore (Vice President for Government and Community Relations), Sara Thorndike (Senior Vice President for Finance & Business/Treasurer), Lion Caucus
The University's annual appropriation request to the Commonwealth is presented to the Board of Trustees for approval in September by Sara Thorndike. The request is forwarded to the Pennsylvania Department of Education, which then recommends funding changes for all of higher education to the Governor's Budget Office.
In early February, the Governor's Executive Budget recommendations are released for the next fiscal year. This proposed budget includes recommended funding levels for all state-supported line item appropriations, including Penn State.
In late February or early March, the President of the University appears before the House and Senate Appropriation Committees to review Penn State's request and the recommendations included in the Governor's budget.
In late March or early April, the University and Lion Caucus host a “Advocate Penn State” Capitol Day in Harrisburg when students and friends of Penn State meet with legislators 1 on 1 to advocate for more appropriations to Penn State.
The process concludes when the General Assembly passes Penn State's appropriation bill and the Governor signs it. In most years, this is accomplished by June 30.
In July, the University presents its proposed new budget, including the final appropriation amount and anticipated tuition rates, to the Penn State Board of Trustees for approval.
#2: Donations
Definition and Resources
The Office of University Development secures and stewards gifts from alumni, friends, families, and corporations that advance the University’s strategic priorities. Their goal is to identify, cultivate, solicit, and create awareness to build a strong donor base that can support the University’s long-term success.
Through the University’s most recent capital campaign “A Greater Penn State for 21st Century Excellence”, the office raised more than $2.2 billion over six years to “Open Doors, Create Transformative Experiences, and Impact the World”. There were about 684,000 distinct donors throughout the campaign.
Donations support a large part of Penn State. 99% of the donations raised in the last campaign were “restricted” meaning they were given to the University for a specific purpose, whether that was an endowment from the Sokolov-Miller Family to fund the Financial Literacy & Wellness Center or a scholarship for women pursuing engineering degrees.
Who makes these decisions?
Key People: O. Richard Bundy III (Vice President for Development & Alumni Relations)
Every six to ten years, Penn State establishes a new comprehensive capital (University fundraising) campaign with a new theme, values, and leadership. The capital plan typically spends the first two years establishing the imperatives for the campaign in discussion with University leaders, faculty, staff, volunteers, and donors. The process is both inspired and guided by the Penn State strategic plan.
Part of the process is identifying areas in the general budget that could use more support from general donors, and Rich Bundy and his office work closely with Sara Thorndike and her office to ensure cohesion and reflection of each other’s goals.
As a student, you can get involved with University Philanthropy in the following ways:
Join the Student Philanthropy Council or the Class Gift Committee
Get involved in THON
Apply for a job with Lion Line
Apply for a position in the DDAR Summer Internship Program
#3: University Endowment
Definitions and Resources
The endowment is part of Penn State’s long-term investment pool (LTIP), which also includes non-endowed funds (NEF). The endowment is invested in a commingled fund of assets that is broadly diversified among stocks, bonds, venture capital, private equity, hedge funds, and real estate. The endowment consists of permanent endowment funds, which come from donor gifts that can never be spent, and quasi-endowments created by the University with unrestricted funds. Many quasi-endowments were created as matching funds to incentivize donor gifts and must be used for the same restricted purposes as the donor gifts.
Permanent endowment principal must exist in perpetuity and can never be spent. Annually the Penn State Investment Council recommends an endowment spending distribution to the Penn State Board of Trustees. The current endowment spending rate is 5%. The spending rate is multiplied by the previous 20-quarter average market value of the endowment to generate a gross annual spending distribution which primarily goes to donor restricted purposes, like financial aid and endowed professorships.
Penn State’s endowment market value was valued at about $4.45 billion as of 6/30/2022.
Who makes these decisions?
Key People: Office of Investment Management (OIM), Penn State Investment Council (PSIC)
The Office of Investment Management (OIM) oversees the day-to-day management and administration of University investment funds. OIM submits policies and practices as appropriate for achieving investment and spending objectives to the Penn State Investment Council (PSIC) and Board of Trustees for their approval.
The membership of the Penn State Investment Council can be found here. The Chair of the PSIC is Sara Thorndike. The PSIC is authorized to administer the spending and Long-Term Investment Pool (LTIP) policies. Non-Endowed Funds (NEF) should be invested to provide liquidity for working capital over the annual operating cycle of the University.
The budget is set annually, meaning there is a fast turnaround time from when you have the final spending numbers from the previous year to inform the next year’s budget. A working group of faculty, staff, and administrators from across the University is working on modernizing and transforming its budgeting process right now. They have redesigned Penn State’s current budget allocation model to be implemented beginning in July 2023 for the upcoming fiscal year.
This article highlights the mission and values of the group, timeline of their work, and composition of the working group.