University works to maintain a strong budget outlook.

University works to maintain a strong budget outlook.November 11, 2002Nicci Brownnicbrown@syr.edu

In light of the recent economic downturn, Syracuse University is taking steps to maintain a strong budget outlook. At its fall meeting, held Oct. 31 and Nov. 1, the Board of Trustees reviewed a contingency plan for cutting the budget on an emergency basis – should the need arise. The move comes as other major private universities, including Dartmouth, Cornell and Duke, have instituted a range of cost-cutting measures, such as hiring freezes, program changes and tuition increases.

A sustained drop in the stock market has seen the University’s endowment drop from $842.5 million (1999-2000) to $674.4 million (2001-02). The October budget revision also reveals higher projected costs for fringe benefits such as health insurance (which rose by about 17 percent in 2001 and 8 percent in 2002), and property and casualty insurance (which was affected by the Sept. 11 attacks, natural disasters and investment losses by insurance companies). The net result has been a negative impact on the University’s five-year budget projections.

On Nov. 1, Chancellor Kenneth A. Shaw informed members of the Senate Committee on Budget and Fiscal Affairs that even an “optimistic” projection would see the budget deficit reach $5 million in two years if nothing were done to alter current plans. Shaw also said it’s “easy to imagine” a number of events that could make the deficit much larger. “For instance, economic conditions could cause new student enrollment to come in under the target of 2,950, or the stock market could take another dip, causing a further reduction in the endowment distribution rate,” he said. In addition, state budget deficits could result in cuts in aid to private higher education.

After consulting with the Board of Trustees, the Chancellor asked the Senate Committee on Budget and Fiscal Affairs to consider a three-step process to correct the projected deficit, including:

• recommendations for revisions to the five-year planning assumptions;
• recommendations for funding sources to cover the cost for high-priority, unmet budget requests; and
• in the event it is needed, a plan for significant budget corrections to be implemented the year after the University first experiences major budgetary problems.

The process is being developed in keeping with the Board of Trustees’ budget balancing guidelines, which were recently reaffirmed. The directive states that:

• no single-year deficit can be greater than $2 million;
• cumulative year deficits cannot exceed $5 million; and
• the cumulative five-year total must be balanced or positive.

A plan outlined for the Senate Budget Committee by John Hogan, director of the Office of Budget and Planning, lists a number of options to be considered for correction of the current projected deficit. These options include a change in the annual salary budget increment from 3.5 percent to 3 percent, a one-year salary freeze, a three-year freeze on general operating budgets, a one-year deferral of portions of planned new construction, and a 1 percent cost containment for two years on the University’s reducible base budget of $330 million. The Chancellor has asked that the Senate Budget Committee not include in its recommendations an undergraduate tuition increase above the planned 6 percent yearly increment.

Hogan notes that Syracuse University will need to make far fewer fiscal adjustments than many other private universities – particularly those that are more dependent on the revenue of endowment investments.

Budget items left unfunded from the last academic year are also being reassessed. The Chancellor has told the Senate Budget Committee he is receptive to introducing highest-priority items into the budget, but only if they are accompanied by funding source recommendations. Existing unmet budget items include:

• an increase in remuneration for some part-time instructors;
• faculty development funds (targeted market pay adjustments for faculty);
• pay increases to address market disparities of some hourly staff;
• increased support for graduate assistantships and fellowships;
• increased funds for library books and periodicals; and
• additional financing for the University’s new fund-raising campaign.

The Senate Budget Committee will decide which items to recommend for funding, accompanied by specific funding sources, by the end of December.

Finally, the Trustees and the Senate Budget Committee are being asked to advise the Chancellor on a contingency plan for deficit correction, in the event of a larger deficit than what is currently projected. Given a 6 percent budget reduction goal, Hogan has presented two possible scenarios to illustrate what the University could experience. In the first, salary and general operating budgets would each be cut by 6 percent, yielding approximately $20 million. This would result in the loss of 237 positions (51 faculty, 186 staff).

The second scenario, which assumes that an enrollment decrease is not the principal cause of the deficit, would result in heavier cuts to operations and less to staff, again yielding $20 million. The total positions cut would be 119 (26 faculty, 93 staff).

Hogan notes that the Senate Budget Committee is not required to make a decision on such action, although it may put forward recommendations. “Syracuse has been through this before on a much larger scale,” he says. “The contingency plan is just to be prepared.”Board of Trustees fall meeting details.