An unfinished state budget creates operating pains for the UNC System

As the UNC Board of Governors discussed performance funding on Wednesday, some schools like UNC-Asheville (pictured above) are discontinuing some offerings. (Image: UNC-Asheville)

This is typically the time of year when the University of North Carolina’s Board of Governors would be reviewing the new state budget, assessing legislative gains, and looking ahead to when students return to campus in August.

But budget talks in the House and Senate broke down in June. While the House approved a $31.7 billion spending proposal last month, Senate leaders suggested many items on that budget wish list were too expensive.

“The provisions we have in that budget adjustment bill are things that would be nice to have, but I don’t think they’re necessary for the state to continue on a good trajectory,” Senate President Pro Tem Phil Berger told reporters at the time.

And so, the budget lawmakers enacted in 2023 is the baseline spending agreement that remains in place until July 2025.

Jennifer Haygood, the UNC System’s senior vice president for finance and chief financial officer, told the UNC Board of Governors Wednesday that the failure to adjust the state budget was presenting some challenges as the system moves ahead with its own operating priorities.

Improvements made, but “performance funding” not guaranteed

Back in April, the board of governors approved a set of priorities that included $46.5 million in performance-weighted enrollment funding, based on the changes in both student enrollment and the performance at the various institutions.

“We designed this funding model such that as enrollment changed your recurring budget changed, and as your performance changed your recurring budget changed,” explained Haygood. “On the performance side we want to create incentives for institutions to make decisions and investments to improve student outcomes. And most of those interventions and strategies are going to require recurring and sustained investment.”

The legislature’s failure to agree on a final budget, however, has made it impossible for UNC System to fully follow through on the incentive plan. Haygood said one need only look at UNC-Charlotte and UNC-Pembroke to understand the challenges in trying to improve performance with non-recurring dollars.

Both schools made significant gains over the past two years. But because of how the House and Senate budget proposals proposed funding performance, the schools will lose funding that wasn’t built into the base budget.

“Even though they further improved their performance, they would actually have less money than they did the prior year,” explained Haygood.

All of but one of the institutions have improved performance over their baseline, yet many of them would actually sustain a cut.

Haygood said it’s clear more work is needed with the General Assembly about how to appropriately fund university performance metrics that includes school graduation rates, student debt, and the cost per degree.

UNC System President Peter Hans said a possible path forward would be to set a fixed performance pool to be allocated by the board of governors.

“We’ve played with the idea that maybe it could be something equivalent to a $30 million figure, but it wouldn’t change from year to year and legislative leaders could take some comfort in knowing what they were committing to,” said Hans.

Higher ed budgets may get worse before they get better

UNC Board of Governors member Harry Brown, a former state Senate Majority Leader and senior budget writer, suggested such budgetary concerns should have been seen coming.

“We’ve had a lot of what I will call non-recurring dollars flowing to the state for the last couple years during these COVID years,” said Brown. “Then when Medicaid expansion took place, I think we’ve all seen the numbers in the last week or so on how many people have now come on Medicaid through this expansion. So, I had some real concerns you know really for the last several years that we were heading in this direction.”

Brown said he’s talked to his former colleagues and friends in the Senate and reported the state budget will likely continue to get tighter and tighter especially when it comes to recurring dollars.

“I just again want to caution everybody — especially the chancellors — I’ve just seen this coming for a year or two. I don’t think it’s going to get better before it gets worse.”

Brown’s warning to the committee of budget and finance was felt almost immediately by those attending Wednesday’s meeting.

The full UNC Board of Governors gave final approval to discontinuing four academic degree programs at UNC-Asheville and 14 programs at UNC-Greensboro. Both regional schools have been struggling to offset declining enrollment and sizeable budget deficits.

Both Asheville Chancellor Kimberly van Noort and Greensboro Chancellor Frank Gilliam have said the cuts while difficult will make their institutions stronger moving forward.

Read more about the recent challenges at UNC-Greensboro and UNC-Asheville .

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