University prepares for annual deficits through next decade

The University is forecasting a series of multi-million dollar budget deficits starting in fiscal year 2004. The shortfall would result primarily from the expanded financial aid program initiated last year, University officials said.

The Priorities Committee — a board that recommends budget changes to President Tilghman and the board of trustees — projects deficits of between $2 million and $4 million until 2006 assuming future spending reflects current levels. The University anticipates a comparable deficit running through at least fiscal year 2011.

The board of trustees requires the University to balance the annual budget. However, with uncertain economic times ahead, PriCom would not indicate specific budget changes to meet the trustees' requirement.

"It is far too soon to say exactly how the University would react to a continuing recession," Provost Amy Gutmann said. "We will develop plans over the summer in anticipation of multiple possible scenarios and then revise them in consultation with the PriCom, president and trustees."

The University will look at ways to cut costs and increase revenues during the next five years, said Robert Rawson '66, chair of the executive committee of the board of trustees.

"When you are looking out three to four years, we're going to have to look at ways to deal with the structural issues," he said. "I don't think we have ever run a catastrophic deficit. There have been times that we had to make adjustments — that is not unusual."

During fiscal year 2000-01, the University was forced to expend half its 30-year energy reserves to accommodate higher energy costs, faculty recruitment and retention, and the expanded financial aid program, according to the PriCom report.

Last year, the trustees eliminated the loan requirement and reduced the expected summer earning requirement for undergraduates by increasing the endowment spending rule.

The new financial aid program resulted in an unexpected 5.5-percent increase of students receiving financial aid. The University projects that the current 46.5 percent of the student body on aid will remain constant during the anticipated budget deficits.

"This is good news, even if it is costly," Gutmann said. "We had very much hoped that our new aid policy would attract many more students who need financial aid to apply and therefore a much higher percentage of students on financial aid being admitted to Princeton."

Gutmann said the economic slowdown also may have contributed to the higher percentage of students on aid.

In addition to the financial aid program, an increase in the benefits rate for faculty and employees and the operating costs for new buildings, such as the Lewis-Sigler Institute for Integrative Genomics, would contribute to the deficit.

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The University has conceived two possible approaches to balance the budget during the next several years.

With more moderate inflationary pressures, the University would be able to reduce the financial pool for faculty salaries while remaining competitive with other universities.

In addition, the University could defer some less time-sensitive renovation projects. The sixth residential college would not be affected by the budget deficits, Gutmann said.