The Fact Checker report on the economic briefing given university employees on Thursday.
Four top officers of Duke University gave a bleak assessment of its finances yesterday --far darker than previously known -- during a Duke Conversations presentation in Bryan Center. One of the biggest shockers: endowment losses continued and now approach 40 percent. Presumably pension plans and massive Health System reserves fell as much, along with assets of The Duke Endowment, a separate entity that uses Duke University as its investment arm.
Read on Dukies. What a miserable Friday.
-- NEW BUDGET COVERED WITH RED INK
The four university officers revealed for the first time that the budget passed by the Trustees last May for the current academic year had $70 million in red ink. In other words, far more spending than anticipated income. One official said meekly only $25 million is "suppposedly covered" by cuts implemented so far. That raises the prospect of new, deep incisions ($45 million) into the spending plan before the fiscal year ends next June 30, or another dip into the principal of the endowment.
No one said a peep about why this was not disclosed in the original news release on the passage of the budget. And Provost Lange sat silently and did not reconcile this with the $50 million in savings for this period that he previously announced.
-- NEW RETIREMENT INCENTIVES, very limited
The officials announced a new incentive program for higher paid employees (on monthly salary) to retire early. But only about 100 people university wide will be offered a miserly deal, a one-time payment which will equal one week's pay for every year of service, to a maximum of 26 weeks. The amount of each person's monthly pension is not affected, as it was under an earlier plan aimed at Duke's lowest paid employees.
Each of the 100 must be in a position identified as expendable; they will not be replaced. This raises the specter that if the targeted people do not take retirement, they will be the first laid off anyway in the months ahead.
Officials revealed that of 295 people who took early retirement under the first incentives offered, 32 had to be replaced, meaning a net loss of 263.
They said another 52 jobs in the budget have not been filled, something they called Vacancy Management, the highly touted program whereby each new hire must be approved at the highest level.
And they said cuts in overtime have saved the equivalent of 57 jobs, which is a bullshit way that managers look at head-count when their targets are not being reached.
One official indicated a plan to push some faculty into retirement is also under consideration. Many have their own retirement accounts which have been diminished, and in a very surprising statement that was not developed in any way, an official said faculty may get money to replace what they lost.
Overall, the officials claimed a reduction of 372 jobs so far. If 100 are offered early retirement under the new incentive plan, officials said perhaps 20 would take it, meaning fewer than 400 jobs will have been eliminated -- far short of the goal of 1,000 that Tallman Trask has talked about for "a smaller Duke." Still, officials said they hoped to avoid layoffs, never reconciling this either.
Employees were put on notice to expect to pay higher premiums for medical insurance, while at the same time getting hit with higher co-payments. And their long term prescriptions will have to be generic, filled through a mail order pharmacy. Officials did say that services covered under the four Duke medical plans would not be cut. At least this year.
Trask drew laughs when he said another benefit would be continued -- lavish college education grants for children of employees at all levels. Must have been some sort of inside joke.
And as to the current wage freeze, employees were told they would not likely find out anything -- good or bad -- until next July 1. More anxiety and jitters.
-- ENDOWMENT SHRINKS SOME MORE
The officials did not disclose the current value of the endowment. But one said it stands below the value at the end of the 2008 fiscal year. According to a Power Point chart, the value then was approximately $3.9 billion.
This indicates an additional loss of hundreds of millions of dollars since since Executive Vice President Tallman Trask gave us his last, oblique accounting, saying in March the endowment stood "just north" of $4 billion.
Looked at another way: the endowment totaled at $6.1 billion at the end of the 2007-2008 year. It apparently was around $3.8 billion at the end of 2008-2009, that is, June 30, 2009.
That would point to an astonishing drop approaching 40 percent!!!!! Repeat: this is based upon a Fact Checker estimate of current value of $3.8 billion. Please note I used the word APPROACHING 40 percent. The actual loss may turn out to be 38 percent; in any event it will be far higher than interim figures from PR VP Schoenfeld who said Fact Checker estimates of 33 pct were too high, and at one time mentioned in the 20's percent.
Ah for the good old days. Less than a year ago President Brodhead said our endowment was "stable" and "secure." And chair Bob "Wachovia" Steel smiled and said our endowment wasn't collapsing like other schools!!!!
The endowment money is invested along side of pension funds and massive Health System surpluses. All must have suffered a similar decline. No one has ever given us the total -- only Fact Checker has estimated.
Trask took a bow for the investment practices that pushed the endowment to $6.1 at one point -- aggressive, risky practices that he conceded have now been abandoned to the extent possible. Many hedge funds and private equity situations do not allow withdrawals, and some even require new money to be put into the very investment that flopped. Fact Checker believes Duke was obligated to the tune of $2 billion in new money when the market fell apart.
Disappointing a questioner in the audience, officials said the four month old stock market rebound has not helped Duke, since it now has only 5 percent of its investments in US companies. The great majority is in hedge funds and private equity, which have continued their tumble.
-- TWO, THREE MORE YEARS OF CUTS
Because of a complicated formula involving the averaging of the value of the endowment at the end of three previous years, Duke is still spending from its endowment as if the principal were increasing -- as it was in 2006 and 2007 -- years embraced currently in the formula.
When the formula embraces years in which the endowment has lost value, like 2008 and 2009, the amount available to spend will also plunge. Fiscal 2012 and 2013 were identified as critical years.
There was no discussion of abandoning the formula -- spending more now at the expense of future generations. Some endowments, most notably at the Getty Art Museum, have done that.
-- FEDERAL MONEY - don't count on it
Another Power Point chart showed a significant amount of money coming to the university from grants. Questioned, one official said this reflected an influx of stimulus money -- he did not say how much of course -- and warned the gravy would run out.
There was no discussion of the level of giving, discussed in Friday's Chronicle lead. Congratulations Chronicle for getting a significant story!!!! I got no idea how gift giving was lest out, or why, of a review of Duke finances.
This Chronicle article needs a follow up to examine specifically the effect of cutbacks in donations by The Duke Endowment, a separate entity that is the university's largest contributor. In fact, the statistics in today's Chronicle do not reflect any of that coming cutback.
There is also need for a follow up on a key number: how much was donated for permanent endowment (as opposed to current spending for projects). That will tell us a great deal about the strength of the University that today's Dukies are leaving for their successors.
VP for human resources Cavanaugh said every one at Duke is working harder. He did not specifically explain how this is apparent among faculty, since Fact Checker does not know of any who have added to their teaching load, which is very very light when compared with other universities.
Once again, this briefing was conducted by five white men. A moderator from the administration and the four ranking officials: Trask, Lange, Cavanaugh and Treasurer Hof Milam. When Professor Henry Gates (of Harvard fame, in a misunderstanding with a police sergeant this summer) was at Duke, he said he felt like he was on a "plantation." At the time Fact Checker scoffed; now Gates has my apology.
Milam, whose name appears only once in the past several years in Chronicle archives, gave the most detailed financial explanations, often saying more than was known. Get the hint, Chronicle?
Once again, Duke proved it could not run a program in an auditorium and put it on the internet simultaneously. It ought to hire some 4th or 6th grader who gets his U Tube videos and their audio tracks nice and clear. Trask, who seemed to mumble anyhow, could not be understood on line. Others had the same problem with their microphones. All this has been previously reported to university administrators at the very highest level.
And all this focused anew on a question Fact Checker raised a few days ago, after President Brodhead related no new information and was left dangling, looking weak and indecisive, in an "interview" that consisted of questions about Duke's financial health submitted in advance by employees, filtered by the PR people. He deserves better staff work, including an opportunity to release information -- however incomplete -- like his subordinates related yesterday.
Thank you for reading and supporting Fact Checker. GO DUKE.