Bucknell Budget and Economic Situation FAQs -- March 20, 2009

What are the University’s priorities in the current budget situation?
As President Mitchell has stated in his updates to campus and other presentations on the financial situation, these priorities are

  1. Protecting the academic core and residential learning experience, and
  2. Fulfilling Bucknell’s commitment to access through financial aid resources that support the ability of current students to complete their Bucknell education and enable the University to enroll a strong and vibrant Class of 2013.

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What is the University’s current budget situation?
The fiscal 2009 budget, which ends June 30, is balanced. But the economic crisis that started last year and continues today has changed the financial environment. That has placed considerable stress on the University’s four major revenue streams in the fiscal 2010 budget, which begins July 1.

First, our net tuition revenue – tuition minus financial aid – will undoubtedly be less than previously forecasted. It is likely that more financial aid will be required by students and their families who have been hurt by the economic downturn, and the University intends to meet those needs where appropriate.

Second, there will be less spendable income from the endowment over the next few years. Spendable endowment income is calculated into the annual budget at about 4.5 percent of the 12-quarter (three-year) rolling average value of the endowment. Our endowment has decreased in this difficult market. As the value of the endowment decreases, we have less spendable endowment income for budgeting. The use of a rolling average dampens the impact of a downturn in the value of the endowment by spreading the consequences over a three-year period. However, an extended downturn, as we are now experiencing, could have consequences that extend even further into the future.

Third, annual fund philanthropy faces tremendous headwinds. While our donors have been generous in this economy, we expect national and global financial conditions to place great stress on annual fund giving next year if not in subsequent years as well. We do expect some growth, but it will not be as great as what we thought it might have been just six months ago.

Fourth, the short-term interest income the University earns on its non-endowment cash reserves is down substantially due to the recent historically low interest rates.

Given these expected and real reductions in revenue, we are scrutinizing all expenses and seeking opportunities for savings, efficiencies and structural changes that would lower spending in a strategic way in 2010 and beyond.

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If the economy improves quickly, will that solve our financial problem?
The effects of this difficult economy will impact the University for several years. Each of the four revenue streams cited above, for example, is likely to experience pressure in fiscal year 2011 and perhaps longer. The length of the impact depends on how long the economic turmoil continues.

The endowment in particular is subject to prolonged effects from economic declines. Because we draw upon our endowment based upon its value across a three-year rolling average, the magnitude of any one year’s downturn is diminished. But at the same time, when the endowment declines, the problems take three years to work their way through the calculations. The longer the markets are down, the longer it will take for declines in our endowment to work themselves through our budget cycles.
Bucknell is fortunate to have little long-term debt, high liquidity and a diversified endowment –strengths that position us better than many peer institutions. In fact, Moody’s Investors Service recently reaffirmed Bucknell’s Aa2 credit rating, which keeps us among the 50 most highly rated universities in the country.

At the same time, because of the magnitude of the economic downturn, the University remains concerned about the consequences that may result, and is preparing accordingly, as noted below.

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How is the University preparing for potential long-term budget impacts?
Long-term impacts beyond fiscal year 2010 are now under analysis in the Office of the Provost and the Office of Finance and Administration and will be part of discussions among the Board of Trustees and the Planning and Budget Committee through the governance structure of the University. Part of the goal of these discussions will be to determine how much we may need to reduce future budgets beyond FY10. If we conclude that it is necessary to take additional steps for future budget years, as appears likely, we will inform program and department managers well in advance of recommendations they may have to make.

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Given the projected revenue declines, how much will the University need to cut from the 2010 budget to balance it?
Altogether, the projected revenue shortfalls noted above total about $9 million for fiscal year 2010 (July 1, 2009 - June 30, 2010). By itself, the employee compensation freeze announced in February is not enough to cover this budget shortfall. Additional, disciplined operating cuts are required. We are in the middle of intense analyses to determine how best to carry out these cuts and balance the budget. All areas of the University have been affected by the need to contain and reduce costs. While academics and student life are expected to be impacted less than extracurricular and operational support departments, the entire community will have to cooperate in reducing costs, finding efficiencies and restructuring programs.

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Will the budget situation affect the University’s implementation of the five-course load?
The University is firmly committed to achieving its goal of a five-course teaching load for all faculty. We consider this goal essential to the superior personalized learning experience that distinguishes Bucknell.

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Will any student with demonstrated financial need arising from today’s economic crisis be forced to leave Bucknell?
No. The Board of Trustees has been clear that it is committed to having enough financial aid available so that no current Bucknell student with demonstrated financial need is forced to leave the University because of the economic crisis. Students are encouraged to inform the Office of Financial Aid if their financial situation changes.

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The employee compensation freeze aside, what additional budget steps are being taken?
We are planning a budget for fiscal 2010 that will strategically reduce departmental operating expenses by five percent to ten percent. We have not implemented an “across-the-board” approach but have held detailed discussions with individual departments to identify how to best reduce expenses where possible. The Offices of the Provost and Vice President for Finance and Administration have been working with every program and department manager to attain this objective.

The University has already announced a freeze on adding new positions. We also are reviewing currently vacant positions, and expect to reduce a number of administrative and support staff positions through attrition, retirement and voluntary separations. In addition, we will be reviewing program offerings, consulting and contractual services, health and welfare expenditures, utility usage and ways of conserving resources as well as our facilities renewal and capital equipment and technology replacement models to determine what savings are possible in these areas that are consistent with The Plan for Bucknell.

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Are layoffs possible?
At this time, we believe expense reductions and personnel reductions through attrition will be sufficient to balance the University’s budget. But should economic conditions deteriorate, there may be a need for reductions in staff or other serious measures. Such steps will only be taken if absolutely necessary, as we recognize that the successful operation of the University requires thorough attention to students and to the teaching, research and service mission with which we are entrusted.

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How long will the compensation freeze last?
The Board of Trustees’ decision, as announced in spring 2009, to freeze compensation applies to compensation for the 2010 fiscal year. While we don’t know exactly how or when the economy will recover, we do know that it will. When the economy does recover, Bucknell will remain committed to offering competitive salaries and benefits to its personnel. We have made significant investments in this area over recent years to ensure that Bucknell compares favorably with its peer institutions for salaries and benefits.

Despite economic uncertainties this spring, we fully participated in the usual peer salary and benefit surveys, and are continuing to analyze the labor market, so that Bucknell is well informed to offer appropriate merit increases and market adjustments when budgets allow again doing so.

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How much has the endowment declined?
The endowment declined from $555 million on June 30, 2008, to $425 million on Dec. 31, 2008. It has declined even further in the first quarter of this year.

As serious as this decline is, Bucknell’s endowment, fortunately, has actually declined somewhat less than many other university and college endowments thanks to a diversified portfolio of investments and a long-term investment philosophy.

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But didn’t the comprehensive campaign just raise $100 million?
Yes, as of December 31, 2008, the University’s comprehensive campaign had raised $100 million. It is important to stress, however, that this $100 million is comprised of gifts and pledges that will come to the University over time. Specifically, the University has received more than $45 million in gifts and pledges designated by donors for the endowment. Some of the pledges will be paid over the next five years, but many of the pledges are deferred and will be realized over many years.

At this point, the University has received about $13.4 million designated by donors for the endowment. An endowment spending allowance of 4.5% means that the addition so far of these funds to the University’s endowment has added new available resources of approximately $600,000. It is important to note that a significant portion of donations to the University, including to the endowment, are and will be restricted by donors to investments in certain programs or purposes (i.e., departmental scholarships, named professorships, specific facilities), which means those resources, including related spendable income from the endowment, must be used for those purposes.

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Why not spend more of the endowment to make up for any budget shortfall?
The typical spending rate for a higher education endowment is 4.5 percent. The underlying principle for this spending approach relates to the long-term strength of the institution. The endowment was established to help support the University in perpetuity. We much prefer to pay expenses with existing income rather than drawing upon what is in a sense an institutional savings account. Otherwise, in time, spending resources beyond revenues depletes the savings. Particularly when markets are down, we want if at all possible to avoid selling investments at depressed prices as doing so would deplete investments that will strengthen the University and increase income over the long term.

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How is the endowment invested?
The endowment’s investments are diversified across a variety of asset classes that the University and its professional asset managers believe spreads the risk associated with investing and that will grow over the long-term. At the core of this asset management is our trust in the overwhelming historical evidence that investments in the stock market and a variety of other assets will, over the long term, outperform certificates of deposits and U.S. Treasuries. We do not believe in market timing and make no presumption about precisely when the valuations of our investments will change. We believe in investing prudently and shrewdly and staying the course.

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Did the University have any of its money invested with Bernard L. Madoff Investment Securities?
No. We had no money at all with him or his firm. Nor did we have funds invested with other entities that have been identified as having engaged in similar activities.

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Why would Bucknell raise tuition in the current environment?
The expenses of running the University routinely increase – even as the economy falters. Costs to higher education that increase annually include, for example, health insurance, utilities, books and periodicals, dining and personnel recruitment.

While the comprehensive fee, which includes tuition and room and board, will increase, it is increasing at a lower rate than in many years. The Board of Trustees is deeply concerned in this recession about the impact on families of increases in the cost of attending Bucknell and with ensuring access to a Bucknell education regardless of family financial status.

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In these tough times, why is the University taking on the expense of moving the bookstore downtown?
The impact to the operating budget of moving the University’s bookstore downtown will be minimal over time. The majority of the construction and renovation costs will be funded by third-party sources, namely state funds, private developer investments, and federal tax credit benefits. It is worth adding that the state funds, which at $9 million comprise by far the largest portion of these resources, are, like the federal tax credits, designed to promote economic revitalization and can only be used for projects considered contributors to economic development, and thus cannot be used for purposes such as academic buildings or residence halls.

Thanks to the investments of the state and the interest of private developers, the University is in a sound position to leverage a relatively small amount of its own balance sheet resources to make a considerable strategic investment in its future and in strengthening downtown, which is vital to our recruitment and retention of students, faculty and staff and to the experience that visiting parents, alumni and other guests enjoy. With this move, we will also open up more than 12,500 square feet occupied by the current bookstore location in the Elaine Langone Center to strengthen the ELC as a student center.

Taking these steps now leverages the investments of other parties in the future of Bucknell and Lewisburg, and will make us a stronger institution and community as the U.S. and world economy come out of the recession.

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What is the fiscal 2010 budget timeline?
The University administration is required to present a balanced budget to the Board of Trustees in April. The final budget approved by the board will be shared with the campus shortly after the trustee meeting. The budget is effective on July 1.

Historically, Bucknell has not had to make mid-year budget adjustments. But if the economy continues to slide, we may need to take additional action in the new fiscal year. Even if we go to the board with a balanced budget in April, for example, by July 1 we may have to take additional budgetary actions given how volatile today’s economy is.

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Do you see problems with enrollment for next year that concern you?
No. Our application numbers remain strong. Our early decision applications, for example, are up markedly over the previous year, as much as 50 percent, and these students commit to enroll at Bucknell if they are admitted. While overall applications for the incoming Class of 2013 are down about five percent from a year ago at this point, our peer institutions are seeing application declines of nine percent to 17 percent.

At this time, we are confident about enrolling another truly outstanding class of the same size as typical in recent years (about 925).

Obviously, a prolonged economic downturn could have an impact on future enrollments.

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Will there be an opportunity to learn more about the budget process before April?
Yes. The Office of the President and the Committee on Planning and Budget will host an all-campus forum on the economic crisis and the Bucknell budget on Tuesday, March 24, at noon in Trout Auditorium. In addition to President Mitchell, participants will include members of the committee, Provost Mick Smyer and Vice President for Finance and Administration David Surgala. Consistent with previous senior staff forums, this forum will be recorded, and the recording will be placed on myBucknell for review by students, faculty and staff.

The forum will also provide an opportunity for individual members of the Bucknell community to offer their suggestions and insights as to how the University can respond to this crisis. While the downturn is a significant challenge to Bucknell—we should not understate the consequences of the difficulties we now confront—we should also view this as a time of opportunity.

Additional information will be provided on this web site, including information about future forums that may be needed. You may also find useful information in these financial aid FAQs.

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How can I make suggestions about cost-savings ideas?
One simple way to do so is to submit them to the “Our Bucknell” suggestion box in myBucknell, which includes a cost-savings category. These suggestions will be shared with the Office of Finance and Administration and discussed as necessary with offices relevant to the idea. The suggestion box regularly receives ideas on a wide variety of subjects, and we encourage you to submit ideas if you think they could help the University reduce costs, especially in a strategic way.