Paprocki discusses fiscal health

Paprocki

t mid-academic year, Ronald Paprocki, senior vice president for administration and finance and chief financial officer, comments on the past and current fiscal year and on prospects for 2003-04.

How is our financial health?

Despite the deteriorating economic conditions of 2001-02, the University emerged in a financially sound condition--and that's a tribute to the managers at all levels of the institution. All divisions remained within endowment spending limits authorized in the budget, and the hospitals continued to operate with positive margins.

The value of the University's endowment decreased slightly, but the hit that we took was much less than that of some of our institutional peers. Additionally, the University's sponsored research programs increased by 13.7 percent. Gift results, as you might expect, were more mixed. Gift pledges increased by 6.5 percent, but gift receipts were down from the prior year.

How are we doing in this fiscal year?

Although we have significant challenges, relatively well. A number of "wealthy" institutions recently instituted freezes and budget cuts in response to rising costs and level and/or declining revenues. This fall, Stanford University imposed a hiring freeze to cut 8 percent from its general budget and asked departments to cut back 5 to 10 percent from their individual budgets. MIT halted construction on an expanded Media Lab. Dartmouth announced cuts in nonfaculty staff positions and postponed several capital projects. These are just a few examples.

Within the University, Strong Memorial Hospital has had to look very carefully at its expenditures given various factors in the health care arena, but it continues to perform very well. In terms of the academic programs, while we haven't implemented cutbacks such as those seen elsewhere, we must monitor our performance carefully for the remainder of 2002-03. And, certainly, we must proceed cautiously as we prepare budgets for 2003-04.

What are we doing right now to control cost increases?

Controlling expenditure increases to the extent possible is a continuing process for any prudent manager. On an institution-wide scale, I'd point to the move to self-insurance as a significant step to help the University--and each covered employee--avoid some of the increases that would have been inevitable had we not done so.

Second, we knew that the University's considerable expenses for energy were at high risk of increasing in the short term, and we've negotiated fuel contracts that will hold the rates constant for the next year. We're also looking at options for reducing energy costs for the longer run.

Third, we're pursuing some refinancing opportunities to lower the costs of the University's debt service.

Additionally, we're putting a number of discretionary capital projects within central administration on hold.

What do you see for the coming year?

Looking to 2003-04, there are a variety of challenges that are not unique to the University. For private institutions across the country, "normal" increases in expenditures will not be matched by similar increases in endowment. And, with family budgets in mind, tuition increases cannot be expected to pick up the difference.

We'll have to look carefully at proposals for capital projects, including project and operating costs and the revenue streams to support them. We may not be able to get to some projects as quickly as we would like. However, some significant investments, including those in the area of IT infrastructure and systems, cannot be put off.

On the revenue side, we will continue to monitor the performance of the endowment but with the expectation that it will not support the rate of budget growth as it has in some past years. The local economy is likely to continue to have a negative impact on revenue from part-time students. Further, other sources of revenue, such as those for government programs, are far from assured. There also is uncertainty at this point about the federal and state budgets, with questions about the likely levels of health care reimbursement, direct support to private universities and colleges in New York State through the Bundy program, and student financial aid support.

How will the budget process work?

The University budgeting process sets overall expenditure and revenue targets for the divisions with each division determining how its budget plays out within individual departments and units. Generally, though, I would expect that department chairs and administrators will see more modest growth rates for salaries and operational expenditures in the next fiscal year. On the capital budget side, as I've mentioned, we'll ask the divisions to conduct very careful analyses before proceeding with such projects.

Given the external environment, our collective approach to constructing budgets for next year will have to be one of careful and deliberate consideration. With the assistance of the deans and vice presidents across the University, we will work toward a sustainable level of expenditures in 2003-04.

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