Board of Trustees briefed on cost-cutting measures

The Board of Trustees met this weekend to hear updates on the University’s financial situation and learn about efforts to improve campus.

At their first meeting of the academic year, Board members heard from the Duke University Management Company about the University’s investments and strategies going forward. The Trustees also approved the Duke Administrative Reform Team’s work to curb spending through administrative cuts and operational reductions. Given the current economic situation, the Board is confident in DUMAC’s performance, said Chair and Democratic state Sen. Dan Blue, Law ’73.

“You look at the financial indicators weekly, daily, monthly and how they show that there is some financial recovery, but we’re not out of the woods on this,” Blue said.

DUMAC’s presentation to the Trustees confirmed the University’s need to cut $125 million from its budget over three years, Blue said. Despite the endowment’s 24.3 percent investment loss in the last fiscal year, Blue cited the endowment’s 10 percent average annual return over the last ten years as a sign of strong long-term performance. He added that DUMAC projects the endowment’s value to increase within the next year.

When endowment spending is accounted for, the reported 24.3 percent investment loss becomes a total 27.5 percent drop in value, according to the University’s 2008-2009 Financial Statements. Over a period that spans from the end of the fiscal year in June to Aug. 31, the endowment’s value increased about 4 percent, Executive Vice President Tallman Trask said Sept. 24.

2009 contributions drop

In addition to an overall decrease in investments, the University has seen a 61 percent decrease in revenue from private donations—from a historic high of $351.6 million in the 2007-2008 fiscal year to $136.9 million in the 2008-2009 fiscal year, based on Generally Accepted Accounting Principles. According to the financial statement, GAAP figures do not account for grants, contracts, gifts from the Charlotte-based Duke Endowment or adjustments made to annual pledges due to circumstances arising between when the pledge was made and the date of the actual donation.

Although overall contributions are down, the number of individuals and groups who donated to the University increased slightly in 2009, said Michael Schoenfeld, vice president for public affairs and government relations.

“We don’t budget a certain amount and give out that amount and stop—we budget based on what our estimation of the need will be,” Brodhead said. “And whatever the need is, we meet it. We knew the cost would go up, and indeed it has. That’s just a cost of being who we are.”

He added that whether the University will contribute an even larger amount toward financial aid next academic year, and exactly how much that amount will be, is currently unclear.

DART cuts costs

As the University pays more for student aid, it is cutting costs elsewhere.

The Duke Administrative Reform Team is about halfway to its goal of reducing this year’s budget by $70 million as part of its plan to cut $125 million over three years.

This summer, 295 bi-weekly employees opted for early retirement, and administrators announced Sept. 17 that another 100 monthly employees will be offered a similar package, saving the University a total of $20 to $25 million this year.

DART and the Business and Finance Committee’s reports to the Board showed that the bi-weekly employees who took early retirement were glad to be given the opportunity, Blue said. Most of the positions that were vacated have remained empty. Those that have been replaced were filled “more efficiently than in the past,” he added.

 Aside from administrative costs, DART is looking to cut from operations such as computer purchases, phone line usage and temperature regulation in buildings.

“The University is made up of 40 million processes—most are invisible to us in daily life,” Brodhead said. “In an expanding economy, they can expand without you giving too much thought to it. DART has given us the occasion to look at what we do and ask, ‘What is the smartest way to do what we do?’”

Still, the University will continue to look to DART to help trim costs from the budget as the year progresses.

“We still need to give the administration the flexibility to show us how they’re going to do it in such a way that it doesn’t affect the ability of the University to pursue its major objectives,” Blue said. “We just have to keep working to come up with new strategies and meet the challenges that present themselves.

The Board also approved a 50-year Climate Action Plan aimed at carbon neutrality, Brodhead said. The project could cost up to $100 million and is headed by Executive Vice President Tallman Trask, Bill Chameides, dean of the Nicholas School of the Environment and Tim Profeta, director of the Nicholas Institute for Environmental Policy Solutions and a senior associate dean.

Blue said the plan sets 2024 as the year by which Duke will aim to achieve a “substantial neutrality,” though it may take 50 years for the University to become completely carbon neutral.

The initiative stems from efforts to combat global warming, Brodhead said, noting that he signed a letter two years ago committing Duke to reduce carbon emissions.

“It’s not going to be cheap, but it’s part of the commitment that the University is going to make to be cognizant of our responsibility to the environment,” Blue said. “It’s a matter of starting the process, identifying further ways to get to zero [carbon emissions] and making decisions as we proceed along in new construction of alternative energy sources.”

Building K4

Board members also supported the continuation of research leading up to a $75,000 feasibility study to add a fourth wing to Keohane Quadrangle, code-named K4. The new 150-bed building would be located between Keohane and Edens Quadrangles.

Keohane was originally designed to consist of four buildings, but was likely not completed at the time due to insufficient funding and a lack of student need, said Steve Nowicki, vice provost and dean of undergraduate education.

The additional wing would serve as a guinea pig for the University to test ideas for New Campus, Nowicki said. He added that the University plans to gather more student input before designing the building. Nowicki will present his plans to Campus Council Thursday evening.

“Hopefully, we’ll get it pretty right,” Nowicki said. “We’ll probably learn lessons from this. When we finally build New Campus, we can take what we learn from K4 and transfer that to New Campus.”

Nowicki added that he did a “back of the envelope calculation,” which showed that the increased number of beds on West Campus would offset the cost of construction over time.

Reviews of the project will likely continue into the Spring, Brodhead said. Blue noted that Nowicki and Provost Peter Lange will attend the Board of Trustees meeting in December to provide more logistical details.

“It sustains momentum to a great degree of the University moving forward and making the campus... more dynamic,” Blue said. “It keeps in place some of the planning that was going on before we got into this dire financial strait.”