March 24, 2003

Trustees give partial OK for '04 budget

By Michael Terrazas

On March 13, the Board of Trustees’ executive committee conditionally approved the University’s Educational and General (E&G) Budget for fiscal year 2004. At issue is whether Emory will be able to sustain existing programs given the current state of the economy.

“Due to the continuing decline of Emory’s endowment market value and the stock market in general, the weak economy, and the war in Iraq, the finance committee has asked for more time to consider the budget,” said interim Provost Woody Hunter said.

The board’s finance committee will be provided with an updated report on projected endowment spending before it makes a final recommendation.

“The plan is to update the committee on May 29, and a recommendation will go to the Board of Trustees on June 5,” said Charlotte Johnson, senior vice provost for administration.

Other external issues adding to the board’s concern are continuing increases in insurance expenses (which rose 81.4 percent in FY03 and are projected to go up another 56 percent in the coming year) and financial aid need. The state of Georgia’s decision to reduce funding for the Governor’s Scholarship program and tuition equalization grants has necessitated that Emory make up the difference from its own resources to keep scholarship funding whole. Also, as more families are affected by the economic downturn, more students are qualifying for need-based aid.

Since a final decision on the budget will not come until after June 5, Johnson said notification of salary adjustments for the coming year may be delayed.

Though the overall E&G budget is projected to grow to more than $440 million, an increase of 3.7 percent, FY04 will see a decline in endowment income for the first time in recent history. The latest projections forecast endowment and trust income for the year at just below $65.9 million, a drop of some $943,000 (1.4 percent) from the current year.

“Since Emory determines its endowment spending based on a three-year moving average, endowment income is projected to continue to drop through FY07, even if the endowment’s market value begins to rise,” said Edie Murphree, associate vice president for administration. “A shift of endowment income from Emory’s capital matching program to provide operating revenue has helped ease the budget constraints somewhat.”

“The cost-containment and reduction project conducted last fall identified $11.5 million in savings—nearly half of which came from reducing the fringe-benefit rate—for FY04,” said Johnson, who added that some staff reductions have occurred. “This is part of what’s going on. We are all concerned that staff reductions be done judiciously. The first option is not to fill vacancies and let the process happen naturally through attrition. But under certain circumstances, reductions in workforce may be necessary.”

There is good news for some income sources, she said. Changes in rates and a modest increase in enrollments will yield additional tuition revenue—which accounts for nearly 60 percent of the E&G budget and 85.7 percent of the marginal increase for FY04—and indirect cost recovery from research grants continues to grow.

Each passing day brings more word that Emory is not alone in facing financial constraint. Stanford announced earlier this month that it will freeze faculty and staff salaries for FY04 and make “selected” layoffs as it deals with a $25 million operating deficit; Harvard is considering a soft freeze on hiring; Duke has announced it will cut up to 50 faculty positions; Dartmouth has said it is considering layoffs; and Northwestern is asking administrative and academic units to reduce operating budgets by 2–2.75 percent.

“Emory is not immune to the economic downturn that the entire nation is experiencing,” President Bill Chace said in a March 10 letter to the Atlanta Journal-Constitution. “Financial integrity is a trust that we will continue to honor as we weather challenging financial times, while keeping faith with everyone in the Emory community.”