Rice feels the pinch of nation’s economic situation

Rice
feels the pinch of nation’s economic situation
…………………………………………………………………

Rice University
is better positioned than most universities but not immune
to the nation’s economic troubles. President Malcolm
Gillis has notified vice presidents, deans and the director
of athletics that next year’s budget will involve reductions
in spending and provide fewer dollars for salary increases
than in recent years.

More than three
years of the toughest stock markets since the 1930s have
taken their toll on university endowments nationwide, and
budget cuts have become the rule rather than the exception.

An article in
the Jan. 24 issue of The Chronicle of Higher Education reported
on “the vast majority of colleges and universities”
that have seen their endowment returns lose up to 19.8 percent.

“As endowments
continue to shrink, balancing budgets has become more challenging,
a plight exacerbated by shrinking financial support from
governments, foundations, corporations and individuals,”
the article said, noting that such universities as Stanford
and Duke are looking to reduce their workforces.

In addition,
Stanford is cutting its budget 5 to 10 percent; Rutgers
anticipates a 14 percent budget cut this year on top of
a 7 percent cut last year; and Dartmouth, which has already
made significant cuts this year, seeks to cut an additional
$5.7 million from the budget for the next fiscal year.

Starting with
November’s hiring freeze, Rice took early action to
avoid such measures.

The university
cannot avoid tighter budgets, however, because the Rice
endowment — between budgeted expenditures and investment
losses of about 10 percent — dropped in value from
$3.37 billion in June 2000 to about $2.75 billion in December
2002.

Rice also depends
more on its endowment than most universities, a boon in
good economic times but not in bad.

At most of Rice’s
peers, use of the endowment provides less than a quarter
of operating budget revenues.

At Rice, it supports
73 percent of the core general budget with net tuition (tuition
income minus financial aid), annual gifts and indirect cost
recovery on research grants providing the rest. Even when
research grants and auxiliaries (such as housing and dining)
are added, the endowment provides more than 45 percent of
the consolidated budget.

Even though the
endowment’s value has dropped, funds budgeted from
it actually will increase next year to an all-time high,
but the increase will be smaller than usual.

To avoid sharp
ups and downs in the endowment payout — and thus the
university budget — the board of trustees employs a
moving three-year average of the endowment’s value
to adjust the annual distribution from the endowment.

For fiscal year
2004, funds budgeted from the endowment will increase 4.25
percent, compared to 5.25 percent in this fiscal year. Barring
a fast and strong recovery of the economy, budget planners
expect the increase to be even lower in 2005.

In fact, because
the markets have been declining for so long, it will be
some time before the three-year moving average begins to
increase.

At the same time,
Rice faces higher expenses due to uncontrollable external
factors, such as double-digit increases in insurance and
rising utility costs.

The projected
increase in these areas — $3.1 million — equals
about 80 percent of the new revenue from the unrestricted
portion of the endowment.

Thus, in budget
guidelines sent to deans, vice presidents and the director
of athletics this week, the university asked them to prepare
to have only very limited funding for salary adjustments.
Vice presidents and the director of athletics were asked
to accommodate modest budget cuts.

“In common
with universities around the country, we confront significant
economic challenge,” said Rice Provost Eugene Levy.
“It is not the first time this has happened, and it
will not be the last. Rice is a strong, resilient university.
Our goal now is exactly the same as our goal during financially
more expansive times: to excel by applying what resources
we have to the best possible effect, by being creative and
focused in continuing to build the strongest possible university
and by ensuring that everything we do is framed within a
sharp strategic vision that best serves our students and
faculty, our employees and our mandate. Our economic challenge
is a national one, affecting every university as well as
cities, states and corporations. We will deal with it. I
have every confidence in our continued success.”

In addition to
controlling expenditures, the university will look for ways
to enhance revenues.

Faculty, staff
and students are encouraged to send suggestions to their
schools or divisions or to Budget Director Kathy Collins
at <kcollins@rice.edu>.