Q&A with Al Diaz, Executive Vice President for Business and Finance, Treasurer (02/15/10)
At last week’s Board of Trustees meeting Al Diaz, executive vice president for business and finance, treasurer, presented an overview of the budget challenge and the conceptual framework of solutions that will address our short-term cash challenge and long-term recurring deficit. The information that was presented was the same information that was provided to the campus community at the Jan. 21, 2010 Sustaining New Synergies (SNS) Forum. In follow-up to the Trustee meeting, Purdue Today, the University’s daily email newsletter, interviewed Executive Vice President Diaz to find out what happened.
Purdue Today: What was the Board of Trustees’ response to your budget update presentation?
A.V. Diaz: The Trustees unanimously endorsed the overall strategy and work that has been done to this point. Due to the magnitude of the solutions on the table, they acknowledged that additional time is needed to continue to evaluate solutions, gather data and have discussions with the campus community.
To that end, I agreed to present a balanced operating budget plan for FY 2011 at the April Board of Trustees meeting. I also agreed to report the results of our compensation assessments and present detailed implementation plans for all initiatives at the May Board of Trustees meeting.
PT: So, what is the plan to address the budget challenge?
AVD: As we explained at the Jan. 21 SNS Forum, there are two components of the budget challenge. First, there is a cash deficit caused by the rescission of the state appropriated American Recovery and Reinvestment Act (ARRA) funding (economic stimulus money) of $35.8 million (for the West Lafayette campus). Second, there is the recurring deficit of $67 million. The proposed initiatives address both.
For the short-term cash deficit, proposed plan elements include energy conservation, a hiring/salary approval process (strategically constrained hiring, salary freeze and suspension of special merit pay), and deferral of non-critical repair and rehabilitation (R&R).
For the $67 million recurring budget deficit, proposed plan elements include:
• $10 million – A review of IT governance structure
• $5 million – Energy conservation, strategic sourcing and other initiatives
• $25 million – Exploring additional ways to bring about administrative efficiencies
• $27 million – A rebalancing of total compensation
PT: What does “rebalancing total compensation” mean, and why is it being considered?
AVD: The proposal to rebalance total compensation includes a reduction to both the University contributions to TIAA-CREF retirement plans and medical premiums. It is called a rebalancing because it is proposed that, to the extent possible, funds reduced from individual contributions will be returned to employees as an increase in their annual salary (a salary off-set).
The specific elements of the plan and the timeline for implementation are still being worked out, but in very basic terms, Purdue’s average contribution to retirement would be reduced from approximately 14.6% to 10% and Purdue’s average contribution to medical premiums would be reduced from 87% to 80%. In both cases the plan includes providing funds back to employees through salary off-sets to maintain the current level of total compensation.
Let me be clear on a few important points:
1. These changes are intended to maintain the current level of total compensation (salary plus benefits).
2. We cannot guarantee that changes in medical premiums can be off-set by salary increases dollar-for-dollar.
3. Changes to retirement plans would affect only faculty and administrative staff who are eligible for TIAA-CREF. Clerical and service staff who participate in the PERF plan will not be affected.
4. The specific elements and timeline for implementation of the proposed changes are still under development.
To address why we are considering a rebalancing, let me begin by saying that the review of total compensation began some time ago at the request of the Board of Trustees. Last week, the Trustees reiterated that even if Purdue were not facing pressures on tuition or budget challenges, the Trustees believe that rebalancing is a key factor in positioning Purdue for future competitiveness. It provides a way to bring salaries up to a level that is closer to our peers without reducing the level of total compensation.
PT: If there is no reduction in total compensation, how does rebalancing save the University money?
AVD: I realize that there is some confusion about this. Our original budget plan, which was developed in July 2009, provided for pay increases. By moving forward with rebalancing options in lieu of some of those increases, Purdue will be able to increase pay without increasing total compensation. This could afford employees the option of increasing their annual income while allowing the University to avoid $25 million of the budget deficit.
PT: Thank you for your time.
AVD: Thank you.