In beginning a three-year effort to eliminate an estimated $125 million budget deficit, the Board of Trustees approved a "flat" budget of $1.8 billion for the 2009-2010 fiscal year at its May 8 meeting.
Calling the budget "flat" means that the University's spending is not projected to increase, and the new budget is part of reducing the deficit, Provost Peter Lange said. The University's budget has increased by about 9 percent each year over the last decade, and Lange said the current lack of growth shows that Duke plans to spend less money this year.
He added that the absence of significant reductions exemplifies the University's commitment to using its resources on its academic programs.
"It means that we have tightened our belts in context of the decline in revenues," Lange said.
Although the budget is reported as $200 million less than last year's $2 billion, the University made an accounting change classifying financial aid as a reduction in revenue rather than an expense, thus removing it from the budget total.
Mohan Venkatachalam, associate professor of accounting in the Fuqua School of Business, said this change could reflect the University's view of tuition as a form of revenue.
"The net effect [of making financial aid a reduction in revenue] is going to be the same whether you are over-or under-[budget] at the end of the day," Venkatachalam said. "This change may change the way you think about trends in tuition revenue.... One could argue that if financial aid is provided, my true revenue has gone down, and that might be the right way to represent it.... This is one way economically to think about it."
This year's budget does not reflect any major changes, but Michael Schoenfeld, vice president for public affairs and government relations, said having a flat budget "is not insignificant."
"Typically, expenses go up every year for inflation, for salary increases, for things like that," he said. "So on one level, from year to year, a flat budget is actually a budget cut."
Still, the University is looking to make more visible cuts.
Executive Vice President Tallman Trask said he expects to cut the deficit by $50 million this year. Employee expenses comprise two-thirds of the budget, Trask said, and the remaining third "is difficult to deal with" and includes many fixed costs. Therefore, many efforts to make cuts involve employees-eliminating vacant positions, freezing salaries and offering retirement incentives to 825 bi-weekly employees who have worked at Duke for more than 10 years or are at least 50 years old.
Trask said the major variable in reaching this year's $50 million goal is the number of employees who accept the retirement incentives.
"That's the big unknown," he said. "The offers are on the table, if everyone took it-which they [will] not-that would be a $50 million reduction.... If we get 20 percent or 60 percent to accept, that radically alters what we have to do next."
The University will know by the second week of July how many employees plan to retire, Trask said.
Still, retirement incentives are not the only thing on administrators' minds when trying to reduce the budget.
Trask said he thinks the University can eliminate the deficit with retirement incentives and Duke Administrative Reform Team cuts, adding that a three-year hiring or salary freeze is unrealistic. Because revenue and expenses are "moving parts" and are subject to change, Trask said he cannot define exactly how or where cuts will occur.
If the University makes major changes to the budget, it will resubmit it to the trustees, Trask said, but for now it is a living document.
"What I'm assuming is we'll have a big recalibration of everything in the Fall, and then we'll know where we are and what to do next," he said.
In the meantime, Schoenfeld said units within the University are looking for ways to save.
"At the school level and at the department level, every dean and senior officer has the responsibility of managing the budget in that area with an eye toward reduction," he said. "So the way that one deals with a budget situation like the one we have here in a very complex research university is not by simply decreeing a reduction in budget because there are many moving parts."
Reduction will be particularly important next year, when Trask said endowment returns are expected to be down 30 percent. The endowment makes up 18 to 20 percent of the University's operating budget, Lange said.
Amid the cuts, Duke has increased undergraduate financial aid by 17.1 percent and graduate aid by 6.7 percent. Trask said the University anticipates current students will need more aid in the economic climate, but will not know how much aid the incoming freshman class will need until next month.
"We'll have to see what the demand is," Trask said. "We're committed to meeting whatever the demand is, and we may have to cut other things to meet that demand. It'll be more deep cuts in the DART kind of areas. We are trying to protect students and academic programs."
The 2009-2010 fiscal year budget also includes a 3.9 percent increase in undergraduate tuition, room, board and fees to a $48,895 total.
Even while the University tries to close its deficit, Lange said students can expect Duke to remain committed to being an affordable institution.
"We are not going to change our financial aid program in a way which will deliver less resources to needy families," he said.
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