Board approves FY13 budget
By Nancy Seideman | Emory Report | June 20, 2012
The University delivered a balanced fiscal year 2013 budget to the Board of Trustees following a rigorous multi-month process in which the Ways and Means Committee worked closely with school deans to align resources with strategic priorities and aspirations in the face of slowing revenue growth.
At its June 8 meeting, the board voted to approve the University's fiscal year 2013 unrestricted operating budget of $749 million. The total academic budget is $1.6 billion, which represents the full complement of resources dedicated to the teaching, research and service mission. Emory's total operating activity, including Emory Healthcare, is projected to be $4.0 billion after the healthcare component is finalized in August in preparation for the Sept. 1 start of the new fiscal year.
The academic budget component of $1.6 billion includes a moderate increase in overall spending of less than 1.5 percent for the coming year. The historically small rate of increase reflects adjustments for the current––and anticipated––adverse impact of evaporating stimulus funds supporting research, possible reductions in National Institutes of Health's (NIH) budget, federal cutbacks in financial aid programs, and limited discretionary resources.
Some of these factors as well as others already have contributed to strain on individual school budgets. In the current 2012 fiscal year, four of Emory's nine schools will be tapping reserves to meet unrestricted operating losses.
In FY13 the Emory College of Arts and Sciences and the School of Medicine will need to draw from reserves or one-time university funds to cover their operating plans. The remaining schools are in balance or contributed to reserves, however, all face––at varying levels––similar budgetary pressures.
Fundamental shifts under way
Although the University successfully adjusted to the national economic turmoil of 2008-09, virtually all sources project that more fundamental changes are under way in higher education and health care as the national economic indicators fluctuate, the global economic weakness expands, technological advances continue, and consumer needs and expectations increase.
This is why, say University leaders, Emory can possess strengths in so many areas––raising more than $1.4 billion to date through a comprehensive campaign, recovering most of the investment losses associated with 2009, investing seed money to successfully advance the University's strategic plan, and steadily increasing its level of sponsored research –– while needing to implement ongoing cost efficiencies and continuing to explore new opportunities to deliver Emory's mission in the face of changes in the external environment.
"We live in a disruptive environment," says President Jim Wagner. "We must be prepared to be disruptive ourselves by squarely addressing reality and creating new paths, acting decisively in the pursuit of opportunities that support our vision and mission by investing in our excellences and essentials.
"The very positive news is that Emory is relatively strong and well positioned to address these external challenges. As the Ways and Means Committee members and the deans worked through this year's budget planning process, they demonstrated how we can increase excellence within a framework of balanced budgets, lower resource growth, and the active and strategic deployment of the significant resources we have," says Wagner.
Seeking new revenue and philanthropic support
To further strengthen this foundation of excellence, says Mike Mandl, executive vice president, finance and administration, "we need to continually consider more cost-effective ways of delivering value from our core mission activities and our business functions. In addition, we must aggressively look for new revenue opportunities and seek increased philanthropic support for all schools."
To complement the cost-efficiency initiatives of individual schools and units, Mandl notes that the business process improvement initiative has partnered with the university community on a comprehensive and systematic review of business practices within the areas of research administration, electronic file management, and travel and expense, with the goal of improving service and cost effectiveness and supporting increased volume without traditional cost growth.
"As Emory moves forward to implement the FY13 budget and to create forecasting models for future cycles, each area of the University's mission must be evaluated in terms of whether programs are excellent and/or essential for the future," says Provost and Executive Vice President for Academic Affairs Earl Lewis.
"As never before we are at an inflection point, characterized by great demand for what we do and fewer resources to cover basic costs, let alone growing aspirations by all stakeholders. This means we must all ask: what can we afford, what can't we do without, and what price can we rightfully charge? In the years ahead, each school and unit must continue to ask these questions as we pursue our overall mission of excellence in the pursuit of advancing the human condition," says Lewis.
In preparing long-term budget models, schools were asked to consider possible disruptive factors, for example if their students lost some portion of external financial aid funding, resulting in an adverse impact on enrollment. The University continues to monitor all enrollment indicators and to develop financial aid strategies that ensure Emory attracts and retains the best and brightest students.
Research funding declines
Anticipated declines in research funding support, as stimulus funding has expired, also require those affected units to consider contingency plans. Yerkes National Primate Research Center and the schools that depend on externally funded research support must be prepared to retool based on NIH priorities and federal government funding levels, notes S. Wright Caughman, executive vice president for health affairs, who serves as a member of Ways and Means along with Lewis and Mandl.
"Since the research mission requires subsidy from other revenue streams, Yerkes and individual schools need to monitor the cost recovery mix of their research portfolios, improve space based research productivity measures, and actively seek philanthropy and other forms of financial support to fund the research subsidies," says Caughman.
Emory is projected to see a reduction of about $2.8 million in indirect cost recovery in the coming fiscal year, and new federal government policy changes continue to shift costs back to schools. In addition to the downward trend in federal funding within research and academic medicine, both Emory Healthcare and the School of Medicine are sensitive to changes in the funding of Medicare and Medicaid and other health care delivery financing given the current political and budgetary climate.
The FY13 budget also assumes University compensation growth up to 1 percent for each school and administrative division. The plan gives discretion to individual managers to reward and retain those faculty and staff who are highest performing and vulnerable to recruitment away from Emory, and also gives some priority to those at the lower end of the compensation range. Under the plan, individual schools and operating units generally will provide individual increases of 0-3 percent depending on their resource envelope and unique market conditions. One-time bonuses may also be given in lieu of base-building increases.
Members of the President's Cabinet as well as their direct reports, including vice presidents, vice provosts and deans, will not receive annual raises for FY13 unless there is a significant market competitive issue out of line with performance and retention. The fringe benefit rate will remain at 27.5 percent.