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UNIVERSITY PARK, Pa. — State appropriations are invaluable to Penn State’s budget model and to the tens of thousands of Pennsylvania resident students that the University serves each year, Penn State Provost Nick Jones told lawmakers on Monday, Oct. 4, during a joint hearing of the Pennsylvania House Appropriations Subcommittee on Education and the Education Subcommittee on Higher Education. 

Jones, who was joined in Harrisburg by budget leaders from Pennsylvania’s other state-related universities — the University of Pittsburgh, Temple University and Lincoln University — as well as the Pennsylvania State System of Higher Education, the Pennsylvania Higher Education Assistance Agency, and the University of Pennsylvania School of Veterinary Medicine, provided lawmakers with an overview of how Penn State uses its appropriation to benefit students and how state funding impacts the University’s budget-setting process. 

How Penn State uses its appropriation

Pennsylvania resident students are the beneficiaries of the University’s appropriation, Jones said, as it provides them with access to a high-quality, research-intensive university experience at a significantly reduced tuition rate.

The appropriation helps to offset Penn State’s education-related costs, and the University then passes those savings on to Pennsylvania students in the form of lower tuition. Penn State applies the entire state appropriation to its Education and General (E&G) budget, which supports the institution’s core educational mission, and then uses the state funds to pay for the necessary expenses to educate students, including salaries and benefits for faculty and staff, utilities and facilities upkeep, and technology needs. These are expenses that the University would otherwise have to charge to in-state students through tuition, absent a state appropriation. 

Penn State’s $2.9 billion E&G budget is funded by three main sources: tuition dollars, the state appropriation, and funding from the federal government for the facilities and administrative infrastructure that supports Penn State’s research activities. Because 85% of the annual E&G budget is dependent on the state appropriation and tuition dollars, Jones said that without a state appropriation Penn State would be left with a $242.1 million gap in its budget that could only be replaced with tuition dollars.

“An important piece of our budget process is considering what the anticipated appropriation from the commonwealth will be,” said Jones. “It’s a very important part of our revenue. The higher the appropriation, the more we’re able to shield our students and their families from tuition increases.” 

Amplifying the appropriation to benefit students and the commonwealth

Penn State has worked diligently to be good stewards of taxpayer dollars, and the University has a proven track record of maximizing and amplifying its state appropriation to provide Pennsylvanians from all backgrounds and economic means with a high-quality education at the lowest possible price. 

Jones noted that in the last fiscal year, the University’s $242.1 million general support appropriation benefited 44,593 Pennsylvania resident undergraduates, for a per-student appropriation of $5,429 — the lowest state appropriation on a per-student basis of any public university in Pennsylvania. Yet Penn State took the appropriation and more than doubled it, with the average Pennsylvania undergraduate student paying $13,389 less than their nonresident counterparts.   

In real dollars, Penn State leveraged the state’s $242.1 million investment and turned it into a total tuition discount of nearly $600 million for all Pennsylvania resident undergraduates across all 20 undergraduate campuses. 

When asked by lawmakers how the University’s mission and demographics would change if the state were to change the funding model for higher education, Jones explained that as Pennsylvania’s public land-grant university, the state appropriation is a critical and irreplaceable part of Penn State’s budget, and no alternative funding mechanism would adequately replace the appropriation and the value that the University adds to it. 

The state appropriation essentially pays for a public university funding model with different resident and nonresident tuition rates, and without state funding, Penn State would need to adopt a higher single tuition rate, to the detriment of middle-income Pennsylvanians. 

“One of Penn State’s keys to success is our Commonwealth Campus structure and the fact that we are able to offer access to a Penn State education at 20 locations across the commonwealth,” said Jones. “Our ability to continue to do that in that distributed way and provide those affordable access points to a Penn State education would certainly be challenged without the support that we are fortunate to receive from the commonwealth.” 

Penn State’s in-state tuition rate also provides a strong economic incentive for the state’s brightest students to remain in Pennsylvania, Jones noted, as it makes Penn State more affordable than the commonwealth’s private research universities and competitor institutions in other states. If the state’s funding model were to change in the future and Penn State was forced to move away from a public university funding model, Jones said that the University’s in-state enrollment would likely decline and the trend of other regional colleges and universities outside of the commonwealth aggressively recruiting Pennsylvania students would accelerate, potentially causing more young people to leave the commonwealth and drain talent from the state’s future workforce.

Penn State’s commitment to access and affordability

To help keep a Penn State education affordable for the commonwealth’s working families and maximize the value of the appropriation, Jones told lawmakers that the University approaches the tuition-setting process from the outset each year with a goal of keeping any increases as low as possible. That goal is dependent on a variety of factors, including enrollment estimates for resident and nonresident students; state appropriations; cost-saving opportunities; unavoidable cost increases related to contracts, employee benefits, and goods and services — which amount to approximately $30 million annually; and the current economic environment. 

As part of Penn State’s commitment to access and affordability and student success, the University has focused its attention on controlling tuition costs, while also prioritizing student scholarship support as a central part of its current fundraising campaign; providing resources to target food and housing insecurity and other expenses that impact the total cost of attendance;  and implementing programs designed to help students graduate on time and with less debt. 

The University has placed a particular emphasis on removing barriers so that individuals from all backgrounds can have equal access to a Penn State education. 

“In the last decade, our enrollment from traditionally underrepresented groups has gone from the mid-teens, around 15% or 16%, up to almost 25% now,” said Jones. “We’ve made some progress over that time period, and we remain committed to moving the needle further.” 

Since 2015, Penn State has frozen in-state undergraduate tuition University-wide on four occasions, including three consecutive years from 2018-19 to 2020-21. At eight of Penn State’s 20 Commonwealth Campuses, which for decades have served some of the state’s most economically challenged regions, resident tuition rates were held flat for six consecutive academic years from 2015-16 through 2020-21. About 80% of students at the Commonwealth Campuses are Pennsylvania residents, and the University offers a differentiated tuition structure at its Commonwealth Campuses that adjusts tuition rates based on campus location and size, which, when combined with the state appropriation, makes higher education possible in many Pennsylvania communities.   

These efforts have resulted in Penn State ranking among the top five of state flagship universities and seventh among the 36 public members of the Association of American Universities for the smallest overall increase in in-state tuition over the last 10 years.

When adjusted for inflation, Pennsylvania resident students are actually paying less for a Penn State education today than they did in 2011, despite significant reductions in Penn State’s appropriation in 2011-12, and with state appropriations remaining relatively flat over the last decade. 

Reducing and controlling costs

Penn State’s efforts to control tuition costs absent significant increases in the state appropriation have caused the University to push even harder to be as efficient as possible with its resources. In the last fiscal year, Penn State identified and implemented approximately $104 million in cost savings. The current 2021-22 budget includes an additional $39.4 million in cost-saving initiatives, and the University’s appropriation request for the 2022-23 fiscal year incorporates another $25.9 million in required cost savings. 

As examples of cost-control efforts, Penn State has frozen salaries, reduced operating budgets, delayed capital projects, cut or left positions unfilled, and identified utility savings and reductions in health care costs. The University also is continuing its Resource Optimization Initiative that began in 2017 and is focused on 11 areas where cost savings and efficiencies can be achieved.  

However, University leadership has cautioned that such aggressive cost-cutting year after year is not sustainable, and when state appropriations have not kept pace with inflation, it impacts the University on multiple fronts, including its ability to innovate and to hire and retain the highest quality faculty and staff.

Even with these cost-cutting measures, Jones said that Penn State still faces increased costs outside of its control, including public pension obligations, insurance, utilities, and facilities maintenance, among other cost drivers. In addition, some discretionary cost increases are necessary for the institution to meet its educational mission, including adding to financial aid to continue to attract the best students from all backgrounds; addressing deferred maintenance of infrastructure to provide a safe and productive campus environment; and remaining financially competitive for the best employees. 

Jones emphasized that the importance of a direct state appropriation in allowing Penn State to continue to fulfill its land-grant mission for the citizens of Pennsylvania, while also keeping costs low for students, cannot be understated.

“Penn State and the commonwealth of Pennsylvania have been partners since our founding in 1855,” said Jones in submitted testimony to lawmakers. “With the commonwealth’s long-lasting support and partnership, we have contributed immeasurably to the quality of life, economic development, agricultural productivity, medical care, and leadership in every sector of our society. We accomplish this task while tirelessly working to maintain an accessible and affordable education for all Pennsylvanians. The annual state appropriation from the General Assembly is an irreplaceable keystone of this effort. Without your financial support, the relationship between our university and commonwealth would fundamentally change, hindering our mission of teaching, research and service for Pennsylvania.”