By Ted Nesi
PBN Web Editor
PROVIDENCE – Brown University administrators said yesterday the school must cut its operating budget for the 2010-11 fiscal year by an additional 5.5 percent, or $30 million, on top of cuts that were already made for the fiscal year that begins tomorrow.
Roughly $15 million to $20 million of those savings will require “organizational change” at Brown, with the rest coming from the deferral of capital projects and changes to purchasing, travel and other spending policies, Provost David Kertzer and Executive Vice President Elizabeth “Beppie” Huidekoper said in a memo sent to staff and faculty yesterday.
The administrators left somewhat vague what “organizational change” would mean in practice, but it would appear that layoffs are likely to take place. The memo said the university will save money by finding “administrative processes and procedures that could be eliminated or streamlined through redesign or automation.”
Brown laid off 31 employees and opted not to fill an additional 36 vacant positions this spring to balance its $758.7 million budget for the fiscal year that begins tomorrow, but school officials said they would have to reduce spending by an additional $80 million to $90 million over the next five years.
“While we are all encouraged by various indicators that suggest the economy and the endowment have stabilized and that we might see signs of recovery within the next year, the fact remains that our endowment has lost over 25 percent of its value in the past year, and we are advised that full recovery from that loss will take several years,” Kertzer and Huidekoper wrote in yesterday’s memo.
The value of Brown’s endowment reached $2.8 billion last summer, but has plummeted by roughly $700 million since then. Like other Ivy League schools, Brown relies on the payout from its endowment to fund a significant portion of its annual operating budget.
The five-year financial plan Brown finalized last summer had forecast that the endowment’s annual payout would continue to rise, but because of its losses the amount is now set to “decline significantly for the next several years,” Kertzer and Huidekoper said wrote.
In addition, they said, net income from tuition is not increasing because the recession has boosted demand for financial aid and the university is limiting how much it increases its charges. “We therefore expect only modest increases in net income from tuition and fees over the next five years,” the memo said.
The bottom line, they said, is that Brown’s $550 million education and general budget – which includes all the university’s expenses except the Division of Biology and Medicine – must shrink by $30 million during the fiscal year that starts July 1, 2010. Without a market rebound, they added, Brown may have to reduce spending further in July 2011.
In addition, about one-third of the education and general budget is devoted to financial aid and sponsored projects with outside funding sources, meaning the $30 million in savings required for next year must come out of the roughly $367 million that makes up the rest of the budget.
The two administrators acknowledged that “achieving $30 million in reductions from planned expenditures in [the 2011 fiscal year] will be extremely challenging.” A 15-member committee of administrators, faculty, staff and students has been formed to explore and recommend cuts.
Department heads and other administrators will send their budget requests to Brown President Ruth Simmons in December, and the Corporation of Brown University, which oversees the school’s administration, will give final approval to the 2010-11 budget next February.
The Division of Biology and Medicine, which includes the Alpert Medical School, is less reliant on revenue from the endowment because of the income it generates from research grants. However, the division may be forced to make cuts, as well, the memo said.
The disclosures about Brown’s financial situation came as The Wall Street Journal reported today that for the first time in years, billion-dollar university endowments like Brown’s were outperformed this fiscal year by small ones, thanks to more conservative investing strategies.
Northern Trust Corp., a Chicago-based financial firm, estimates that endowments worth $1 billion or more lost an average of 19.9 percent during the first 11 months of the fiscal year that ends today.
That was a better performance than endowments valued between $100 million and $1 billion, which lost more than 20 percent on average, but worse than endowments of less than $100 million, which lost 16.3 percent on average, according to Northern Trust.
“Ivy League schools, more reliant on investment gains to fund daily operations, also suffered more from these drops,” according to The Journal. “The average college relies on its endowment for 5 percent of its operating revenue, while at Ivy League schools the number ranges from 25 percent to 45 percent. That caused the type of asset-liability mismatch that has long bedeviled financial firms.”