The University plans to reduce its annual draw on the endowment by 20 percent next year, Beppie Huidekoper, executive vice president for finance and administration, said at the first Brown University Community Council meeting of the semester yesterday.
As it starts the budget-planning process for the fiscal year beginning in July 2010, the administration remains on track to reduce an anticipated $30 million in spending.
Between July 1 of last year and June 30 of this year, the endowment lost $740 million — "a huge blow to Brown," Huidekoper said. She added that the University is expecting zero net growth in its endowment this year.
Payout from the endowment represents one of the University's two main sources for revenue. The other, tuition, is expected to increase by only 1.4 percent this year, Huidekoper said. Such slow annual revenue increases will pose a significant challenge to overall University growth in the near future, she added.
This past May, the University reduced projected revenue growth from 5 percent per year to 2 percent per year between July 2010 and June 2014. To keep pace with such projections, the University will have to contain its overall spending growth to 2 percent per year, reducing anticipated spending by a total of $95 million by June 2014.
Of that $95 million, $35 million has already been eliminated through cuts to the current budget. The University will be looking to reduce an additional $30 million for the coming fiscal year, and only after finalizing next year's budget will administrators begin to tackle the final $30 million.
But the University's financial plan includes more than $100 million in budget increases for "critical priorities" including financial aid, compensation and research by 2014. Swallowing these costs while still committing to the $60 million in total reductions will pose a "significant challenge" and will involve continuing to raise new funds and make reductions in other areas, Huidekoper said.
Because of the significant decrease in the endowment's market value, the University would have to draw on it at a much higher rate to maintain current revenue streams. The administration met earlier this month with a subcommittee of the Corporation, which remained "extremely cautious," recommending a 20 percent planned decrease in payout from the endowment in fiscal year 2011, Huidekoper said.
Even at this reduced rate, the University will be drawing at an "unsustainable level," she said.
Facing the $30 million in reductions, the University will maintain its commitment to financial aid, faculty and graduate students — and will not be making "across the board cuts," Huidekoper said. Both the University Resources Committee and the Organizational Review Committee will begin strategic planning in order to make budget recommendations to President Ruth Simmons before winter break.
"This is obviously going to be another extremely difficult year," Simmons said in her closing remarks at the meeting yesterday, which was held at Brown Hillel, because Leung Gallery in Faunce House is closed for construction. But she emphasized an unwavering commitment to Brown's values.
"A budget is a budget. An endowment is an endowment," she said. "But there is also something called a mission of a University. We have to be careful that we aren't so rigid as to lose the many things that are important to this community."
Current deficit reduction targets for fiscal year 2011 include $14 million in cuts through "organizational review," including position reductions, both through unfilled vacancies and job cuts.
Last year, the University eliminated a total of 67 positions, 31 of which were vacancies left unfilled and 36 of which were staff layoffs.
"We will expect there will be fewer budgeted positions next year," Huidekoper said.
In an effort to allow members of the campus community to participate in planning conversations, the ORC will establish 12 subgroups open to students, faculty and staff. These groups will begin to meet in two weeks and will develop specialized recommendations. Both the ORC and the URC — traditionally responsible for budgetary planning — will submit their proposals to Simmons before winter break.
Simmons will finalize the budget recommendations, which will be presented to the Corporation at its February meeting for approval. Though Simmons always revises final budget recommendations, her role this year will be "significantly more challenging" with "repercussions much more significant," Huidekoper said.
At that point, "it's all on her shoulders," Huidekoper said.
The University remains hopeful that — thanks to a series of fortunate events — the final $30 million in reductions may not be necessary. If endowment returns, net tuition increases, sponsored support or gifts in the next four years are higher than projected, that figure may decrease, Huidekoper said.
Budgetary figures do not apply to the Division of Biology and Medicine or affiliates such as the Watson Institute for International Studies, both of which are self-endowed and prepare separate budgets.
BioMed "has its own serious financial aid holes that it will have to meet," Huidekoper said, though she added that it has seen notable success in winning federal stimulus funds and research awards.