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A Message from the President: Fiscal Realities Demand Discipline and Teamwork

April 4, 2016

By President Dick McGinity

For many months, you have been hearing and reading about the revenue decline the state faces. The decline results from the precipitous fall of energy commodity prices and production volumes that began two years ago, and that may continue well into the future. The Legislature has made an initial response to this situation by reducing appropriations for state agencies -- including UW -- by 1.5 percent for the 2017-18 biennium beginning July 1. The Legislature may mandate further cuts for the second year of the coming biennium, and perhaps beyond. This letter explains how UW is responding to a situation that it has not faced in over 30 years.

2017-18 Biennium

For UW, the 1.5 percent budget reduction mandated by the Legislature for the coming biennium requires a $5.8 million spending cut from 2016 levels over the next two fiscal years.

This $5.8 million spending cut is not, however, the full extent of the financial management challenge facing the administration and the Board of Trustees. The Legislature also directed UW to use $5 million of its state block grant to construct its first-ever institution-wide budgeting, accounting and reporting system. The Legislature paired this directive with a $5 million appropriation to UW to be used for the same purpose.

As a result of that mandate and other pressing internal needs -- including information technology ($3 million) and facilities operation and maintenance ($3 million) -- the UW administration is working toward a $7 million budget reduction for the 2016-17 fiscal year beginning July 1.

In the past week, all of UW’s administrative and academic units have been notified of the reductions they will need to make, based upon their share of the overall UW operating budget.

2017-18 Implications

What will these reductions mean for each of UW’s academic and administrative units? It is too early to say precisely. Recommendations for individual program and position cuts will be made in the coming weeks by deans, directors and other leaders of individual academic and administrative units. The administration prefers that any job losses occur through attrition, rather than layoffs. But there’s no question that a $7 million cut -- equal to about 3.5 percent of UW’s $205.4 million annual operating budget -- will be felt by UW’s employees, students and other constituents.

In addition to reducing the operating budget, UW has committed to contribute $10 million in one-time funding over two years for building the financial and reporting system. To help meet that need, UW will use unspent personnel funding and tap a number of reserve accounts. Revenue from the coming 4 percent tuition increase also will support one-time and ongoing needs.

UW’s board, administration and individual academic and administrative leaders surely will have difficult decisions to make over the next two fiscal years. All of UW’s operations must be scrutinized for further efficiencies, and new funding sources sought and pursued. Tuition increases will help, but cannot alone address revenue shortfalls. Everything must be on the table.

Regarding compensation, the current biennium saw the first employee compensation increases in five years. In the coming biennium, no funding for any state employee pay raises was approved by the Legislature, and funding for compensation increases in the second year of the biennium is highly unlikely. UW will have to look to internal reallocations -- in addition to scheduled tuition increases -- to fill the growing gap between UW salaries and those of our competitors.

The Future

I wish I could say UW’s financial challenge is a one-year or one-biennium problem, but that is not the case. Indications are that the revenue downturn will worsen in the biennium’s second year and into the following 2019-20 biennium. In fact, the Legislature has mandated that state agencies achieve a total 3.5 percent cut in the 2018-19 fiscal year, and a total 5 percent cut in the 2019-20 fiscal year. It is entirely possible that during the second (2017-18) year of the coming biennium, UW and other state agencies may be directed to achieve a 5 percent reduction. The above-mentioned $7 million spending cut in the 2016-2017 fiscal year should be used by administrators to position their units for further spending reductions in subsequent years.

Bright Spots

All of the foregoing having been said, there were some bright spots for UW in the recently concluded budget session.

The Legislature remained committed to the Science Initiative, in spite of the fiscal challenges. In addition to approving $2.3 million in recurring dollars for Science Initiative programs, the Legislature allocated a total of $100 million to construct a Science Initiative facility, to include state-of-the-art research centers in scientific imaging and biological research, and studio-style classrooms to facilitate active learning. Lawmakers also appropriated $3 million to acquire property north of campus for the building and other potential projects in line with UW’s long-range development plan.

To complete financing to construct the Engineering Education and Research Building, the Legislature approved $14.5 million. Combined with earlier appropriations, there is now a total of $105 million for what will be the largest construction project in the university’s history. Construction is scheduled to begin in late 2016 or early 2017 north of the existing Engineering Building.

The Legislature also appropriated $1 million for planning a satellite energy plant on the northwest part of campus, and additional space needs for WWAMI medical education.

Legislators continue to support funding to match private donations for academics and athletic programs. Included in the appropriation is $11.5 million to match private gifts for programs encouraging entrepreneurship among UW students -- aimed at economic diversification in the state -- and for increasing recovery rates in unconventional oil and gas reservoirs.

Lawmakers approved a total of $8 million for the biennium -- $4 million annually -- to match private contributions to help our Athletics Department respond to changes in NCAA regulations regarding student-athlete scholarships and benefits, in addition to enhancing recruiting, nutrition and other services to student-athletes. That’s a reduction from the $5 million appropriated for that purpose in the current fiscal year.

All things considered, the university fared as well as we could have expected during the recently concluded budget session.

Next Steps

Many of you may question why the Legislature has reduced the university’s block grant while funding new programs and buildings. That is a legitimate question, and there is no simple answer. The best explanation I can offer is that the Legislature and the governor want UW to continue to make progress and pursue distinction, even during an economic downturn. Even in good economic times, not all of UW’s programs can be upgraded simultaneously. The governor and Legislature expect UW to prioritize and make difficult decisions that enable key initiatives to advance, even as the university tightens its belt and responds to the current revenue decline. This challenge is not insurmountable, but responding to it requires the combined efforts of everyone -- working together.

Some might question the necessity of spending upwards of $20 million to construct UW’s first-ever, institution-wide budgeting, financial and accounting system. To that, I say simply that no institution of UW’s size and complexity can operate effectively without one, and that our patchwork of legacy financial systems across the organization is an embarrassment. UW’s academic and administrative officers are unable -- in any timely manner -- to either access accurate data needed to deploy funds across the institution effectively, or to provide the financial transparency that one is entitled to expect of Wyoming’s only public university and its third-largest state agency.

Throughout its 130-year history, UW has weathered a number of difficulties and financial downturns, always finding a way to improve due to the support of the state, visionary leadership and committed employees. By working together, we will weather the current downturn and emerge as an institution better and stronger than ever before.

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