Fact Checker here. Happy Monday.
This will be a wonderful new facility, and with the Chronicle's discussion of the cost of several medical center construction projects, it's a good time to peer at Duke Health's over-all financial picture.
Up until now, almost all discussions of finance have involved only the educational division of Duke. That's where President Brodhead says it's imperative to trim the annual budget so that it is $125 million less in 2011 than it was in 2008-09. That's where Executive Vice President Trask sees a need to eliminate 1,000 jobs.
Duke Health has its own budget and stream of revenue, almost all of it from patients. And quite a stream it is.
In fiscal 2009, it took in almost $2 billion, and had an operating surplus of $220.3 million. Yes surplus; any other place they'd call it profit, but Duke after all is non-profit so we conjure up another word. The cash flow -- for our accounting majors who understand this -- approached $300 million last year.
These numbers would be higher, but the biggest component of Duke Health, Duke Hospital, has been operating at capacity, limiting growth. Thus one reason to build new facilities.
The above numbers, for the last fiscal year, ending June 30, 2009, represent the 9th consecutive year of good financial news at Duke Health. During the past five years, it's been so rosy that Duke Health was able to transfer to its parent, Duke University, $443.4 million, still retaining more than $1 billion for itself.
Not to mention the annual contribution of $34 million that, generally speaking, flows to the medical school, which is organized under the education umbrella, not Duke Health.
Fact Checker notes Duke Health is about to borrow hundreds of millions, and this leads me to caution about debt.
Duke Health has added about $100 million in the past five years, and now owes $555 million. But that's a tame number given the profits and cash flow cited above.
On the educational side, there is real danger in the judgment of Fact Finder. When Mr Brodhead became president five years ago, our debt stood at $779.4 million. Last June 30 at the end of the fiscal year, it stood at $1,891.5 million.
Let us remember that the Wall Street meltdown had a substantial impact upon our assets during this time, so that combined debt of just over $2.4 billion has greater impact. Net assets totaled $10,524,300,000 at the end of the 2007-08 fiscal year. One year later, June 30, 2009, they had shrunk to $7,513,000,000.
Loyal readers, that's a loss of just about 30 percent. Yes 30 percent gone poof in one year. That's quite a different tune than the songbirds in Allen Building have been warbling: how lucky we were to limit "investment losses" in our endowment to "only" 24.5 per cent in the past year.
Remember this: we have never gotten the total, overall picture from our administration. Who among you has heard the figure 30 percent? You will only find it buried deep in the annual Financial Report, which they begrudgingly posted, two months after peer institutions presented similar reports to their stakeholders.
Higher and higher levels of borrowing have impacted greatly upon Duke's annual budgets -- with interest payments last year alone zooming up 20 percent, one of the largest increases on any line in the budget. We now spend 3 percent of all money Duke receives on interest alone. It's time to blow the whistle!
The careful reader will note that I said "interest payments." We do not pay down our debt. We pay only interest. When the principal becomes due, the plan is to borrow anew to cover it.
Chances are you have not read page 21 of the PDF version, page 23 of the printed, in the latest financial report. It lists the burden that we are passing down to future Dukies.
Details like this in fine print:
In the year 2041, Dukies must come up with $192,665,000 to pay back money borrowed in 2005.
In the year 2044, Dukies must come up with $220,560,000 to pay back money borrowed in 2006.
It goes on, year after year after year, the legacy of this generation to future Dukies.
There is a silver lining in those debt numbers. Duke was headed toward borrowing hundreds of millions more to finance the new Central Campus; that idea has been buried, I thought, or has it been? Dean Nowicki has been discussing a new dormitory, an element of Keohane Quadrangle, without revealing where the money is coming from. Translation: borrow, borrow and pay the carrying charges with room rent. No Steve, no.
Friends, when you hear they are going to borrow, shout NO.
Finally this morning, let me say that I take great solace from the arrival of the new chair of the Trustees, Dan Blue. I concede that I was not initially optimistic about him, but my opinion has quickly changed.
Immediately he repudiated the Steel Rule that blacked out coverage of Trustee news. He alone has spoken clearly about the extent of our financial misery, using the words "dire financial strait."
Compare that, please, with the assessment of the out-going chair Bob Steel, who as campuses all over the nation burned with cutbacks, announced "good news" that Duke was a sunny isle in the tempest. Yes, those two words were his latest on the fiscal crisis at Duke. He rode off into the sunset leaving us to believe the "good news" that Duke was not effected like other universities.
President Brodhead seems at times not to grasp the seriousness of it all. During the tempest, he assured us Duke had a "strong financial foundation," and its investments were "stable and secure." His latest words scare me, for he has just written an essay buried on the website of Duke Magazine that seems to suggest all this is just another normal up and down cycle, that will routinely pass:
"What will the next twenty-five years bring? In spring 2009, the economic crisis looks to be the main thing that will shape the future university. But Duke, which was created on the eve of the Great Depression, has outlasted many a business cycle, and other changes may prove far more enduring."
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