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Minding the budget gap

Published: October 17, 2008
Section: Front Page


Administrators are examining the causes of the university’s $10 million budget shortfall for fiscal year 2009 and devising solutions to close the gap.

While daunting, the $10 million shortfall could have been greater. Approximately five weeks ago, the university removed its money from the Common Fund, an endowment investment entity in which many college and universities invest cash short term, Executive Vice President and Chief Operating Officer Peter French explained. “We took all of our cash out [of the Common Fund] because there was very little transparency about where the Common Fund was investing,” French explained.

About a week after the university took its cash out of the Common Fund, the fund froze all of its accounts. The Common Fund had invested in Lehman Brothers, a financial services firm which filed for bankruptcy Sept. 15.

The free-falling economy caused by crisis on Wall Street set the stage for French and President Jehuda Reinharz’s presentation on the university’s budget at an Oct. 2 faculty meeting.

French and Reinharz explained that the university faces a $10 million budget shortfall caused by a $4.2 million reduction in student tuition revenue, $3.8 million reduction in philanthropy and donations, and a $2 million increase in basic operating costs. The shortfall leaves the university with a budget of $326 million for fiscal year 2009 rather than the $336 million budget the trustees approved in March.

Ten million dollars represents a sixth of the money the university spent on financial aid for undergraduate and graduate students in fiscal year 2008 and a fifth of the university’s non-salary operating expenses in that same fiscal year.

Ten million dollars also represents 2.9% of the $336 million budget approved by the trustees in March for fiscal year 2009, French explained in an interview. Within that total budget, $141.9 million comprises the controllable base budget, the section of the budget that does not include financial aid, gift funded programs, or public safety among other things. Ten million dollars comprises 7% of that budget, French said.

Student Tuition

In fiscal year 2008, gross tuition and fees accounted for 48% of the university’s operating revenues. Tuition revenue has dropped as more students receive financial aid and more students graduate in fewer than 8 semesters, French explained at the faculty meeting. Generally, the students graduating early “are the least aided,” he said.

“About 65% of our population receives some form of financial aid,” Senior Vice President for Students and Enrollment Jean Eddy explained in an e-mail. “That number has been the same for the last five years. What is different,” she explained, “is the size of the financial aid awards.”

Both “patterns became evident at the end of the last academic year and are continuing into this year,” Eddy stated.

Despite these patterns, Eddy wrote, “we do not anticipate raising tuition at a higher rate than in the past years.”

In order to increase tuition revenue without significantly raising tuition prices, the university has turned to the graduate school of arts and sciences, Dean of Arts and Sciences Adam Jaffe explained. “We have been active for several years trying to increase revenue in the graduate school of arts and sciences mostly by increasing the number of master’s students,” he said.

“PhD programs don’t make money for the university,” Jaffe remarked. As such, he continued, “we are creating new master’s programs and trying to increase [enrollment] in existing programs.”

Jaffe explained that master’s programs in cultural production, teaching, and computational linguistics, all begun in the last five years, are “already contributing revenue.”

A new master’s program in global studies will go before the trustees for approval later this month.

Philanthropy and donations

An endowment draw of 5.4% was necessary to balance the fiscal year 2008 budget, French explained to the faculty. “We like to spend no more than 5%,” he said in an interview.

Furthermore, “our endowment returns are down,” in part because “donors have less to give,” Reinharz explained at the faculty meeting.

Last year’s endowment returns were 2.4%, however the previous year, endowment returns were 18%, French said.

“So far this year, we’re in negative territory, as I’m sure every endowment in the country is,” French commented.

He continued, “what we strive for over the long haul is…8% total return. Brandeis over the last 5 or 10 years has been just over 9%.”

“When you’re in a down year, it hurts,” he added. “It’s not just the endowment [returns]. The recession is affecting families. Donors are feeling the pinch.”

Cost of operating the university

As tuition revenue and donations fell, basic operating costs increased by $2 million. Through “very significant initiatives to reduce [utility] costs,” the university has “reduced consumption,” French said. However, he explained, the cost of natural gas, electricity, water, and sewer increased for fiscal year 2009.

French pointed to new buildings built to Leadership in Energy and Environmental Design standards. “Even though we’ve added all this square footage, our BTU has gone down,” he said.

“We’ve suppressed it because of the investment we’ve made in infrastructure,” French added.

Closing the Gap

In order to resolve the $10 million shortfall, the university will make use of $5 million in one-time resources from bequests, French said. “Every year we get some dollars through bequests. We have about $5 million in trusts that are in the process of being executed,” he explained.

“These monies are in the works,” French added, “by the end of the fiscal year, the cash will be available to the university.”

Money from bequests, however, will not solve this year’s budget shortfall. “We’re using this one-time money and we still have a $5 million problem,” French said.

That problem will be solved by “reduc[ing] the expenditure base by $5 million,” he added. While a full list of reductions has yet to be finalized, it will include “consulting contracts, travel expenses, certain events, [and] food service costs,” French listed.

To that end, Provost Marty Krauss announced to the faculty in a Sept. 29 e-mail, that she had “decided to suspend serving refreshments at Faculty Meetings.”

Additionally Dean Jaffe explained that department operating budgets have been reduced. Those cuts would “reduce the money they have for things like colloquia…[or] the money they would have to buy office equipment.”

Travel funded through Jaffe’s office has also been reduced.

In addition to those cutbacks, “we’re also looking at eliminating funded vacant positions,” French said.

While he said that the university hopes to “minimize” layoffs and “service reductions,” “do expect some layoffs and some service reductions.”

New professor hiring will also be curtailed. Jaffe said that 16 searches for new faculty were underway for next fall. “We’re still figuring out how this is going to work,” he said, but “ten to 12 have been terminated for the moment.”

Jaffe explained that every year, departments propose curriculum and “ask for money for temporary [faculty] appointments” to teach courses. “Canceling searches will add somewhat to those needs [but] we will have to do the best we can,” he said.

Jaffe said that required course offerings will not be affected. As for a “reduction in electives, I just don’t honestly know at this point,” he remarked.

“We’re working really hard to make sure that these reductions don’t interfere with the core mission of the university,” Jaffe added.

However, he said as a caveat, “I can’t sit here and say there won’t be any effects on students.”