Chancellor Q&A: Budget

Chancellor Q&A: BudgetDecember 03, 2001SU News ServicesSUnews@syr.edu

Chancellor Kenneth A. Shaw recently sat down with Record Editor Kelly Homan Rodoski to discuss the University budget and the impact of the country’s current recession.

What is the University’s budget for this year? How does it compare with last year?

The operating budget for fiscal year 2001-02 is approximately $650 million, up from about $620 million the year before. We finished fiscal 2001 with a net positive operating result of $100,000. There is a small budgeted surplus of $200,000 in fiscal 2002. These are very modest amounts and tell us just how tightly budgeted we are. Any changes could easily result in a deficit or achieving more than was projected. In past years we have done both. When we had a surplus, the Board of Trustees gave us permission to spend a major portion of that amount. For example, in 1998-99 $1.4 million was dedicated to academic improvements. When we incur deficits, it is necessary to make them up in subsequent years. In general the Board is accepting if deficits remain modest and if things balance out over a five-year period.

For this year, where have there been deviations from the plan?

First, we ended up spending less for financial aid than we had budgeted. Institutional financial aid now constitutes $110 million per year, which is about 17 percent of our operating budget. That savings, however, was eliminated by two factors: first, health care costs are far greater than we had anticipated. Second, the decrease in our endowment has resulted in a reduction of about $1 million in projected annual revenues which were earmarked for the operating budget.I’ve recently appointed a health advisory committee to help us look at a number of options to ensure that we are getting optimum value. Health care costs are extremely expensive, approaching $20 million annually and constituting over 3 percent of our operating budget now. The committee will be advising us on priorities. These priorities are not only in the health benefit area itself, but also include the question of using budget increases for salary versus for health benefits. This is not a problem unique to Syracuse; what may be unique is that we will encourage members of the University community to express their views about our health care plan and about the pros and cons of the various trade-offs that are possible.

How has the economic recession affected the University’s assets?

Total cash and the market value of investments are down about $90 million from their peak level. We are just shy of $1 billion in investments, so even a small percentage drop translates into big dollars. Again, we join just about everyone else in dealing with this challenge.

How has the recession affected the way we do business at the University?

We’ve always been careful about how we spend our resources. Units are expected to stay within their budget, and in almost every case they do. Ours is far from being a crisis-rather, at the present time we need to be sure that we spend our money judiciously and that for the next year our spending decisions reflect our highest priorities. We presently cannot foresee a situation where our financial difficulties would be so serious that there would be actual overall reductions in budget. However, with the help of the Senate Budget Committee, we are prepared for that eventuality with a contingency plan that could be put into effect. We will be relying on the Senate Budget Committee for help in setting priorities for next year and years thereafter; that will be a difficult task. It involves determining increases for salary, health benefits and any host of academic and other initiatives, and making revenue and expenditure predictions in an uncertain economic climate. Priorities will need to be set, as we won’t be able to do everything. This also isn’t anything new.

How has the University’s economic situation been impacted by the Sept. 11 tragedy?

First of all, the economists are now telling us that the recession began in March, so we would be in a recession regardless of what happened. But, because we live in the state of New York, where a great deal of the damage occurred, it is likely that we will see a great impact at the state level. It is expecting fairly large deficits this year, with or without the federal bailout. That will affect us, as will the federal government having to direct much of its attention to a possible economic stimulus package and to meeting the defense needs that have arisen. There is no question that these things affect us, but the only thing that affects us differentially from the rest of the country is being in the state of New York. We have yet to feel the financial impact of the jobs lost as a result of Sept. 11. It’s bound to mean that some prospective students will find themselves in a bind. And we know that there are existing students who are similarly affected. We are committed to helping them.

Will any major projects, such as those identified in the Academic Plan, be put on hold because of budget considerations?

First, we expect to implement the Academic Plan. The Board has given us permission to spend $5 million per year from the endowment for the next 10 years to do that and we expect to do it, barring serious financial difficulties. The Academic Plan represents our future and we cannot allow ourselves to be sidelined, whether it be from recessions, terrorist attacks, or whatever. I would rather see us take overall budget reductions than skimp on the Academic Plan. The $5 million is not enough as it is and some reallocation is expected so that more can be done.There is one area that is being put on hold temporarily. And that is the borrowing of an additional $60 million for the space plan. To date we’ve borrowed about $120 million. The debt service on the additional borrowing would be in the neighborhood of $2.4 million annually. Until we have a better handle on what is happening in the economy, it is better to delay the borrowing of additional money. I want to emphasize this strongly-delay does not mean that some of the major projects are being cancelled. It means that we will take some time to ensure that the timing of our borrowing is appropriate. As I’ve stated many times before, the academic and space plans drive our future.

We have been through recessions before. Will the University weather this one as well?

Yes, recessions are a fact of life in a capitalistic country. There have been 10, counting this one, in the last 50 or so years. The average length is approximately 11 months. Longer recessions are generally a product of major external problems, such as the global rise in energy prices in the mid-1970s, and high inflation in the early 1980s which caused a huge increase in Federal Reserve Board interest rates.Will this be an average length recession? Many economists think so but, to no surprise, others disagree.In any event, we are far from being in a crisis situation. It is one of many challenges that we and other institutions are facing. We will face this and other challenges mindful of the need to continue to improve. It is not my intention that we stand still.