Huidekoper discusses University’s finances

In mid-December, the University announced both a nonfaculty hiring freeze and the immediate implementation of a policy for reviewing all vacant staff positions. These steps, together with ongoing savings from vacancies, are designed to help keep the budget in balance and avoid more dramatic steps. Elizabeth Huidekoper, left, executive vice president for finance and administration, spoke recently with the GSJ’s Mark Nickel about the University’s financial affairs.

Is there a dollar figure that describes the challenge for the current fiscal year?

No. There are lots of mitigating factors this year. In some areas, we are over budget in our expenses, but in other areas our revenues are higher than we had budgeted. And yes, there are areas where our expenses and revenues were lower. So there is a whole array of things. The most critical area is financial aid. Support for students was significantly higher than we had anticipated, partly because of the economy and partly because of the changing demographics of the student body. The financial aid budget hit us hard this year. It is expected to be $3 million above our original budget.

What are the other factors?

The Tuition Assistance Program is higher than we had expected. Many more people are taking advantage of it – it’s such a wonderful benefit. Cash management is also a concern. You know from managing your own finances that it is hard to get even a 1.5-percent return. Brown is having the same problem, getting lower returns than we had planned on our working capital.

Are there areas where Brown has done better than expected?

Yes. We have a few more students this year than budgeted, so we have a little more tuition income. Our faculty has continued to do extremely well in obtaining research support, which has brought us a little more indirect cost recovery. We have some variable-rate debt, which is costing us less than originally budgeted. And one other thing: The vacancy savings policy combined with the hiring freeze will save Brown a lot. We were projecting a savings of $2.5 million; we are currently expecting to save more than $4 million. The vacancy savings plus the freeze will be enormously helpful, although clearly a challenge for much of the University. So when the year comes to an end – and we’re tracking this closely – I think we’ll be at the break-even point.

From a financial perspective, I’m less concerned about the current year than I am about the next few years. When the academic enrichment program was announced a year ago, the projections called for $4.5 million in savings from operating expenses in fiscal ’04 and $6.5 million in fiscal ’05. The projections also assumed increases in endowment income of 6 percent in ’04, then 8 percent in ’05 and ’06. Given the recent and anticipated capital markets, we think it would be more prudent to increase the endowment payout by 2 percent per year for the next three years.

What is likely to happen?

A 6-, 8- and 8-percent increase would likely result in a 7-percent endowment draw, and that would not be fiscally responsible. However, if we do increase the payout by 2 percent per year, we will have about $10 million less in income for fiscal ’06 than we would have had at the higher increases. Since we have no intention of slowing down the academic enrichment program, we will need to find other sources of revenue and/or other savings in the next few years.

Other places are facing the same economic factors. How is Brown doing by comparison?

Brown is unique. We are making significant new investments at a time when other places are cutting back or hoping only to hold the line. But even though Brown is different, the themes are the same. Endowments are not performing as they once did; everyone is looking for cuts.

What’s been the experience with the hiring freeze so far?

It’s only been a few weeks. We’re asking all senior officers to review the open positions in their areas and let us know if they plan to seek exceptions. There is a backlog – 100 or more vacant positions. People are assessing what they can live with right now. In general, everyone has been incredibly understanding and responsible.

There must be a point at which the hiring freeze levels off.

You can’t keep a hiring freeze on forever, because ultimately there’d be no one left. I hope it’s less than a year, but I really don’t know. It also depends on the economy, the URC budget process and the organizational review.

The organizational review – will that be a source of cost reduction as well?

It may happen, but that's not the purpose of the organizational review. The purpose is to make sure that we are organized optimally to achieve the mission and goals of the University. I happen to believe that organizations periodically need to do a self-assessment to make sure that the structures in place are relevant given changing times and changing needs. For example, the amount of sponsored research taking place at Brown is increasingly significantly. We need to make sure we have the infrastructure, the controls and the people to support the research enterprise. The appointment of a vice president for research is part of an organizational change effort designed to ensure that our faculty are adequately supported in their research activities.

So the bottom line is that we’re reasonably OK this year. But if economic conditions don’t improve, there’s a point on your charts where things will need to change quite a bit.

It’s part of my job to look at the economy. I could end up being somewhat gloomy, and I really don’t want that. I keep coming back to the really great things that are happening here. I am convinced that the Initiatives for Academic Enrichment are the right strategy, but it’s going to be hard. We need to squeeze the institution and turn it at the same time.

And come the recovery …

Come the recovery and a successful campaign, we will be in a much better position. Brown will absolutely be healthier and stronger and ready for what comes next. For now, with the information we have, we’re OK and we can keep going full steam ahead.