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Planning to Reduce the Budget by $100 Million

A Q&A with Tallman Trask III and Peter Lange

Tallman Trask III and Peter Lange

In September, President Richard Brodhead reported that much progress had been made to return the university to financial health, but he added that "shared sacrifice will likely still be needed to bring us to a sustainable budget."

Discussions about such sacrifices are taking place as schools and departments begin developing budgets for the next fiscal year, which ends June 30, 2012, and marks the conclusion of a three-year period for the university to reduce its budget by $100 million. The university still needs to cut $40 million to reach that target.

Executive Vice President Tallman Trask III and Provost Peter Lange talked with Working@Duke about some issues and challenges in preparing budgets for the coming year.

 

What are some tough decisions next year?

Trask: A substantial number of people who leave probably won't be replaced. We probably need to pull out about 100 more positions by the end of the 2012 fiscal year. It's unlikely that every person who does leave will be in positions that we will be able to do without. So there will need to be some rearrangement of people and responsibilities to help deal with that.

We are not seeing the normal level of attrition we typically see. The opportunity is limited somewhat because the job market is tied up. But if a department has the opportunity to take advantage of a vacancy by not filling it, it can help balance that department's budget.

 

Lange: There isn't a common answer because the budget for each school is very different. Some schools are funded primarily by tuition while others receive more external support through grants, investments and philanthropy. The schools still face tight budgets, but it makes more sense for the decisions to be made by the deans and faculty within their schools and departments rather than an across the board approach. But there are going to be some difficult choices that the deans are going to have to make in terms of programs and hiring.

 

What are some potential sacrifices in the coming year?

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Lange: The increasing expense for total compensation - pay and benefits - is going to run up against some of our programmatic goals. We started budget discussions with the deans and their financial officers early this year because we wanted them to start thinking about how they are going to keep the budget balanced with the increasing cost of total compensation.

It's an iterative process. There will be a lot of conversation about how and where these choices will be hammered out school by school. There are a lot of variables, and there is uncertainty about things like investment income and philanthropy that make budget planning difficult. The process is definitely an art. The one thing it is not is science.

 

Trask: Our increasing benefit costs and a potential pay increase next year will increase our expenses by about $25 to $30 million, so we need to save more than the $40 million target to address the budget. We are going to have to have some conversations about benefits. Our benefits package is valued at the high-end among other universities and is well above the rest of the market. I'm not sure we can sustain that in the future.

 

What other changes are in the works to reach the $100 million budget reduction target?

Trask: The big push will be on the procurement side. We know we have too many transactions where we don't get the best pricing we could get. About 60 percent of the budget is salary and benefits, and the rest is stuff. We spent $650 million on stuff last year. If we can save 5 percent, that's about $30 million in savings. It is the biggest single thing we have left.

 

Lange: Hopefully, we can generate a good piece of savings through procurement and the computer purchasing program. But I think we're facing what's called a collective action problem, which is based on a great book by Mancur Olson. Basically, individuals making decisions don't feel accountable for the common good. So one person says, ‘Who's going to know if I spend a few extra hundred dollars for my computer?' But when you add up all the purchases, it's a lot of money. The alternative is a command system, where choice is mandated. How far are we going to go with a command system? I don't quite know the answer to that.

The bigger problem I think is that we have people who still believe that someday in the not too distant future, things will just go back to the way they were. I don't think that's going to happen. We're now in the new normal. We will need to continue to operate in much the same way as we have the last couple years. There are lots of places where we've made changes, and that will be the new normal.

 

You both have worked together in your roles for about 11 years. What impact has that had in managing through the financial crisis?

Trask: We respect each other's judgment, so we don't have some of the turf wars that can become unfriendly at other institutions. When

I got here, I didn't think the provost had enough of a voice in budgetary issues, so I worked to have the provost more involved. At most places, the executive vice president doesn't want the provost involved at all. We agree about 80 percent of the time, and the other 20 percent, we work through together.

 

Lange: We've worked together for 11 years, and I think it's a huge advantage. You have to have confidence and trust in the other person. It is easier to do that when you are growing and expanding, but it is much more critical when things are tight. I think that is the most important thing, especially with the strategy we pursued. If we used a meat cleaver approach, you'd probably just fight it out and be done. But if you're going to cut the budget with a scalpel like we're doing it, you are going to have maybe a hundred conversations about where and how to make cuts. And that's where your experience with each other and mutual respect and knowledge of how each other works is incredibly important. You might say that the strategy we've taken was only possible because of the leadership team we have in place and the length of time we've been working together with the president and each other.