Frequently Asked Questions (FAQs)
1. What is the endowment?
The Brown Endowment contains thousands of funds that are invested for the long term. Unlike current-use gifts, which are spent completely on near-term priorities and programs, gifts to endowment are invested in perpetuity to generate appreciation and income that is then used to support the activities or programs specified by the donor. A donor must stipulate that his/her gift be put into the endowment. By doing so, certain legal constraints are placed upon the University. Specifically, the University must invest the funds responsibly and spend from the fund “prudently.” In general, the University cannot spend down the principal. Finally, the University must use the payout from each individual endowed fund as specified by the donor of each fund.
The Brown Corporation — the University’s governing board — and Brown’s senior administrators share stewardship responsibilities for the endowment.
2. How does a loss of value to the endowment affect our operating budgets?
In fiscal year 2009, the endowment supported more than 18% of the University’s annual operating budget, compared with about 7% two decades ago. Between July 1, 2008 and June 30, 2009 the value of the endowment declined by $740 million, or more than 25%. The drop was primarily due to the economic downturn’s impact on the financial markets, however, it was also a function of the $132 million paid out in FY09 for operations and the $44 million received in new gifts to endowment.
Brown’s payout policy, which determines how much of the endowment is used for operations each year, smooths the impact of a major decrease — or increase — in market value. Before the economic crisis, we were expecting that the annual payout from our endowment would be able to grow each year. Because of the loss in overall market value of the endowment, we now expect that endowment payout to support our annual budget will have to decline. We had planned on endowment payout of close to $160 million in FY14. We are now projecting that our endowment will only generate $90 million in FY14 — a difference of $70 million. In addition, we are assuming that our fundraising through the Brown Annual Fund, the Sports Foundation and to support financial aid will be lower than originally projected by FY14. Given our commitment to increasing student support, increasing the size of the faculty, providing competitive salaries and benefits, and improving our facilities, the E&G budget (all but the Division of Biology and Medicine) must reduce spending in other areas or generate new income of $95 million between FY09 and FY14.
3. How does our endowment dependency compare to other schools?
As of June 30, 2009, Brown’s endowment, the 26th largest university endowment in the country, totaled $2.04 billion, a decrease of $740 million from its June 30, 2008 value of $2.78 billion. Peer institutions experienced comparable losses in the market value of their endowments. Brown’s endowment provides approximately 18% of the University’s operating budget revenue. Brown’s endowment historically has been, and continues to be, smaller than the endowments at most of the institutions with which Brown competes for faculty and students. The following charts illustrate the market value of Brown’s endowment versus peer institutions and an estimate of how dependent each institution is on endowment to fund its annual operating budget.
1. How long will these Deficit reductions remain in effect?
Because we are facing a structural deficit, these deficit reductions need to be permanent rather than one-time. However, we will still need to make annual decisions about how to allocate our financial resources. As in past years, decisions regarding the allocation of resources will continue to be driven by decisions regarding academic priorities as laid out in the Plan for Academic Enrichment (PAE).
2. How will the economic downturn affect tuition and financial aid for students?
In response to the economic downturn, tuition for academic year 2009-10 increased by only 3 percent over last year, and the overall undergraduate charge, including standard room and board, health, and other fees, increased by only 2.9%. This is the smallest increase since the early 1960’s. At the same time, Brown remains firmly committed to its need-blind admissions policy and to meeting the full need of students receiving financial aid. This commitment is required to ensure that we are able to attract and support the most highly qualified and diverse students. Thus, we plan to continue our current fundraising campaign to increase financial aid resources for students.
3. Why was the Holiday Bazaar eliminated?
The Human Resources Department will no longer be sponsoring the annual Holiday Bazaar. In recent years, we had become increasingly concerned about the potential liability, safety, and employment-related risks associated with this type of event. In addition, with a more limited budget for employee programs this year, we can no longer justify the expenses associated with the Bazaar, in light of competing demands for resources to support our employee recognition and training programs.
4. Why do parking fees continue to increase every year?
It is true that parking fees continue to increase annually however these modest increases should be tempered with the benefits cost reductions the University has made for its employees over the past several months. These reductions that have lowered several employee contributions including decreasing employee maximum contributions for health premiums from 51% to 38% and lowering life insurance premiums.
1. Why don’t we all temporarily reduce our percent time/effort and/or implement furlough days to help save the University money?
A number of staff have volunteered to reduce their percent effort on a temporary basis or to take unpaid days off (or “furlough days”) to help prevent the need to cut additional staff positions. While this is a wonderful gesture, this approach provides a short-term rather than a long-term solution to our financial situation and does not begin to yield the amount of deficit reductions that are required to achieve our financial goals for FY14. In addition, this approach suggests that our full complement of staffing is not required to maintain University operations. We don’t believe that we can reduce staffing until we have reduced administrative workloads throughout the University by identifying more efficient organization structures through the Organization Review and by streamlining current business processes through initiatives such as the Policy and Process Improvement Project.
2. How will the FY11 budget affect staff positions — will there be further layoffs?
Unfortunately, further layoffs are inevitable. However, we are approaching decisions about additional layoffs slowly and deliberately. We have resisted the temptation to simply cut budgets by 10% or 15% across the board because this approach does not ensure that staffing resources are allocated appropriately. Instead, we have chosen to undertake a University-wide Organization Review designed to engage the community in helping to match staffing resources to staffing needs and to identify ways to improve the efficiency of our organization structure. We believe that this approach will help preserve the momentum required to achieve the goals set forth by the PAE.
3. If the market conditions improve, will staffing cuts still be necessary?
The endowment payout is forecasted on a three-year basis which means that we will not see the benefits of an improved economy until after FY14. Unless drastic sustainable gains are made to our investments, these reductions will remain necessary.
4. Why will more positions be cut in FY11 than in FY10?
Last year the University took a number of steps to reduce projected expenditures by $30M in order to minimize the number of positions that needed to be eliminated. These steps included delaying capital projects until full funding is obtained; deferring other capital projects permanently or indefinitely; freezing staff and faculty salaries for FY10; instituting a hiring pause and a Vacancy Review Committee to capture savings through vacant positions; and reducing operating expenses, including through the renegotiation of contracts for big ticket items such as utilities. Most of these initiatives resulted in dramatic deficit reductions that cannot be duplicated this year or in the years ahead. Since we still need to reduce projected expenditures by an additional $60M by FY14, we must now consider other opportunities for deficit reductions such as the elimination of a greater number of staff positions in FY11.
5. How do contributions to our Annual Fund affect our operating budget?
In FY09 Brown raised $38 million in current-use gifts to the Annual Fund, Financial Aid and the Sports Foundation, an extraordinary achievement given the economic environment, and it is surely an indication of the enviable support the University enjoys from its alumni, parents, and friends. As impressive as those results were, we still fell about 7% below budget, and any reductions in current-use giving mean a dollar-for-dollar reduction in our operating budget. For the current year, FY10, we are striving to increase annual giving dollars relative to the FY09 actual receipts, but will be monitoring our results throughout the year.
1. What steps did the University take to reduce employees’ share of the cost required for benefit programs?
Starting January 2009, the University began absorbing a larger portion of the health insurance cost for eligible individuals, reducing the maximum employee contribution for two-person and family coverage to 38% (compared to 50% in previous years). Also, employees electing health insurance through the University for CY2010 will experience a minimal increase of, on average, less than 1%. Please refer to the 2010 Health Insurance Rates to determine the University’s contribution towards your coverage.
Additionally, the University negotiated lower premiums for the voluntary life insurance coverage for employees provided with Liberty Mutual. These rates took effect in May 2009 and will continue in CY2010. We project the total savings to amount to $300,000 over the next two years for all plan participants electing the employee voluntary life insurance coverage. For a list of the reduced rates, please refer to the Benefits Enrollment Decision Guide (http://www.brown.edu/Administration/Human_Resources/downloads/benguide.pdf).
2. In these financially difficult times, what resources are available for employees to better balance work and life responsibilities?
The University introduced the Backup Care Benefit in 2008 (http://www.brown.edu/Administration/Human_Resources/benefits/backup.html), which is available to all employees on the regular payroll. This benefit allows employees to schedule backup care when they experience a temporary interruption in their normal care arrangements. The University covers most of the cost for this benefit and employees contribute only a low co-payment of $2 to $4 per hour for the services they receive. Currently, our carrier has delivered over 2,300 hours of care to Brown University employees who have used the benefit in CY2009.
More work/life balance resources are also available to eligible employees and their family members from the University’s Faculty and Staff Assistance Program with Liberty Mutual (http://www.brown.edu/Administration/Human_Resources/benefits/other_benefits_eap.html). Services under this program include a wide array of resources for family, financial, legal, and other matters of importance to many of us.
1. How was the composition of the 12 ORC teams determined?
The Organizational Review Committee endorsed the composition of the 12 ORC teams and is responsible for ensuring team recommendations are innovative, collaborative and objective. In the majority of cases co-leaders were appointed to ensure a objective approach. The teams range in size from 5 to 14 members with the larger teams working on cross functional reviews and the small teams working on departmental based reviews. The team composition is a diverse groups of staff, faculty and students including leaders of departments providing the service, customers of the service, subject matter experts, members of the Staff Advisory Committee.
2. How will staff, faculty and students be involved in the ORC process?
Each team is responsible for defining stakeholders and ensuring feedback is obtained from these groups. Teams are meeting with the Academic Department Managers , Administrative Department Managers, Faculty Chairs, the Staff Advisory Committee, Computing Advisory Board and many other standing groups on campus. Teams are also holding Brown Bags for faculty chairs, meeting directly with service providers and departmental advisory groups. In addition, an ORC student advisory groups has been formed to gather feedback from students.
3. How will the ORC teams report findings and recommendation to the Organizational Review Committee?
To ensure consistency, a template reports have been created which all teams are required to submit by December 10, 2010. In addition, each team will present their findings and recommendation to the ORC providing the committee with the opportunity to ask questions to gain a better understanding of the recommendations and implications.