Faced with rising expenditures, a sagging endowment and an enrollment cap, Georgetown University recently adopted several new measures to trim operating deficits and improve its financial condition.
As reported last Friday, the University Board of Directors raised tuition and fees on its Main, Medical and Law campuses. The university has also implemented a series of budgetary changes, however, that will shift a larger financial burden onto individual university departments.
As part of the university’s overall four-year financial plan, individual schools and departments will be required to increase their contributions toward faculty and staff salaries, health care and federal work-study salaries, while at the same time reducing their discretionary spending.
“Given increased costs this year for employee fringe benefits and financial aid as well as our continued efforts to retain faculty and staff with merit increases, these steps need to be taken in order to ensure that the Main Campus budget remains balanced,” Julie Green Bataille, assistant vice president for communications, said.
Departments Face Tighter Controls
Graphic by Daniel Gourvitch/The Hoya
Over the next few years, university departments will be forced to work with fewer resources. The amount departments must pay for employee fringe benefits like health care will increase from 26 percent to 29 percent.
“In the past, the provost would pull the money to fund these benefits. Now the departments are being asked to fund them,” said Anthony Arend (SFS ’80), government professor and Faculty Senate vice president.
Departments will also be forced to contribute 40 percent toward the salary of a federal work-study student instead of the current 25 percent.
According to Bataille, “This cost has fluctuated over the years depending on a variety of factors, including the share of federal funds that GU receives for this program.” It is still unclear what effect this will have on the number of federal work-study jobs. But one department chair said that departments will probably hire fewer students as a result.
So far, the university has shied away from large budget cuts and hiring freezes.
According to Jo-Ann Henry, vice president and chief human resources officer, preliminary discussions about a “hiring freeze, frost or chill” occurred late last year, but no formal process was implemented.
Fundraising, however, is one career field with growth potential.
The Office of Alumni and University Relations has recently advertised for a number of positions, including a vice president for medical center development and another to handle major gifts.
Departments will be forced to spend significantly more without receiving a proportional increase of income.
“Departments will incur a share of the merit and benefits costs and will make individual decisions about how best to absorb these expenses,” Bataille said.
According to one faculty member, the changes amount to a 1 percent cut in spending.
No across-the-board method of cost-cutting has been mandated, however, and each department must determine its own approach.
“It is each department’s discretion to implement these economies as they see appropriate with the goal of ensuring that there is no significant impact on curriculum,” Bataille said.
“We’ll be able to pull through,” Arend said. “In these tough times, we always need to look at the goal – and that goal is to provide the best education and research. We have to be very judicious to ensure that any measures reinforce that core mission of teaching and research. Thus far we’ve been fairly successful.”
One department chair commented that a “good deal” of waste already occurs, so budget trimming should not hurt morale.
According to one source in another department, however, “there are only a few places you can take it out: stuff like pen and pencils, staff and curriculum.”
With budgets already tight, some departments are considering cutting back on courses taught by adjunct faculty.
Reaching “Institutional Equilibrium”
Taken together, tuition increases and cost-cutting measures aim to achieve “institutional equilibrium,” a term used by the Main Campus Planning Committee, which advises the provost on ain Campus issues.
With debt levels near their ceiling of approximately $700 million, the university is forced to trim its chronic operating deficits.
The university reported a $20.2 million deficit for the fiscal year 2003 and estimates a $35.5 million deficit for the fiscal year that ends in June 2004. These losses follow a string of serious operating losses throughout the late 1990s.
Recurring deficits have also affected Georgetown’s bond rating. In a credit update released in 2003, rating service oody’s reported, “. We expect that Georgetown will generate operating losses for the next several years as it seeks to address issues of fiscal imbalance, in part but not exclusively driven by poor financial performance at its Medical Center.”
The Medical Center will endure even more stringent cuts than the ain Campus. In a statement released yesterday, Medical Center Executive Director Dr. Daniel Sedmak explained, “It is apparent that as part of the cost containment, the Medical Center will need to achieve a reduction in the number of non-tenured faculty and staff.” He added, “We will follow an orderly, inclusive and appropriate process to identify the faculty and staff who will be affected.” However, Amy DeMaria, executive director of the Medical Center’s Office of Communications, explained that despite the cuts, the Medical Center will focus on sustaining certain “strategic areas” that cut across multiple departments such as cancer, child health and development, and neurological sciences.
University President John J. DeGioia explained the budget situation in a Jan. 16 meeting with campus media.
“The budget is balanced except for the remaining problem at the Medical Center,” he said. “The debt doesn’t create a problem for our budget.”
DeGioia also defended the university’s use of debt as a method of investment, at the meeting.
“We’ve consciously chosen to use debt as an instrument to accomplish the mission of the university and I don’t believe we’ve taken any unreasonable risk with that debt,” he said. “We haven’t done anything that lots of other institutions didn’t do.”
Recruiting Faculty
Despite a scarcity of financial resources, the university must spend more to attract and retain top faculty and staff. According to the Office of Communications, Main Campus benefits costs will increase by 3 percent. Darryl Christmon, chief financial officer in the Office of the Provost, confirmed that Georgetown will implement a merit raise for faculty next year.
Bataille explained the amount of the raise. “The pool for ordinary faculty merit increases is 3.6 percent, [and] there is a 3 percent merit pool for other full-time Main Campus faculty and staff.”
Government Department Chair Joshua Mitchell explained that the raises – “the cost of living plus a certain amount” – are part of a plan aiming to increase the competitiveness of faculty salaries.
Provost James J. O’Donnell cited the university’s commitment to investing in its student and personnel as the main reason for these fiscal changes.
“I am confident that our students and faculty will see that we will continue to offer an outstanding educational experience,” he said in a written press statement.
Faculty noted that O’Donnell is committed to making academic salaries more competitive. At an urban campus in an area with extremely high property values, it becomes especially difficult to recruit younger faculty who must relocate to Washington, D.C.
According to these sources, Georgetown would have to pay its faculty and staff a premium just to maintain the same standard of living they would enjoy at another less-urban campus.
Costs are also rising as the university continues to expand its facilities. Operating expenses will increase with the opening of the New South space and the Davis Performing Arts Center. In addition, $20 million has been earmarked to renovate the New South residence hall this upcoming summer.
But Georgetown’s means of raising revenue are limited. With student enrollment capped by the District, the university cannot simply raise additional revenue by accepting more students. Georgetown is also hampered by its relatively small endowment, which cannot cover rising costs.
When the Chronicle of Higher Education compiled a list of college endowments last summer, Georgetown ranked 78, down from 69 two years earlier.
And the endowment’s poor financial performance compounds the problem.
At a September meeting of the Faculty Senate, DeGioia admitted that the endowment continued to lose value despite the efforts of the Third Century Campaign. In fact, the endowment has lost approximately $150 million in value since 2000, even though almost $300 million has been earmarked for the endowment from the $1 billion raised in the Third Century Campaign.
Minimal Short-Term Effects
Eric Lashner (COL ’05), GUSA vice president-elect and one of two student members of the Main Campus Planning Committee, said he lobbied hard to reduce the effects on students of tuition increases and cost cutting.
Although students will be paying more next year, the amount of financial aid has been increased to $35.5 million to cover additional student need.
“We fought hard for certain things,” he said. “We did very well without decreasing service.”
Lashner admitted that the issue of quality of housing and facilities was brought up “again and again” to the committee. “Overall, though,” he said, “certain decisions had to be made to ensure that we remain financially stable.”
Mitchell said that the effect of all of these financial constraints will not immediately impact students. “Our department will be fine this year. Students will barely notice any changes.”
But if the financial situation does not improve, “it will become difficult in subsequent years,” he added.
Arend explained that while the first cuts have more or less been across the board for academic departments, the Main Campus Planning Committee is in the process of prioritizing future cuts.
Arend believes that the first two years will be the most difficult for the university.
“After that, we will have an improving situation,” he said, “with increased revenue, increased efficiency, and with the Medical Center will be on better financial footing.”
Moody’s reported in 2003 that Georgetown’s financial shortcomings can also be overcome.
“Although the university’s financial condition is expected to remain weak over the next several years,” the oody’s update reported in 2003, “we believe that its fundamental market position, tuition-cash-flow generation and overall reputation remain extremely strong .”
Declining Morale?
In reference to the continuing fiscal problems at the Medical Center, Arend said, “I feel that Dr. Sedmak [the executive vice president of the Medical Center] has an extremely good understanding of the nature of the challenge and is putting together with faculty a very good plan to quickly and successfully address the challenges at the Medical Center.”
Nevertheless, a few anonymous faculty and staff members resent the cuts.
Two faculty members wished they were allowed an opinion in the decision-making process. Several disagreed with the across-the-board policy of cuts. They argued that highly ranked departments or programs which promoted the “central mission” of the university, should not be cut. Another reported that staff morale is “low and getting lower.”
Arend admitted the difficulty of “moving forward while facing these financial challenges. As a university, we don’t want to be in a holding pattern.” Fortunately, DeGioia “is doing an outstanding job of addressing these challenges,” Arend said.
However, this fear of such a “holding pattern” made one former department chair “so relieved” to know that someone else would be responsible for sorting out the new budgets.
“Sure, we’ll have more salary,” another source commented, “but we will have less money for supplies like pens and paper.”