10-11-2018

I thank the Oregon State University Faculty Senate president and colleagues for providing me with the opportunity to discuss with you the state of the university and to preview the year ahead. In short, the state of the university is very good. There are many points of pride to celebrate but also a number of challenges facing us. Many of you have heard me state that the best is yet to come for this wonderful university and community. That is true now more than ever.

Let me begin with a brief summary of accomplishments from last year, which represented the final year for implementation of Strategic Plan 3.0 (SP3.0). Information that is more detailed can be found in the associated appendix that follows this speech. We reached or exceeded a number of targets for FY18.

The target for degrees completed was 6,000 while the actual number was over 7,100. We also increased the number of bachelor’s degrees awarded to Oregon residents and degrees awarded to historically under-represented students. The goal for the percentage of high achieving Oregon high school students in the entering class set at 45% for FY18 actually reached 47% in FY17. Ecampus degree seeking enrollment rose to over 4,500 students compared to an SP3.0 target of 3,000. At 24.8%, the percentage of domestically under-represented students at the university is close to the target goal of 25%.

On the financial front, the underfunding of recurring costs by the state required recurring reductions and deferred investments of $20 million last year. We closed the books with an ending fund balance of 15.7% in FY18. That compares with a target set by the Board of Trustees of 15%. Total R&D funding exceeded $381 million, which is remarkable considering that we exceeded $300 million for the first time only three years earlier. The OSU Foundation raised just under $152 million dollars in FY18, the most raised in any year in the history of the university. That total included the largest gift in the history of the university of $50 million from alumnus Gary R.  Carlson for our college of veterinary medicine. We are now in the planning phase of the next Campaign for OSU.

With regard to student success, we raised the first-year retention rate for undergraduate students to 84.8% and the six-year graduation rate for undergraduates to 65.3%. At the same time, in partnership with the OSU Foundation, we have raised over $91 million in the last year and a half toward our $150 million goal for student scholarships as part of our OSU150 celebration.

Other aspects of student success are worth noting. In spring 2018, the average GPA of our student-athletes was 3.14. In fact, 15 of our 17 teams, including football, earned an average GPA of 3.0 or better. In terms of community engagement, OSU’s Juntos program served more than 3,000 Latino families in 23 Oregon communities. Of those students participating in Juntos, 100% earn their high school diploma and 92% go on to community college or a four-year institution.

I have said on other occasions that our capital needs over the next decade will differ substantially from our experience of the last decade. We are approaching the close of a period of extraordinary expansion in our overall physical spaces, particularly with regard to classroom and research space for faculty and students. Over the next decade, our objective will be primarily to improve the quality of the physical space we occupy. We have serious capital renewal needs with respect to research laboratories and space if we are to avoid a slow-down in the future growth of research activity at OSU. State capital funds for the renewal of Fairbanks, Gilkey and Cordley Halls will begin to address very serious academic and research facility shortfalls. We recently purchased a building on Research Way in Corvallis for S19.8 million, which includes excellent research space. With the additional expenditure of a few million dollars, that building can replace a need to spend $75 million for a new research building in the next 10 years. Furthermore, the Research Way building will provide critical swing space to accommodate the further renovation of Cordley Hall.

Even with $20 million in permanent planned expenditure reductions made in FY18, we will phase in over the next decade the creation of an annual funding source for $45 million to address building repair and renewal needs on an ongoing basis. Based on an external analysis completed last year by Sightlines, it is estimated that the university has capital renewal and deferred maintenance needs totaling $650 million and seismic retrofit needs ranging from $350 million to $700 million. Over the next decade, our investment and capital renewal plans will address nearly 40% of our capital improvement and deferred maintenance needs.


Even as we turn to a primary focus on improving the quality of existing space, major new facilities are of strategic significance in the near term. These projects include the new Forest Science Complex, the forthcoming Arts Education Complex in Corvallis, the Marine Studies Building at Hatfield, the second academic building and the student success center at OSU-Cascades, and the OSU Portland Center in the iconic Meier and Frank Building.

Before I turn to the agenda for this year, allow me to note additional recognition provided the university in the last year. For example, our college of forestry is ranked No. 2 in the world and our oceanography program is ranked No. 3 in the world. OSU is ranked as the No. 1 safest campus in the U.S.; No. 1 among Best Colleges for the money in Oregon; and the No. 9 Greenest College Campus in America. OSU is ranked in the top 1% out of more than 27,000 degree-granting institutions of higher education in this year’s Center for World University Rankings, the largest academic ranking of global universities.

Our robotics program was recently ranked No. 4 in the country. Moreover, our agricultural sciences programs regularly are ranked in the top 10 in the country.

Our college of business is ranked No. 1 in the world for experimental research in accounting information systems and No. 8 for experimental financial accounting. The OSU Advantage Accelerator has earned a top 10 ranking among business accelerators in the U.S. and Canada. The accelerator is ranked as the top startup accelerator in Oregon by Gust.com and the eighth-most active in the U.S. and Canada. Our college newspaper, The Daily Barometer, was recently given a 2017 Associated Collegiate Press Pacemaker Award, which is often called the Pulitzer Prize of college journalism.

U.S. News and World Report ranked our online undergraduate programs No. 6 in the country and they are regularly among the top 10. Our online liberal arts degree offerings have been ranked No. 1 in the country.

Clearly, we have much to celebrate and we are achieving success reflecting our commitment to excellence in everything we do. Our commitment to excellence is not some abstract notion and it is certainly no slavish drive for recognition and rankings. OSU was created to serve the people of Oregon and more broadly the nation and the world by providing learning opportunities and creating new knowledge, insights, and policies and practices that improve the human condition. The more exceptional we are in those efforts, the more powerful our impact can be.

When we began the university’s strategic planning process, we asked ourselves which land-grant institutions were among the very best in the areas of study that we offer based on their academic, research, creative and service efforts. We identified attributes of those institutions that we aspired to match or exceed and set targets where we could to measure ourselves against their performance. Going forward, it is worth reviewing how we match up with our aspirational peers now as we set our goals for SP4.0.

Compared to our aspirational peers, we are less selective in our student admission requirements, our enrollment is substantially less at the undergraduate and graduate levels, and we have a higher percentage of Pell eligible students than our aspirational peers do. While some of these contextual features may put us at a competitive disadvantage relative to our aspirational peers, they are consistent with our access mission.

Some among us have questioned our recent focus on student success. We have set a goal of raising the first-year retention rate for all undergraduates from our current 84.8% to 90% and our six-year graduation rate for all undergraduates from 65.3% to 70% by 2020. In fact, the first-year retention rate achievement gap actually increased last year from 6% to 8.1% while the six-year graduation rate achievement gap declined, but is still 8.9%. These gaps have declined substantially in recent years but they leave a lot of room for improvement.

It is instructive to compare our performance with our aspirational peers, where data is available. To reach the average performance level of our peer comparators with regard to student success, we must raise our first-year retention rate from 84.8% to 93.6%, our four-year graduation rate from 33.3% to 61.3% and our six-year graduation rate from 65.3% to 84.1%. The low four-year graduation rate is a major barrier to realizing our commitment to access for our students. Our commitment to student success is a matter of imperative and not an arbitrary choice. Furthermore, to match our peers, we would have to raise our percentage of historically under-represented students from 11.1% to 13.4% and the percentage of historically under-represented tenured/tenure-track faculty from 7.3% to 8.1%.

Others among us are genuinely concerned about our ability to provide our research community with the quality research equipment and facilities needed to continue on our current trajectory. Comparative data make it clear that success in this domain also is imperative. We have underperformed in a number of financial areas related to research productivity. Invention disclosures increased by 10 over the last year, but the total is only 78 compared to a target of 120. While licensing revenue rose slightly to $4.4 million, it remains well below the SP3.0 target of $10.9 million. Meanwhile, our top 10 peer institutions have an average licensing income of $19.1 million.

Nearly 10 years ago, I cautioned that we needed to diversify the sources of our research revenue. The value of industry contracts, licensing and royalties peaked at $40.1 million in 2015 but stood at only $31.4 million in 2018. In addition, licensing revenue leveraged per appropriated dollar for the statewide public service programs has fallen from a high ratio of 2.92 in FY12 to 2.12 in FY18, well below the SP3.0 goal of 3.0. The uncertainties of federal research funding in recent years makes our modest rate of improvement in diversification into commercial and industry partnerships unacceptable.

Our research expenditures per tenure/tenure-track faculty FTE is $271,546. While that figure is well above the average for Association of Public and Land-grant Universities (APLU), it is below our aspirational peer group average of $431,482. In fairness, a number of our aspirational peers have academic medical centers, which often account for half or more of the research funding at their universities.

With these matters in mind let me describe in broad terms our agenda for FY19:

  1. Finalize and Implement SP.4.0
  2. Engage Donors and the Legislature to Increase Operating and Capital Funds
  3. Promote Revenue Growth, Cost Containment and Financial Sustainability
  4. Continue to Build Community and Develop a Faculty Union Contract

Many of our aspirations are reflected in Vision 2030 and will find their way into SP4.0. At this point we remain clear that we must:

  • Increase the presence and improve the experience of historically underrepresented student and faculty groups within Oregon State.
  • Continue to raise the first-year retention rate and six-year graduation rate of all undergraduate student groups to 90% and 70%, respectively.
  • Raise our four-year graduation rate substantially.
  • Eliminate achievement gaps.
  • Expand the number and size of our graduate program offerings and the number of doctoral students in our programs and Ph.D. degrees awarded.
  • Renew, refresh and repurpose our physical environment to support our research and teaching endeavors.
  • Expand our learning, research and service activities in Newport, Corvallis, Portland, Bend and throughout the state of Oregon and beyond.
  • Increase our licensing, patent and startup activity.
  • Manage our operations more efficiently; and
  • Diversify and expand all of our sources of revenue, including our online offerings.

Despite the permanent reduction of $20 million in expenditures and planned investments made last year, we invested $3 million in student success initiatives. This year, we are committing $1.85 million in new money and $2.5 million in recurring funds to the undergraduate student success initiative and an additional $495,000 to the graduate student success initiative.

With regard to SP4.0, I now will focus on the core curriculum review process that is underway and why it is so important that we take this work seriously to advance our mission and promote student success. Courses that qualify for the baccalaureate core now total 987, of which 899 have been scheduled since summer 2016. If the distributed budget model is implemented poorly, that number will only grow in the face of incentives to increase enrollment and in the absence of a coherent set of principles to guide the composition of the core. I am a long-time supporter of the LEAP (Liberal Education and America’s Promise) initiative led by the Association of American Colleges and Universities and I encourage us to start with the LEAP model to fashion our baccalaureate core.

As the first member of my family to graduate from college and as a trained economist, one might expect me to hold most dearly to the argument in favor of higher education that those with a college degree will experience lifetime earnings that are 60% higher than lifetime earnings for high school graduates, a gap that continues to grow. I might also be expected to advise students to pick majors strategically that lead directly to one of the highest paying professional jobs. In fact, I take the opposite view, and I tell students to make sure they have a sound arts and sciences foundation within their studies. Chasing money too often leads to soul crushing jobs and lives crowded into weekends. I tell students that living for weekends is a loser’s bet because life is finite and throwing away five of every seven days makes no sense. I tell them to do work that they care about. I also tell them that about one-third of Fortune 500 CEOs majored in the arts and sciences in college.

Before the dot.com bubble burst at the turn of the century – and before the Great Recession – advocates for a solid grounding in the arts and sciences for all graduates noted that today’s graduates may have 5-10 jobs during their work-life and that liberal studies prepare students to be flexible at work with strong training in critical thinking, writing, listening, structuring and solving problems, working in teams, understanding other cultures and communities from their own, and thinking outside the box. Surveys find that today employers value these skills highly in new employees. We also talked about civic engagement and community service, which are important elements of a strong liberal studies program. No one paid much attention to the issue of civic engagement for years. We need to revisit the case for a strong liberal arts foundation or baccalaureate core in the education of all of our graduates and to the importance of civic engagement in a democracy.

I believe that there is a new imperative for liberal arts studies for all of our students. Just as the printing press made it possible for all to read and interpret scripture for themselves, the internet and social media have made it possible for every individual to acquire information of every kind that is unfiltered by experts. Some years ago, I thought that we would always need content experts to evaluate the enormous increase in information available to us. We do need content experts, but we have to be smart enough to know when we need their counsel and to discern the experts from the charlatans. Here is where critical thinking, writing, listening and the ability to frame unstructured problems and to create solutions come into play. More than ever before, the citizens, workers and volunteers of the future must become the agents of their own lifelong learning. If our graduates are to remain our greatest contribution to the future, they must be solidly grounded in the core disciplines of the arts and sciences and the baccalaureate core must be the source of that preparation. We must do our best to get this right.

With regard to fundraising, we will build on the success of the past. As noted earlier, we raised a record of almost $152 million last year. Sometime in the next several years, we will launch the second Campaign for OSU with a goal that exceeds the $1.14 billion raised in the first campaign.

FY19 includes a full legislative session. The current biennial operating budget from the state for Oregon’s seven public universities is $737 million. The Oregon Council of Presidents has endorsed a minimum request for an additional $130 million to maintain current operations, in the face of rapidly rising health benefits and pension costs that the universities cannot control. The universities will be seeking an operating budget of $1 billion for the biennium, which will support new initiatives to more quickly achieve targets for student success, research and service.

Our primary requests for capital funding for Corvallis are $56 million for additional renovation work within Cordley Hall, $28 million of which will be funded by university revenue bonds, and $70 million for the proposed Arts Education Complex, which includes $35 million in donor-provided funds. The OSU-Cascades campus has a $17 million request for funding for a student experience center, which will include $5 million raised by students through fees on the OSU-Cascades campus and additional requested funds of $17.5 million for site preparation and infrastructure projects consistent with the approved campus master plan. Achieving full funding for all of the projects on OSU’s capital list during the FY19 session will be extremely difficult.

FY19 will be the first year of operations at the OSU Portland Center in the Meier and Frank Building across from Pioneer Courthouse Square in downtown Portland. Realistically, it will take a number of years for this activity to produce net revenue, but we believe it is critical to sustain growth in Ecampus revenue in the years ahead. We expect enrollment growth at OSU-Cascades to continue at a 5-10% rate annually and for enrollment on the Corvallis campus to grow modestly, if at all.

We do not anticipate the need for additional continuing budget cuts in FY19. We expect our fund balance at the end of FY19 to stand at 14.4% compared to 15.7% at the end of FY18. Considerable increases in Oregon Public Employees Retirement System rates expected at the beginning of FY20 and FY22 could require us to make adjustments in assumptions and commitments in our 10-year business forecast to bring our fund balances back to the 15% target.

The effort to build a diverse and inclusive university community that advances social justice efforts continues. This initiative must engage colleagues and students across OSU and supporters of the university. Charlene Alexander continues to help orchestrate individual and collective activities to foster progress. For example, this month, we will convene a meeting of university officials and leaders from the nine tribes of Oregon to discuss a common agenda going forward to increase post-secondary educational attainment for the tribal communities and consider other positive steps toward reconciliation. Meanwhile, the program of community dialogues will continue and be expanded during FY19 and we will enhance current initiatives to recruit and retain women faculty and faculty of color, particularly in STEM disciplines.

As you know, the faculty unionization effort has been successful and the results were certified by the Employment Relations Board in late June. My understanding, is that the union organizers believe the process of concluding a contract could take a year or more. Clearly, there are many issues to sort out regarding the shared responsibility roles of the university Faculty Senate, the union and the administration. At the same time, the U.S. Supreme Court ruled in the Janus case that the practice of “Fair Share” is unconstitutional. It remains unclear to what extent, if at all, the court ruling will impact the ability of all interested parties to reach the bargaining table in a timely fashion. I promise you that the administration will do our very best to expedite the process and, as with existing unions on campus, I will offer to meet with union representatives on a regular basis, once we have concluded a bargaining agreement. There is never a bad time for colleagues to resolve differences and improve working relationships regardless of the timing of contract negotiations.

So, we have our work cut out for us in the year ahead. I look forward to working with you and other colleagues throughout the university to see what we can accomplish together. 

 

Notes/Comments

 

Changes from January 2018 forecast:

  • The ten-year forecast reviewed by the Board in January 2018 projected an ending FY18 balance of 17.6%, FY19 of 18.3% and FY23 of 10.6%. FY23 marked the low point in fund balance projections largely because of the accumulated costs of PERS increases.
  • Since January, the projections were updated to recognize lower tuition realization than expected for FY18 (largely through slowing in Ecampus growth and declines in graduate enrollment), accelerated capital planning commitments for the Research Way building, and the decision to fully implement the new Corvallis RCM-like budget model. These moved the FY18 ending balance to about 15.7%, with FY19 projected at 14.4% and FY23 at 6.1%. The pattern of fund balance change remains the same but the starting point is lower so the projected ending balances are lower. There have not yet been changes to the assumptions in the forecast or firm enrollment projections for fall to adjust for those future fund balances less than 10% but those adjustments will be part of the next budget planning cycle.

 

Methodology and Assumptions:

  • Five-year projection trends taken from ten-year business forecast approved by the Board in January.
  • FY18 values were updated to current estimates based on FY18 year-end closing
  • FY19 values were updated to the Board approved budget for Corvallis Education and General operations
  • State funding in out years was updated assuming 3% growth in the biennial allocation after 17-19
  • Increases in revenues and expenses for the out years were assumed to be the same as in the current ten-year forecast; percentage increases in enrollment, tuition, etc. all stayed the same, just the FY18 starting point for the calculation was adjusted

 

Assumptions

  • Enrollment numbers are consistent with the current enrollment management plan (28,000 students in Corvallis, 15% international, 1/3 of Corvallis undergraduates non-residents, etc.)
  • Annual tuition increases of 2% to 4.5% depending on PERS changes and student category (graduate vs. undergraduate, resident vs. non-resident, etc.), annual raises of 3%, costs for PERS and PEBB increases as currently projected, other inflationary costs
  • Staffing and supplies increases proportional to growth in enrollment
  • Debt service, maintenance, and depreciation costs consistent with current ten-year capital forecast

 

Next steps

  • Update the ten-year forecast when fall enrollment is known; improve forecast model in preparation for full update to Board in January, 2020
  • Update enrollment projections to the revised Enrollment Strategy, including any changes to goals for Cascades
  • Update state funding projections in detail based on the legislative allocation and final HECC allotment, particularly for the Engineering Technology Sustaining funds.
  • Identify assumptions and commitments to be changed to bring all projected fund balances back above the 10% threshold
  • Update modeling for more details on restricted funds, self-support operations, and Statewide Public Services

Download the PDF version of the president's speech for complete access to all of the tables and charts.