At its meeting Friday, the Board of Trustees approved a $1.93 billion budget for fiscal year 2010-2011, which includes double-digit percent increases to both undergraduate financial aid funding and employee benefit costs.
This budget is a 5.6 percent increase from last year’s flat budget, which did not call for any increased spending. Still, the expansion is smaller than the 9 percent annual budget increase typical before the recession.
Board Chair and Democratic state Sen. Dan Blue, Law ’73, said the budget is “austere,” but also one that allows the University to look forward beyond the recession.
“[The increase] means that we’re cognizant of [the recession], and budgeting in tough times requires tough choices,” Blue said. “The administration is still implementing some of the [Duke Administrative Reform Team’s] actions, but at the same time, we have to continue on.”
The increase can be attributed largely to the projected 4 percent rise in revenue to about $1.27 billion which is mostly generated by the schools, said Executive Vice President Tallman Trask. Much of this new revenue is coming from new academic programs the University is fast-tracking to help offset its remaining $40 million budget shortfall.
More money, more aid
The University approved four new master’s degree programs last year, and at its meeting this weekend the Board approved five more new graduate-level degree programs.
“I don’t think anyone would say any of these are going to be giant cash cows… but they are a great use of the resources of the University in very imaginative ways,” President Richard Brodhead said. “In truth, they’re all things that fall within the strategic plans…. They’re not stopgap measures to raise money, they’re projects we have defined as important for the future of education.”
Although the programs require some use of University money and resources, they are nevertheless profitable for Duke. The most recently approved graduate-level programs together could add more than $20 million in annual revenue, according to the project proposals.
Although Duke has a larger budget for the next fiscal year, Brodhead said the University does not plan to drastically increase its spending.
“We’ve really remained quite hawk-eyed about the budget—we have to be, and I think we all understand that,” Brodhead said.
Spending will increase in one major area next year as the University adds to its need-based financial aid budget. The approved fiscal year 2010-2011 budget increases the University’s undergraduate need-based financial aid by 11.8 percent, to $108.5 million, and its graduate and professional student aid by 5.9 percent.
The increase to financial aid will help balance the 3.9 percent increase to tuition approved at the Board’s February 2010 meeting, Blue said.
“We’re a need-blind admissions institution, and we are going to match a student’s aid to his or her needs,” he said. “So we are just being somewhat conservative making sure we set aside any anticipated need for the student and at the same time realizing that the costs are increasing also... and we have to offset those.”
Trask said the increase is based on estimates of incoming and returning students’ needs. He noted that the number will not be final until the end of the summer, but “an early look suggests that the estimates are about right.” The increases to aid will be funded by new revenue and reserves, he added.
The costs
The budget calls for the University to draw $72 million in reserve funding. These reserve funds were approved by the Trustees at their Feb. 2009 Board meeting to help the University offset the impact of reduced revenue as it tries to cut what was then estimated to be a $125 million deficit. The funds came from retained earnings from the endowment that accumulated over time.
Trask said the University used a little more than he had hoped in reserve funds, but “not alarmingly so.” The University still has about $500 million in unrestricted reserve funds, he said.
The budget also projected a 14 percent increase in employee benefit costs, largely due to rising health care expenses.
Duke offers its health care and benefits package at an estimated 25 to 30 percent less than comparable packages, Trask said. It also offers generous retirement packages for employees and a tuition benefit.
“We face the same challenge as everyone else does as long as you have out of control [health care expenses],” Brodhead said. “Still, I think it does remain highly understood that Duke’s benefits are as good as you’re going to find.”
But as the University looks to cut another $40 million from its budget in the next two years, Trask said Duke will have to take a close look at its priorities.
“We can decide to afford it, but that means we’ll have to give up something else,” he said. “Basically when you look at the benefits, about $400 million, about half is federal and state taxes—and you can’t decide not to pay them. The other big ticket items are health care and retirement, and I expect to have conversations about both this year. It’ll be an interesting part of the conversation as we put together the [fiscal year 2011-2012] budget. We certainly cannot sustain back-to-back, double-digit health care increases.”
Still, the Trustees tried to look ahead at last weekend’s meeting. The Board approved a proposal to plan an indoor multipurpose field and renewed discussion about New Campus plans.
Blue said he hopes to maintain momentum on the New Campus project, although he acknowledged that this requires a more creative approach to implementing plans.
Looking at ‘Duke’s home’
The Board spent a large portion of its meeting discussing the relationship between Duke and Durham, including the role the University has played in the revitalization of downtown Durham. Brodhead said representatives from the city including Mayor Bill Bell and City Manager Tom Bonfield along with Phail Wynn, vice president for Durham and regional affairs, discussed Duke’s role in Durham’s changing culture, economy and real estate development.
“It’s been critical, this partnership between Duke and Durham,” Blue said. “Durham is Duke’s home and Duke needs to make sure Durham is growing and thriving, and Durham needs to do the same with respect to Duke.”
Although Brodhead and Blue noted the “very high level of collaboration” Duke has had with Durham, Trask said its direct financial investment in the city may be drawing to an end.
“We’ve made our capital investment, there’s not a lot more we’re going to do,” Trask said. “Between American Tobacco and [the Durham Performing Arts Center] and West Village, my view is at some point somebody else has to step up.”
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