Penn State is planning nearly $100 million in budget cuts to eliminate its years-long operating deficit and create a “sustainable business model” for the future, university leaders said this week.
Under a new fiscal model implemented last year, Penn State is operating on two-year budget cycles, so the $94 million in cuts are being planned for what the university has pledged will be a balanced 2025-26 budget.
Those will include aggregate reductions of $54 million (14.1%) for the Commonwealth Campuses, $29 million (3.8%) for administrative and student support units and $11 million (1.4%) for University Park colleges, according to a lengthy news release and accompanying videos that the university called a “road map for Penn State’s future.“
The school has not yet indicated if the reductions are expected to result in job losses.
After operating at a nearly $200 million structural deficit in 2021-22, in the wake of COVID-19 and soaring inflation, Penn State narrowed the gap to about $63 million last fiscal year, thanks in part to a university-wide strategic hiring freeze and lower health care costs and higher investment income than expected.
The budget plans for 2023-24 and 2024-25 are designed to further reduce the deficit to $44.5 million and $34.5 million, respectively, university officials said last summer.
“As you all know, we’ve been working over the past year to address the deficit,” President Neeli Bendapudi said in a video statement. “We’ve made great progress and we are on track, but it’s simply not enough.”
The university, Bendapudi said, faces “significant headwinds,” including a projected $30 million increase in health care expenses in 2025-26, inflationary cost increases and stagnant state funding and tuition rates.
“Net tuition revenues are not covering the cost of delivering educational programs,” Bendapudi said.
Penn State is not using across-the-board approach to cuts, which would be typical in the past, because a one-size-fits-all reduction is not strategic, Bendapudi added.
“That approach implies we think that all of our activities are equally core to our purpose and that all have the same impact,” she said. “But now we have 18 months, 18 months to figure out how and where we must cut and how and where we must invest. This will involve analysis and discussions across all units, colleges and campuses.”
At the 20 Commonwealth Campuses, enrollment has declined 20% since 2016 and nearly 30% since 2010.
Individual campus allocations for 2025-26 have not yet been finalized, and the university outlined a number of initiatives to stabilize enrollment and best meet student needs. Leaders are also evaluating way different potential ways to offset costs, including “what it would look like to partner with additional local community colleges and rent out our facilities for some of their programming; evaluating academic programs per campus and determining strengths to really lean into; and identifying where not to duplicate programming,” Margo DelliCarpini, vice president for Commonwealth Campuses and executive chancellor, said.
Administrative and student support units, meanwhile, were asked to develop plans to reduce their 2025-26 expenses by 5%, ultimately resulting in the proposed 3.8% cut.
“This is funding being cut from central administrative units that will now not need to be cut from colleges and campuses in the budget allocation model, lowering the burden on academic units most closely linked to the student experience,” Sara Thorndike, senior vice president for finance and business, said.
While University Park colleges will have an overall $11 million reduction, some will see increases and some will see decreases.
“At University Park, some of our departments have seen significant declines in student interest,” Bendapudi said. “Some of our programs have areas of duplication. Others must demonstrate their relevance to the students and the employers of today.”
Demand for enrollment at University Park, however continues to be high, and Penn State plans to have small first-year class increase from 9,175 students this academic year to 9,500 students, which is the current maximum housing capacity, starting this fall, according to Matt Melvin, vice president for enrollment management. The goal is to move toward 10,000 students during the following admissions cycles.
“As part of this plan to increase capacity at University Park, we are looking closely at the investments that will need to be made, from physical infrastructure to additional faculty and staff, to accommodate a larger student body,” Melvin said. “We want to do this the right way, so we’ve already engaged in preliminary conversations with key groups on campus and within our community, and we are cognizant of factors such as admissions standards, class sizes, and faculty/staff ratios, which remain incredibly important.”
Lest the budget cuts be mistaken for the start of austerity program, those investments are among several identified in the “road map.”
The university is “being strategic in our investments,” Executive Vice President and Provost Justin Schwartz said, including bolstering the research enterprise, strengthening successful programs, developing new programs to increase overall enrollment and investing in “the academic, co-curricular and support needs” of students.
Penn State is also putting an additional $60 million into salary increases this year, including $17.6 million through the its Compensation Modernization Initiative and about $42.6 million for additional adjustments for some staff positions as the university transitions to new salary structures. A 3% general salary increase in the 2023-24 budget totaled $42 million.
“Along with investing in employees, I want to reiterate that our students are why each of us is here,” Bendapudi said. “Our decision-making always must ladder back to how we can make measurable progress to support our students, while continuing to scale excellence in research and creative activity, academics and in our mission as a public-impact university. But how we get there will be measured, intentional and constantly evolving.”
The 2025-26 budget will go before the Penn State Board of Trustees in July.
