The University of Chicago Magazine December 1995The University appears to be making "considerable progress" in addressing its ongoing financial challenges, according to Provost Geoffrey Stone, JD'71.
Although Chicago incurred an operating deficit of $17.7 million for its 1994-95 fiscal year, that deficit was $8 million less than last fall's estimates. And although a $22-million deficit has been projected for 1995-96, that is $13 million less than was previously estimated.
A series of operating surpluses in the late 1980s enabled the University to build up significant cash reserves. But trends in the 1990s--including lower investment returns, reduced federal support, slower increases in tuition relative to inflation, and elimination of mandatory retirement for tenured faculty--forced Chicago's budget into the red. Projections calculated in 1993 showed a potential $55-million annual operating deficit by the decade's end.
With that prospect in mind, President Hugo Sonnenschein and other University leaders launched several short- and long-term financial initiatives in 1994. "We determined to take strong and decisive action," says Stone, "and we have.
"In 1994-95, we significantly restructured the budget process of the University," Stone explains, "and increasingly shifted responsibility and authority for fiscal management to the schools and divisions.
"At the same time, we worked hard to understand the precise nature of the issues, to inform and educate the community about the magnitude and causes of the challenge, and to take steps both to bring the situation under control and to plan for the future."
The $13-million cut in the projected 1995-96 deficit (a reduction from $35 to $22 million) was achieved through $4 million in administrative cost reductions; by deferring approximately 20 faculty appointments; and by generating $11 million in additional net tuition revenue, "largely from increased enrollments and adjustments in financial-aid policies for entering students," says Stone.
Stone cited several specific examples where the University has demonstrated the ability "to think creatively about change and to take risks." In implementing the recommendations of a task force on tuition policy, notes Stone, "the College undertook a financial-aid experiment last year that enabled it both to attract better students and to generate more net tuition revenue, while maintaining our commitment to need-based aid."
Meanwhile, the humanities division launched its new M.A. program in Japan; the physical sciences division laid plans for a master's curriculum in financial mathematics; the Graduate School of Business opened its Executive M.B.A. program in Barcelona; and the School of Social Service Administration began offering advanced-training courses for social workers in the Illinois Department of Children and Family Services.
"Not all of these efforts may succeed," Stone acknowledges, "but we must be prepared to try new directions, both to enhance our financial strength and to improve the overall quality of our University."
Stone also stresses that "we are now in a time of adjustment, not of crisis." While the deficit "is a serious matter, we must take this in context. A $22-million deficit represents less than 3 percent of our overall operating budget and an even smaller fraction of our endowment, which is now worth almost $1.4 billion, and which grew last year by more than $150 million.
"Put differently," Stone continues, "if we take care of this problem now, and bring our budget back into balance by the end of decade, our cumulative deficit during this period will be completely covered by the cumulative operating surplus we had generated--and saved--in the 1980s. Thus, the challenge we face today is a threat to the University only if we do not respond to it."
In a round-up report on Chicago's financial situation in the University's newspaper, the Chronicle, faculty and deans provided feedback on the progress being made. Several remarked that, while changes have been made in reaction to financial restraints, those adjustments have actually created more efficiency and closer scrutiny of the goals and mission of specific programs.
"We're now forced to ask," said Law School Dean Douglas Baird, "is this building or this new program the best way to advance the mission of the University? We're fiduciaries. Our students and alumni give us their hard-earned money. When I go to bed at night, I want to know I have done right by those students and those alumni."
However, SSA Professor Laurence Lynn noted concern among some faculty, "partly associated with change of any kind and partly associated with the fear that [budgetary] decentralization will change the priorities or distort how the University should conduct itself. Would we turn into entrepreneurs, selling the time and talents of our faculty to the highest bidder?"
For his part, President Sonnenschein assured the community that its central values would remain unchanged: "Universities throughout the world have looked to Chicago for leadership in both education and research. They do so not only because of the quality of our scholarly efforts and educational programs, but because of our values.
"By sharpening our efforts so that they best reflect those values and providing an outstanding staff with the tools necessary to support excellence," said Sonnenschein, "we can look toward a bright future."--T.A.O.
Plus items For the Record.