Wake Forest Board of Trustees approves 2004-2005 budget

April 6, 2004

The Wake Forest University Board of Trustees on April 2 approved the university’s budget for the 2004-2005 fiscal year and endorsed steps to position the school academically and financially as the national economy recovers. The new fiscal year begins July 1.

The university’s total budget for next year is $812 million. The Reynolda Campus budget of $249 million includes spending increases only to accommodate rising health care costs and substantially higher property/casualty insurance rates. Salaries and operating budget allocations in academic and administrative departments will not increase in the new fiscal year.

The Wake Forest Health Sciences portion of the budget is $563 million.

The Reynolda Campus is the home of the College (undergraduate school of arts and sciences), the Calloway School of Business and Accountancy, the Graduate School of Arts and Sciences, the School of Law, the Babcock Graduate School of Management, and the Divinity School. Wake Forest is the parent organization of Wake Forest University Health Sciences, which conducts activities at the university’s Bowman Gray Campus, Piedmont Triad Research Park and various other locations. It operates the Wake Forest School of Medicine, principally on the Bowman Gray Campus.

In holding flat the Reynolda Campus salaries and operational expenditures, Wake Forest joins a large number of national universities—including Stanford, Harvard, Cornell, Rice, Dartmouth and Emory—that have over the past three years adopted similar measures in response to a deteriorating economy, lower endowment levels, and rising costs.

“Assuming no further weakness in the capital markets, we anticipate only one year of no salary increases,” said Wake Forest Provost and Acting President William C. Gordon. “With the other steps that we are taking to address financial constraints, we believe that Wake Forest will emerge in an even better position to strengthen the quality of the Wake Forest experience.”

Gordon said that the need for budget constraints results from negative returns on endowment in 2001 and 2002, steep health care cost increases, and the draw on endowment for the university’s salary opportunity fund and debt service. The salary opportunity fund, an aggressively-managed portion of Wake Forest’s endowment, provided larger than normal salary increases in 2001 and 2002.

“We had two rounds of non-salary budget cuts in recent years,” Gordon added, “but soaring health care and property/casualty insurance costs have been powerful drivers of expenditures. Just as the faculty and staff have faced higher costs in their portion of health care premiums, the university has also had steep increases in its portion.”

In addition to their approval of permanent savings from a one-time flat operating budget, the trustees approved the following steps to build fiscal strength beyond the
current budget cycle.

• Refinancing debt. In the past, the university has bond-financed a number of projects, including the construction of two residence halls and a classroom building and the installation of sprinkler systems in all residence halls. Restructuring financing will lower annual debt service.
• Increasing research revenues on the Reynolda Campus. Gordon recently created the position of associate provost for research to make it easier for faculty to pursue grant funding.
• Cutting costs from the university’s real estate holdings. Real estate produces income for the operating budget; thus, decreasing expenses would increase revenue for annual university operations.
• Adding significantly to the endowment through charitable gifts. The university’s capital campaign has endowment growth as a top priority.
• Managing enrollment to campus capacity. A plan initiated in 1996 has resulted in half of Wake Forest’s undergraduates studying abroad prior to graduation. This trend is expected to continue. The trustees authorized the administration to adjust freshman enrollment on a yearly basis, with rigorous attention to quality in credentials. The decision to adjust freshman admissions will be evaluated on a year-to-year basis. The trustees affirmed that the number of undergraduates on Reynolda Campus in any given semester will be in the area of 3,980.

Gordon will work with faculty and administrators to ensure that enrollment and capacity are correctly matched. Faculty/student ratio in the college is 1 to 10 and will not exceed 1 to 11, even if more students are admitted.

University spokesman Kevin Cox said that the trustees studied and approved these steps with the driving principles of ensuring Wake Forest’s ongoing financial health while maintaining the quality of its academic experience.

Wake Forest is not alone in facing financial restraint. In the past few years, Ivy League institutions and other top-ranked national universities across the country have taken extraordinary steps to address budget concerns. Steps include, in various cases: salary freezes, hiring freezes, position eliminations, spending cuts in operating budgets, lower-than-usual pay increases, and reductions in fringe benefits.