Budget assumptions offer window to future

March 9, 2000

Nick Marinello

The fiscal year 2001 budget assumptions approved by the Tulane board last month offer what seems to be a cautiously optimistic view of the university's finances and an inkling of how those finances are dovetailing with strategic planning.

In a departure from past budgets, the FY 2001 budget, which goes into effect on July 1, was prepared as part of a five-year financial forecast for the university, says Yvette Jones, senior vice president for planning and administration.

"Fiscal year 2001 is the first year of a five-year financial plan based on our current operations," says Jones. "You can get an idea of what we consider to be our baseline operation for the next five years by looking at these assumptions."

According to Jones, both income and expenses have been conservatively estimated. Revenue items include a 4 percent tuition increase, 3 percent housing rate increase, a slight decrease in the tuition discount rate and a $250 increase in the student "university fee."

Government grants and contracts as well as clinic-based revenue from the medical center are projected to remain consistent with the current year's budget. Expenditures include a 2 percent salary-pool increase for faculty and staff, the creation of a $1.5 million fund for faculty and staff merit raises (see related story on p. 6) and a .25 percent increase in staff retirement benefits.

The budget also reflects a $1.8 million increase in instruction-related expenses for the liberal arts and sciences. The operational budget remained unchanged with the exception of a $100,000 increase for library acquisitions and the increased cost of utilities.

"This is one of the first years that we are not involved in any exercise to reduce expenditures universitywide," says Jones, who notes that the current FY 2000 budget for the academic year 1999/2000 accommodated $4 million in belt tightening.

"We are beginning to see the fruits of those cuts playing out," she says, adding that the university also enjoyed an unexpectedly robust $65 million in fund raising and the happy fallout from a strong national economy.

The FY 2001 budget projects a more modest $42 million in private gifts and contracts that exemplifies the "conservative" nature of the budget assumptions and the five-year financial planning process. It's what Jones calls a "base case" scenario that assumes a virtual status quo in terms of revenues and expenditures.

"The projections are based on what we know today and assumes we are not going to change anything," says Jones. In such a scenario, she says, "we have two or three years that are very tight but then we appear to produce some surpluses in the fourth, fifth and sixth years."

The base case is only a model, however, and is used primarily as a budgetary "foundation," says Jones. "This is what our budgets would look like if we had a steady enrollment, no capital campaign and no increased funding from grants and contracts."

The administration will now review the five-year financial plans from each of Tulane's schools and colleges and begin to incorporate into the budget the expenditures and revenues relevant to each.

"The base case is a foundation that is going to be modified," she says. In addition, says Jones, the university can almost certainly expect to experience some risks and opportunities that will alter the base case. Among the potential financial risks for the university are inflation, loss of significant federal funding, loss of revenue coming from patient care and the inability to generate revenues needed to balance the athletics budget.

Conversely, opportunities may include increased federal funding, increased revenues from patient services and the forthcoming capital campaign. Jones also cites the clarity resulting from the strategic planning process as a favorable dynamic.

"There are areas in the university that will reveal funding opportunities simply because we are focusing on them through strategic planning," she said. Jones points to the $1.8 million increase in the liberal arts and sciences budget as one example of how strategic planning and budgeting have begun to merge.

"It shows we are moving to a system of accountability with all deans," she says. "In addition, it is a recognition of the cost of educating undergraduates. I look at this as an investment in the strategic plan apropos to our focus on the undergraduate experience."

Jones also notes the $1.5 million set aside for merit raises and $150,000 earmarked for additional staff retirement benefits as an indication of the administration's commitment to faculty and staff compensation.

"Compensation is the No. 1 item in the strategic plan and you can see that in this financial presentation," says Jones. So how does fiscal year 2006 look? "Assuming that all our assumptions are accurate," she says, "and we don't encounter any major risks or we at least balance those risks with opportunities, the future looks good."

Tulane University, New Orleans, LA 70118 504-865-5000