No single cause can be cited as the sole reason for a projected deficit of around $8 million in this year's budget, Illinois State University's president said Friday.
Aondover Tarhule said in an interview for WGLT's Sound Ideas that ISU is grappling with a series of challenges that range from existential threats to higher education at large to institution-specific issues like how the university practices budget modeling.
Last month, in an address the university community and general public, Tarhule announced the university was facing strong fiscal headwinds and could have a budget deficit of $32 million if courses were not corrected; to address this year's roughly $8 million projected deficit, ISU is initiating a pay freeze and leaving some positions vacant, among other recommendations outlined by current interim Vice President for Finance and Planning Daniel Petree.
That's raised questions about how that deficit arose and the extent to which — if at all — the circumstances were preventable. Tarhule, who became interim president after Terri Goss Kinzy resigned in 2023 and permanent president earlier this year, said the fiscal projections were roughly a year in the making.
This interview has been lightly edited for clarity.
WGLT: When was the deficit first identified?
Tarhule: The first time I noticed that something may not be exactly right was about this time last year. When I stepped in as interim [president], I requested a three-year forecast to get a sense of what the budget was like. Those forecasted numbers were much softer than I expected, much weaker than I'd realized.
At that time, the CFO [Dan Stephens] was thinking about leaving for family reasons, so when we had a new CFO come in [Daniel Petree], I asked him to take a look. I asked him to do a hind cast, to look back at five years of our budget going back to 2018 because he was new and had a fresh set of eyes, and then to look forward.
It took until June of this year, after several iterations, before we became convinced about what we were looking at [and] felt we had confidence in the robustness of it.
So, I became aware of it about a year ago and became sure of it in June of this year.
Was this deficit preventable, given that it is somebody's job to forecast what things might look like each given year?
Tarhule: [I] don't know if it was. I think one of the things that made this situation especially difficult is that it followed so quickly on the heels of the pandemic. During the pandemic, all of our finances were distorted because we had a lot more money coming in from the state and federal government. We had some expenses that we were not incurring, like travel. Then inflationary pressures really took off because of the supply chain at the end of that. So, it's a very muddled picture that emerged from the pandemic into what we're looking at.
I know that there have been other stressors and moments like this in the past and leadership has been able to deal with it. I feel, actually, quite optimistic about where we are relative to where most of our peers are — and the fact that we are taking these proactive steps to avoid having to be in a disastrous crisis, to me, I think that's the big message out of this.
I know that you feel very optimistic about how the university is positioned currently and how it can be positioned going forward, but I wonder: What is your message to some of the staff who may not feel quite as optimistic, given their concerns with cost of living increases [being frozen], etc. They may feel a disconnect from that messaging.
Tarhule: Possibly. But you've got to look at it from my point of view: If we don't take these actions now, then next year, we may have to start firing people or we may have to start taking more extreme measures that we see happening at other universities.
So as bad as this is, I think my message is: Look at it in a relative sense. This is not good, but if you look at schools that are closing academic programs and laying off faculty and staff, how did they get there? In some cases, they got there because they failed to take actions they could have taken earlier. The problem is not going to solve itself.
So, I completely empathize with those feelings. I understand the feelings of the challenge of what happens when you don't get an increase in pay; I know how invested people are in the success of this university. This is the last thing I wish I was doing in my first year as the permanent president. But at the same time, I would not be serving the interests of the university in the long term if I don't take a longer-term view, if I were to avoid or dodge the responsibility of taking the hard actions now.
When you talk about, 'Could this be prevented,' I'm actually trying to prevent a much worse situation. What has happened before has happened and based on every analysis we've done, if we don't take these actions, next year we'll have to take even more severe actions. My hope would be to encourage folks to think about a longer time frame and the overall sustainability of the university.
Is there anything different about the way that budget modeling is done now?
Tarhule: Not yet, but that's one of the things we must deal with. Illinois State has had a historical budget model that has been in operation for over two decades. So part of the issue that we are dealing with has to do with external factors... but it's also partly because we have not had a dynamic budgeting process that changes in response to revenues and expense pictures. We've just been doing the same thing over and over and over and over for more than two decades where, in that time, our revenue picture was changing, our expense picture was changing and we hadn't been responding to it.
Going forward, we have to create a new model that is more dynamic, that is more responsive to revenues and expenses. That's a major undertaking. I'll be asking the board [of trustees] for approval to hire an external consultant to work with us between a year to 18 months to make that happen.
When the new CFO came in and identified [these issues], what were some of things he identified as the causes? This didn't appear out of nowhere; what were the causes?
Tarhule: There's two main causes: There's macro-environmental causes to do with where higher ed as a whole is, and then there are internal causes.
So, on the macro causes: What has happened historically is when you get a deficit, you raise tuition to make up for it. That's what we've been doing for a long time, not just at ISU, but at other institutions. This time, what is different is that there is a huge outcry about the cost of higher ed. People no longer want to pay; people believe that higher ed is too expensive.
There are three things happening: Number one is the cost of higher ed. Number two is there is a declining populations of students, overall, to pick from, so there's a lot of competition. Number three is that there's a lot more jobs now that ... don't require a college degree. So, the convergence of these three things have made it very difficult for universities like us to use the traditional methods of trying to close the budget deficit.
The thing about the demographic cliff is that it is not a new phenomena — it has long been talked about and studied and forecasted. What makes this a moment to address [that]?
Tarhule: At most institutions, this problem tends to start with a decline in enrollment. Our enrollment is not declining, but our discount rate and financial aid have been very high. The amount of cost that we have had to incur ... to bring the students here has been so high that it's eating into our margins.
The way I have explained it is our net margin for each student we have brought in has evaporated.
One example I have given: In 2013, our net revenue from tuition was $139 million. Last year, our net revenue was $138 million — 10 years later, without accounting for inflation. If you account for inflation, our net revenue last year is worth about $100 million of what it was in 2018.
Our spending in financial aid has gone up dramatically.
We spent about $17 million in 2015; we're spending over $60 million today. That's over $40 million in increased financial aid in 10 years and of course, that's far higher than anything you you can generate in revenue.
Is there a target dollar amount to be at operational efficiency for the university?
Tarhule: Our deficit right at the end of this year will be over $8 million if we do nothing. I'm not saying it's going to be $8 million; it will be if we continue to operate the way we're used to operating without taking any steps. But that's not responsible and we are not going to do nothing. So, that is what I'm trying to work toward: Making sure that we can, if possible, erase that deficit and take actions to ensure that we'll end the year in the black.
