Budget faces $10M gap
As a result of the recent financial crisis the American economy is facing, it is projected that the $336 million University operating budget for fiscal year 2009 will suffer a $10 million gap, President Jehuda Reinharz announced last week.In an e-mail sent to the Brandeis community last Friday, Reinharz wrote, "I have approved a plan to close the gap this fiscal year. The plan calls for the use of one-time resources of $5 million, and another $5 million to be provided through expenditure reductions."
Executive Vice President and Chief Operating Officer Peter French explained that the University's gross operating budget is $336 million. He said, "There's about $195 million worth of expenditures that are fixed or are the type of expenditures that you either don't want to cut or it makes no sense to cut." For example, he said, "If you've got a program funded by gifts, and it's fully funded by gifts, you don't have any gain by cutting because the gift is restricted to that program."
Reinharz also wrote, "This $5 million expenditure-reduction target represents about 3.5 percent of the University's base operating budget, which excludes financial aid, sponsored research, and gift-funded programs. I have asked that the majority of the reduction target be accomplished through expenditure reductions in such areas as equipment, consultants, memberships, travel, events, and supplies."
According to French, the only department that will be exempt from any expenditure cuts will be Public Safety.
Vice President for Budget and Planning Frances Drolette said, "Another large category [of fixed expenditures] is depreciation. We're required to depreciate our physical plant, and therefore we take that out." In an e-mail to the Justice, Drolette explained, "Depreciation is a required accounting practice to recognize that each year the building values decrease as a function of use and time."
French explained, "The $10 million, as a percent of the [$336 million gross operating budget], is 2.9 percent. The $10 million is 7 percent of what we call the controllable base," or the $141 million left over after the $195 of fixed expenditures are taken out of the equation.
He said, "We think we can cover half of the problem through this allocation of one-time resources, so that leaves $5 million, which is 3.5 percent of the controllable base." French also said that Reinharz asked senior managers from University departments to develop proposals to figure out how to accommodate the 3.5 percent remaining budget gap. These were submitted about a week ago to Reinharz, who is currently reviewing them, according to French and Drolette.
French said that for the past several weeks, "We've been having discussions with the senior officers," who include Reinharz, Provost Marty Krauss, Senior Vice President for Students and Enrollment Jean Eddy, Senior Vice President for Institutional Advancement Nancy Winship, Senior Vice President for Communications Lorna Miles and French himself. "As things have gotten worse in the economy, it's become more and more clear that we have this problem in front of us."
French declined to comment on specific areas that those departments proposed to cut until the decisions were finalized. The Board of Trustees will make final decisions at the board meeting in March, he said.
However, he did say, "My guess is that there will be a minimal impact on students." He also said that the University would not stop the construction of the residence halls, nor would the University lay off full-time faculty members. "Our goal here is that we want to minimize damage to student life and academic programs." He is unsure at this point how tuition will be affected, if at all.
In his e-mail, Reinharz wrote, "The University is not in a position to assess how and when these economic conditions might change. The current downturn could worsen and continue for some time, and the actions that are being taken now may not be enough to offset further revenue declines for [fiscal year 2009 and fiscal year 2010]."
Reinharz wrote, "Colleges and universities, including Brandeis, are not immune from events occurring in the stock markets and banking.
Like many institutions, Brandeis' endowment returns have declined while the University's operating costs have risen. Our traditional revenue sources-the endowment, gifts and grants-have all been adversely affected by this situation, and the future is difficult to predict."
French said that since Reinharz became president in 1994, this is the third time "we've gone through a downturn of this sort, and we've had to make some adjustments. . We've successfully navigated it in the past, and we are optimistic that we're going to be able to do that."
According to French, the University was forced to follow the same process of asking departmental managers to propose solutions, as well as utilizing one-time resources, to meet a different problem in fiscal year 2003.
Now, however, "[w]e're seeing this particular problem coming at us from just about every revenue point and at every expenditure point, because we've not only got financial market turmoil, but we've got a very deep recession that we're dealing with. In a way, it's a lot more complicated and complex than it was" in 2003, he said.
French added, "If the economy deteriorates further, based upon our analysis, there may be further actions we have to take in terms of reducing expenditures."
Drolette said, "The $10 million estimate is not overly optimistic, nor is it overly pessimistic. It's a mid-case projection of where we believe we're going to end up."
In his e-mail, Reinharz wrote, "I have every reason to believe that, together, we will work through this very difficult period with Brandeis creativity, innovation, cooperation and good will."
-Lital Shair reported for this article.
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