FAYETTEVILLE, Ark. — The University of Arkansas expects to offer modest raises to faculty and staff under a new budget model for the 2008-09 fiscal year, despite initial concerns that a proposed cut of nearly $5 million in state funding for the university might hinder its ability to offer pay increases.

Based on new budget planning, funds will be available to provide salary pools in an effort to at least keep pace with the rising cost of living. The planned salary increases, however, would come at the expense of any new university program offerings or expenditures that were under consideration, except for those deemed unavoidable costs in the coming year.

“We’ve chosen to put our people first, albeit within our stretched means in the coming year,” said G. David Gearhart, chancellor-elect of the university. “While new programs that can enhance our quality and service to the state are critical — and we hope to address those as soon as our funding outlook improves — what makes a great university are its people. In order to continue to recruit and retain the best faculty and staff to serve our students, they need to be our priority even when difficult budget choices need to be made.”

Under the new budget plan, which requires the approval of the state’s Office of Personnel Management as well as the university’s Board of Trustees next month, each classified employee would receive a 2 percent raise for cost of living allowance with an additional 1 percent put into a pool to be distributed by merit.

Nonclassified employees, including nonclassified staff, faculty and graduate students, would receive merit increases based on a 2 percent pool. In addition, the faculty promotion increments would be funded at previous levels.

“Salaries at the university, particularly those earned by classified staff, continue to lag anywhere from 15 to 40 percent below those offered at peer institutions, when adjusted for market conditions,” said Gearhart. “Clearly, we cannot afford to lose any more ground when it comes to compensation for our people.”

Necessary expenses that university administrators anticipate being able to fund at new or increased levels include higher utility costs, teaching growth in the J. William Fulbright College of Arts and Sciences, debt service, and scholarships.

University administrators remain hopeful that some of the proposed state appropriation cuts may be restored in the months ahead, which would make more funds available for additional program needs universitywide.

The reduction in state appropriations means the university’s budget for the 2008-09 fiscal year will be $1,012,668 less than the current 2007-08 budget and nearly $5 million below what had originally been approved for next year’s budget. On March 28, before the April 9 announcement of the budget reduction, the University of Arkansas Board of Trustees approved a tuition increase for the next school year, and that increase will cover about $616,546 of the shortfall.

“The state funding outlook has meant we’ve had to make tough decisions on how tuition dollars will be deployed,” said Donald O. Pederson, vice chancellor for finance and administration. “We think that as a people-intensive organization, this is the most appropriate fiscal plan. We are grateful to Governor Beebe for his conservative budget approach, which provided us ample time to make adjustments. We have been able to ensure that the people who make the university’s mission work are not the ones who bear the brunt of this funding shortfall.”