In an update sent June 29, 2009, to the University community, Provost David Kertzer and Executive Vice President Elizabeth Huidekoper discussed further budget reductions of $30 million that the University must make for fiscal year 2011. Payout from the endowment is expected to decline for the next several years. The text of the update follows here.

To: All Faculty and Staff
From: David Kertzer and Beppie Huidekoper
Subject: Update on Brown’s Response to the Economic Crisis
Date: June 29, 2009

 

When we last wrote to faculty and staff in April about Brown’s response to the global economic crisis, we explained that the University had begun planning for the budget reductions needed for FY11 (which begins July 1, 2010) and beyond. We reported that we would be expanding the Organizational Review Committee (ORC) — which is helping us identify where savings can be obtained — to include more faculty, students, and staff. The purpose of this update is to explain the need for continued budget reductions and the processes through which we will achieve those reductions, and to share with you the names of the members of the expanded ORC.

Why More Budget Reductions

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 more than 25 percent of its value in the last year, and we are advised that full recovery from that loss will take several years. Our financial plan a year ago assumed that the endowment payout would continue to increase over the next five years. However, given the significant drop in the value of the endowment, the payout from the endowment — revenue that we use to pay salaries and benefits, fund financial aid and student services, maintain and upgrade our facilities, and carry on other essential activities and programs — will also decline significantly for the next several years. At the same time, the growth in net income from tuition, which is our other major source of income, has been constrained by our concern to keep Brown accessible and affordable, and by the growing need for financial aid. We therefore expect only modest increases in net income from tuition and fees over the next five years.

Given these factors, we will need to reduce the University’s projected Fiscal Year 2011 E&G budget (that is, the budget for all areas of the University except the Division of Biology and Medicine) by $30 million. This, unfortunately, is in addition to the budget reductions made for the fiscal year that begins this July. If the markets do not significantly revive, we may be facing further cuts beyond FY11.

The Division of Biology and Medicine, given its greater dependence on sponsored research (that is, funding obtained primarily from the federal government) and lesser dependence on endowment, has a different set of challenges as it navigates the economic downturn. These primarily relate to new fundraising for the planned medical education facility and diminished endowment income for medical student financial aid, which — for the first time — will require the allocation of unrestricted funds from medical student tuition revenue ($200,000 in FY10). The Division’s administration continues to work to identify budget reallocations to deal with these challenges. As such, it is not immune from the economic realities facing the E&G budget and additional restructuring opportunities will be considered as necessary to meet the challenge.

FY11 Budget Process

The E&G budget for FY10 is $550 million. Of that amount, $77 million is designated for undergraduate scholarship aid, $40 million is designated for graduate student support and $66 million will support externally sponsored projects. Given our commitment to student support and the fact that savings cannot be obtained through sponsored support, achieving $30 million in reductions from planned expenditures in FY11 will be extremely challenging.

A small portion (approximately $7 million) of the $30 million of the reductions required in FY11 will come from decisions already made regarding our capital projects agenda. We are also hoping to achieve another $5-10 million of savings in our operating expenses through the introduction of changes in policies regarding purchasing, travel, and other items. Donald Schanck (Controller) and Doreen Burgers (Purchasing and Payables) will be working with a team in the fall to identify specific operating savings opportunities. They will use the recommendations that faculty, staff and students submitted this past winter via the Web. The team will solicit feedback from various groups across the campus about these opportunities. Based on their feedback, the team will recommend to the University Resources Committee ways in which operating expenses could be reduced. The URC will incorporate what they deem to be the appropriate reductions in the budget that they recommend to the President in December.

We believe that the balance of the reductions that we must make for FY11 — $15-20 million — will need to come from organizational change. As we mentioned in our message of April 14, 2009, the Organizational Review Committee has been expanded to include more faculty, student, and staff representation. (The list of committee members appears at the end of this message.) The expanded group met twice in May to develop a plan for launching the organizational review this fall. The process will include the creation of teams of faculty and staff who will be tasked with evaluating current organizational structures and functions, developing options for improved efficiency, soliciting input from the community, and preparing recommendations for further consideration by the ORC. The ORC will then consolidate the recommendations of the teams for presentation to the President, Provost, and Cabinet, as well as the URC. The final decisions with regard to the FY11 budget will be presented by the President to the Corporation in February 2010.

In the meantime, the ORC is gathering data on our administrative functions and workforce that will be used in the fall to support the review process. These data include Brown-specific information as well as benchmarking data from other colleges and universities. Members of the ORC plan to hold several focus groups this summer to identify burdensome administrative processes and procedures that could be eliminated or streamlined through redesign or automation. Please let either of us know if you would be interested in participating in such a group or if you have a recommendation for improving a particular administrative process.

Members of the ORC have met with a number of committees, departments, and other groups to explain Brown’s financial situation and describe our plans for developing the FY11 budget. This communication will continue over the summer and fall to make sure that everyone in our community is well informed about our financial situation and our plans for the future.

We heard from many of you that, while you appreciate the communications that you received this year regarding the economic crisis, you would like more regular updates that are easier to read and digest quickly. We hope to be able to address this request in a number of ways, including the development of a web site that will serve as a repository for all communication to date on this subject as well as regular updates on the work of the ORC and related cost-savings efforts. We hope that this update is helpful to you, and welcome additional suggestions regarding ways to improve communication on this important subject.

Expanded Organizational Review Committee

Russell Carey, Senior Vice President for Corporation Affairs & Governance
Karen Davis, Vice President for Human Resources
Nancy Fjeldheim, Department Manager, Geological Sciences
Elizabeth Huidekoper, Executive Vice President for Finance & Administration
Linda Laliberte-Cote, Assistant Dean for Public Health
Diane Lipscombe, Professor of Neuroscience
Dietrich Neuman, Professor of History of Art and Architecture
Jim Patti, Director of Strategic Planning & Analysis, Division of Biology and Medicine
Robert Pelcovits, Professor of Physics
Sarah Rutherford, Undergraduate Student
Richard Spies, Executive Vice President for Planning
Scott Thacher, Director of Information Technology
Vincent Tompkins, Deputy Provost
Valerie Petit Wilson, Associate Provost and Director of Institutional Diversity
Jason Zysk, Graduate Student