Economy forces tighter budget

Students may see The Washington Post and The New York Times disappear from residence halls in the fall, one of several cutbacks administrators are considering in response to a $5 million drop in the University’s endowment spending for next year.

The decrease will affect some student support initiatives, staff hiring and faculty merit pay increases. Officials said they anticipate additional endowment spending reductions for the following fiscal year that could total $10 million.

The value of GW’s endowment portfolio declined by more than $135 million since June 2001.

Endowment is the funds and property donated to an institution as a source of income. GW’s trustees-approved endowment spending rate has been 5.5 percent over the course of the last three years. David Sanders, interim chief investment officer, said next year’s rate will be lower.

As of December 2002, GW’s endowment was valued at $578 million.

Administrators attributed the reduction in value to a decline in the stock market and a decrease in contributions because of poor business conditions. The value of most stocks declined about 20 percent in the past two years, according to Dow Jones Industrials.

Student and Academic Support Services, which funds programs including Colonial Inauguration, 4-RIDE and admissions, will probably see a 2 percent or 3 percent decrease in spending, said Robert Chernak, senior vice president for SASS.

Chernak called the reduction “doable without any drastic surgery.” He said the administration might be forced to slash the GW Reads program, which provides newspapers in residence halls, and some admissions efforts and staffing.

Chernak said he and other vice presidents and administrators, including Dean of Students Linda Donnels, will analyze the budget within the next three or four weeks to determine which programs are “costly but not necessarily widely utilized by as many students (as) we would have anticipated.”

The GW Reads program costs the University $100,000 a year, Chernak said, adding that the last time he looked, the percentage of usage in residence halls was “extremely low overall.” He said only 30 percent of the editions of The Washington Post, The New York Times and USA Today provided in residence halls are read daily in some halls.

“What you’re trying to do … is first identify those services that are deemed to be critical,” Chernak said.

He said some programs, including 4-RIDE, will receive more funding despite the budget crunch because of popularity among students. About 90,000 riders have used 4-RIDE this year, he said.

Financial aid and scholarships should also receive increases.

Chernak said admissions efforts, including publications and travel expenses, might be an area in which administrators will consider cutting funds, because “things are going pretty well right now” and certain aspects could be reduced “without hurting any of the services,” Chernak said. GW received a record 18,400 applications this year.

Although GW plans to accept 2,400 incoming freshmen – its second largest freshman class ever- Chernak said revenue from the additional tuition does not counteract stock market performance.

Academically, GW will take two primary steps – instituting controls on hiring staff and delaying faculty merit pay increases until July 2004. Each staff hiring decision will be approved based on whether the position will generate revenue for the University and whether it is essential for the academic operations of GW.

“It’s a matter of focusing,” said Executive Vice President for Academic Affairs Donald Lehman. “There’s only so much money … (hiring) must be strategically motivated.”

He also noted that delaying pay increases for six months will save the University about $4.5 million. Executive Vice President and Treasurer Louis Katz sent an e-mail to all faculty in March explaining the policy change.

“(We’ll) see what that does,” Lehman said.

GW’s endowment dropped about 9 percent from June 2001 to June 2002, while the previous year it only dropped about 3 percent. In fiscal year 1999-2000, before the September 11 attacks, the endowment value increased 9.5 percent – from $673.6 million to $737.6 million.

Some universities with which GW often compares itself have llarger endowments. New York University’s value hit the $1 billion mark in June 2002, worth $300 million more than GW’s at the time.

However, Boston University’s endowment was valued at $578 million in June 2002, $68 million less than GW’s at the time.

“We’ve always had to do better with less resources, so when times are tough, the impact on GW is lesser than at other universities,” Katz said earlier this semester. “Although on a relative basis our endowment fund is doing extremely well, on an absolute basis it’s not doing well.”

GW’s endowment performance followed a national trend after September 11, causing public and private institutions across the country to suffer endowment value decreases. But the drop in GW’s endowment value, Lehman said, “is very mild compared to what’s happening nationwide.”

The average portfolio loss for 2001-2002 was 6 percent, according to the Chronicle of Higher Education. GW’s endowment value decreased about 9 percent, 3 percent more than the national average for the year.

But Katz said GW was less affected by a loss in endowment because GW has a smaller endowment compared to other institutions.

A tuition-based university, GW relies on tuition to cover 72 percent of its budget.

Administrators said they would like GW to become an endowment-based university, which means it would rely primarily on endowment for spending. All money in the endowment comes from gifts to the University, Sanders said.

GW currently has the majority – 62.2 percent – of its endowment invested in stocks, 25.5 percent in real estate and 12.3 percent in fixed income, according to figures Sanders provided. The value of fixed income, consisting of mostly bonds, does not fluctuate as much as the value of stocks does.

GW’s endowment per full-time student was recently ranked 38th out of a list of 42 comparable schools at $36,059, according to University documents. The figure is minimal compared to Yale University’s $955,632 and Emory University’s $408,550 per student.

Vice President for Advancement Beverly Bond said GW would like to improve its ranking but that fund-raising efforts alone cannot raise GW’s endowment because much of it is invested in the stock market, which has been performing poorly.

“We’re always pushing as hard as we can,” Bond said. “A lot of people are hurting (because of) the economy … we’re really trying to work as hard as we can.”

“We are increasing all of our fund-raising efforts, but we would have been doing so regardless of the decline in the endowment value,” Sanders said.

Bond said the endowment is only one area with which her office deals, noting alumni and other contributors give money for other areas – such as operating needs.

“We are trying to get alumni to make contributions at whatever size they can afford, to whatever areas of need they care about,” Bond said. “We also try to get contributions from foundations for specific projects.”

Bond noted the decrease in giving is a “national and international problem” and said, “we just have to work harder and smarter.”

Administrators said the external economic climate will determine the future of GW’s endowment, but regardless of its market performance, the University is aiming to reduce endowment spending.

Chernak said he has a positive outlook, noting GW’s past endowment performances.

“If you take a more optimistic point of view and say (the endowment) is, most likely, going to stabilize from this point forward, one could foresee (GW going) back to the levels we were at three years ago,” Chernak said. “(But) it’s dependent on philanthropy, in addition to stock market return.”
-Michael Barnett and Rachel Gould contributed to this report.

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