Gov. Dunleavy and a key University of Alaska leader signed a 3-year compact. What does it mean, and what happens now?

University of Alaska President Jim Johnsen says he’s continuing to draft plans to consolidate the state’s public university system under a single accreditation, but he’s now taking a new, three-year agreement into account that includes a $25 million budget cut this year instead of an unprecedented $135 million cut.

Under the agreement — described as a “compact” and signed by Gov. Mike Dunleavy and UA Board of Regents chairman John Davies on Tuesday — the governor says he’ll support another $25 million cut for UA next year and a $20 million cut the following year. The agreement provides UA with a little more budget certainty and time to make decisions, but it’s “not ideal” and big cuts still must be made, Johnsen said.

“We do have to capture savings soon,” he said. “This is not off the hook at all.”

The controversial compact is the latest step in a monthslong funding battle for UA that bled beyond the start of the fiscal year on July 1. It marks a sharp reversal by Dunleavy as an effort to recall him continues. Some have said the compact is the best path out of an impossible situation for the university system, while others have criticized the governor for attempting to circumnavigate the Legislature — the body charged with setting the funding amounts — by agreeing to three years of cuts for his alma mater. Still others say UA deserves deeper cuts.

For UA, this year’s reduced budget cut means Johnsen is not planning to recommend additional tuition increases for the spring semester, but he will examine tuition changes for the following two academic years, he said. It also means about 2,500 staff will no longer have to take 10 days of unpaid leave this year. There will still likely be layoffs but far fewer than under a one-year $135 million cut, Davies said.

Under this year’s $25 million budget cut, Johnsen said he continues to support merging the state’s three separately accredited universities into one accredited institution with multiple locations. Regents had voted to move in that direction last month, tasking Johnsen with drawing up a plan, despite opposition from university chancellors.

The regents must approve the plan, and they're expected to consider it in September.

[Recall Dunleavy group says it passed a 28,000-signature threshold in two weeks]

Meanwhile, Davies has called for a regents’ meeting next week to discuss their prior vote to declare financial exigency under the deeper cut. The declaration allows university officials to more quickly end academic programs and lay off tenured faculty. Faculty members say that’s driving deep concerns and instability, and they want the declaration reversed soon.

Davies said uncertainty has been one of the biggest problems for UA and the compact helps blunt some of that.

‘Literally a thousand jobs were saved’

The compact follows a tense back-and-forth this year between the Legislature and Dunleavy, a former legislator and educator who’s in his first year as governor.

The Legislature originally passed a budget for UA with $5 million in cuts for the current fiscal year. The governor vetoed $130 million more and legislators passed another bill adding back $110 million, leaving a $25 million cut. That’s about an 8% cut to UA’s state funding compared to last year, and 3% of last year’s total operating budget, including other revenues such as tuition.

Now the governor is preparing to accept that $25 million cut. This week, he announced reversals on three of his other budget cuts, but the UA funding is the only one tied to a multi-year agreement.

“I’m not enthusiastic about a $70 million cut (over three years), but I’m happy it’s not $135 million,” Davies said.

Davies described the compact as an agreement, but it’s not legally binding, he said. Davies, as the head of UA’s governing board, has agreed to it. Dunleavy said Tuesday he also agreed to it, unless there’s a significant drop in oil prices.

“If it drops $30-20 a barrel of oil we’re going to have to revisit those conversations if we don’t have the money,” Dunleavy said.

Davies said the other regents are aware of the compact, but haven’t taken a vote on it. “In theory,” he said, the regents could reject the compact, but he said he doesn’t think that will happen.

“Our sense is that the governor has the veto pen and he’s demonstrated his willingness to use it,” Davies said. “Would I prefer to have a different outcome? Would I prefer the number be less than $70 million? Yes, I would. But this is the compromise we could get to with the governor. … This is the political reality that we have to deal with.”

Johnsen said UA has watched its state funding shrink by about $50 million in recent years. He said he’s had an interest in a long-term funding plan from the state, instead of the annual budget battles.

Then when UA officials started checking into the background of Donna Arduin after Dunleavy hired her as his top state budget executive, they saw the term “compact,” he said.

Arduin has an almost 30-year career working for a series of Republican governors to balance state budgets, often by making drastic spending cuts.

During her 11 months in California, then-Gov. Arnold Schwarzenegger signed a compact in 2004 with leaders of two university systems. The six-year compact generated controversy, and set increases to student fees and minimum state funding levels, according to news reports.

Johnsen said he had brought up the idea of a multi-year funding approach months ago, anticipating steep budget cuts ahead, but it didn’t immediately gain traction. Asked how long the current compact was under negotiation, he said, “just a few weeks.”

“I don’t think anybody would want a budget cut, but given the circumstances we face, I felt, and I think the board agrees, that it was in our universities’ best interest to negotiate this,” Johnsen said.

“Literally a thousand jobs were saved by this agreement," he said. "That’s huge.”

Negotiations

Under the compact, Dunleavy will “propose, support, and permit” UA to receive $302 million in state funding for its operating budget for the current fiscal year, $277 million next year and $257 million for fiscal year 2022.

The agreement means regents are expected to request those amounts over the next two years, Davies said. Dunleavy is expected to include those amounts in his proposed budget. It’s the Legislature’s job to set the actual funding amount from there.

However, Dunleavy’s spokesman, Matt Shuckerow, has said the governor could choose to veto funding for UA should legislators appropriate more money to the university system than what the agreement details. The governor will not veto funds below the agreed-upon amounts, Shuckerow said.

The Legislature can override the governor’s veto, but it requires a three-quarters majority of legislators to agree, the highest such hurdle in the United States. An attempt to override Dunleavy’s vetoes this year failed.

“The Legislature was not able to override a veto of 41% of our budget along with 181 other line items, so that’s part of the calculation on our part as well,” Johnsen said. “This is not ideal. I would much rather not have to do this.”

The compact does not dictate how UA will spend state funding, as a prior proposal from the governor’s office did, prompting a warning from the agency that accredits the university system. The agency, the Northwest Commission on Colleges and Universities, requires accredited universities to have an independent governing board, agency president Sonny Ramaswamy cautioned last month.

The compact does, however, include a list of 11 “priorities” for UA. The university system must report its progress on the priorities to the governor’s office and the Legislature by Dec. 4 of each year, over the next three years, the agreement says.

The priorities are mostly broad, such as “operating cost reductions” and “administrative overhead reductions.” There’s also “enrollment and degree/certificate completion rates” and “structural consolidation and consideration of single accreditation.”

Johnsen said the university system is “largely already engaged in” working on those priorities. He said consolidating to a single accredited university isn’t a requirement under the agreement.

Davies said the priority list is a product of negotiations with the governor’s office. He said there aren’t any priorities that he doesn’t agree with.

“These are largely things that have already been on our list to do,” he said. “I don’t have a problem at all reporting on those numbers because they’re things that the regents are looking at in any case, so we’ll write up a report. But in terms of having a high expectation that we’ll accomplish everything on that list, I would say that’s a stretch.”

The compact includes another list too. This one for Dunleavy.

The agreement says Dunleavy commits to 10 items such as “support budgeted amounts agreed upon.” That list was also negotiated, Davies said.

Johnsen pointed out that the list includes a line that says Dunleavy will “consider other budget items that support University transformation.” It’s “very general,” Johnsen said, “but an open door” for UA to talk with the governor about additional state funding for certain initiatives moving forward.

Repair a reputation

With the start of fall semester less than two weeks away, UA now has to decide how to move forward.

Johnsen said UA is still seeking feedback from the community via an online survey. Data from the survey will help inform regents’ consideration of consolidation plans, according to a UA spokeswoman.

Johnsen said he is still drawing up the plans and didn’t have specifics by Wednesday, including how many jobs could be cut under consolidation.

Broadly, consolidation would mean that instead of having three separately accredited universities — the University of Alaska Anchorage, the University of Alaska Fairbanks and the University of Alaska Southeast in Juneau — there would simply be a “University of Alaska” with campuses across the state, including in Anchorage, Fairbanks and Juneau.

That would lead to a decrease in the number of colleges and schools, as well as the number of administrative departments, Johnsen said.

For example, there would be only one engineering college headquartered at one campus instead of two at two universities, Johnsen said. He said classes would still be available throughout the state.

Not everyone likes that plan, including the UAA, UAF and UAS chancellors who want to keep the universities separately accredited and have the budget cuts distributed between them and statewide administration.

Johnsen said he believes consolidation will result in a greater percentage of dollars going toward academics and fewer going toward administration.

“We’re only 27,000 students across the state yet we have an administrative structure that is built to serve many more,” he said.

Meanwhile, UA also has to wrestle with the fallout of the initial $135 million budget cut that captured national and international headlines.

It has already prompted Moody’s Investors Service to downgrade UA’s credit rating, making bonding and borrowing money more difficult and expensive. It also led to a warning about UA’s accreditation status and regents to declare financial exigency.

Forrest Nabors, chairman of UAA’s political science department and of a UAA Faculty Senate committee, said the declaration was done improperly. It was rushed. It lacked a plan. It caused system-wide fear, he said. He and a group of other faculty members have filed grievances, objecting to the declaration.

“Existing faculty here are looking outside because the declaration has rattled their confidence in the university’s commitment to faculty,” he said. “Why shouldn’t they look elsewhere after spending all that time earning tenure? Why wouldn’t they look elsewhere for stability in their career?”

Nabors and other faculty are calling on regents to withdraw the declaration of financial exigency soon. Nabors also said he doesn’t support moving to single accreditation.

Johnsen said UA will work to rebuild and repair its reputation. The initial budget veto has hampered UA’s ability to recruit students and retain faculty, he said. Johnsen said he hopes by avoiding “titanic budget battles” over the next two years, negative publicity will decrease.

Moody’s didn’t return request for comment by Thursday about whether the reduced budget cut will affect UA’s credit rating.

Ramaswamy, president of the Northwest Commission on Colleges and Universities, said he didn’t initially have concerns about the three-year compact.

Governors and legislators cannot micromanage a university and dictate where it cuts funding, but they can set high-level expectations, he said.

The accrediting agency will continue to work with UA moving forward, he said. Spreading the funding cuts over three years, he said, allows UA to be “much more purposeful and thoughtful in dealing with the budget situation,” including any plans to consolidate.

“It was going to be a shotgun marriage basically for the three institutions,” Ramaswamy said. “Now they can really step back and take a deep breath and think about it.”

Regents’ upcoming meetings:

• Next week: Regents chairman John Davies has called a meeting to discuss financial exigency, according to a UA spokeswoman. A time and day was not yet announced by Thursday evening.

• Sept. 9: Regents hold a statewide call for public testimony from 4-6 p.m.

• Sept. 12-13: Regents meet in Anchorage. Meeting documents should be posted on alaska.edu on Sept. 5.

Related stories:

Governor agrees to smaller university funding cut, including $25 million first-year reduction passed by Legislature

‘Our house is on fire’: Facing a deep funding cut, UA regents move toward merging system into a single accredited university

Moody’s downgrades University of Alaska credit rating, citing financial challenges