Facing increasing economic pressures and slumping income from investments, the Board of Trustees may cut or postpone up to 10 percent of the funding for the University's long-range strategic plan at this weekend's Board meeting, administrators said this week.
"Building on Excellence," a five-year map for the University's academic priorities and initiatives, was passed by the Board two years ago and came with a price-tag of $727.1 million in a time of heady economic activity. With the nation's economy now in a two-year slump, Provost Peter Lange and Executive Vice President Tallman Trask will jointly lead a presentation on the plan's financial options at the Trustees' retreat in Winston-Salem's Graylin Conference Center.
"We devised a moderate conservative model in a period of enormous expansion," Lange said. "With the sustained character of the downturn and the possibility that it may go on longer, we have to look at current and out-year projects in a changed context."
Those projects could include facilities or programs that span any of Building on Excellence's nine goals, although administrators declined to give specifics in advance of the meeting. The $727.1 million was planned for the 2001 to 2005 fiscal years. Over $515 million in construction expenditures comprise 70.9 percent of the planned spending, while $161.6 million is allocated to programs and $50 million to future opportunities and contingency.
Administrators noted that because of lower interest rates and decreased demand for construction, the plan has actually saved a small amount of money in smaller-than-anticipated costs for facilities. That may soften the blow of any cuts.
"It's safe to predict now that it's probably unlikely - unless things get a lot worse - that we'll have to really cut programs," President Nan Keohane said earlier this month. "It's more likely that we'll have to slow some things down, that we won't be able to proceed as quickly, that we'll have to spread out some of our building projects, some of our department hiring projects, so that we spread our funds over a larger number of years."
The plan was written with the expectation that revenue would come from four main areas - $271 million from school and external commitments, $160 million in University strategic funds, $150 million from targeted fundraising and $146 million in tax exempt debt.
The culprit of much of the plan's shortcoming has been in University strategic funds, $105 million of which was planned to come from virtual equity - the deposits in Duke's institutional reinvestment account. The revenue from virtual equity - $9 million per year - has not materialized as administrators had once hoped.
Administrators pointed out that flexibility was written into the plan to account for humps like an economic downturn.
"We know that the positive factors so important to private universities over the last decade will change for the worse at some point," the plan reads, "perhaps singly and perhaps in combination."
Harold "Spike" Yoh, chair of the Board of Trustees, said the Trustees will try to cut as little as possible. "We set our course two or three years ago about what we wanted to accomplish, and we still hope to stick to that if we can," he said.
The strategic plan points to the policy that limited increases in endowment spending to 10 percent or less in better economic conditions. Recently, administrators have planned to lower the annual increase in that payout rate to 3 percent. It also points to other contingency mechanisms - such as a more conservative debt posture - that the plan may now have to fall back on.
"I don't want to cut everything 5 percent," said Trask, emphasizing that he would prefer postponing certain projects over cutting funding all projects.
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