Q&A: Tim Walsh on Duke's budget

March 6, 2017

As Duke’s vice president for finance and treasurer, Tim Walsh oversees an array of financial and operational functions, ranging from accounting, procurement, and real estate to merchandise and licensing.

How big is Duke’s budget, and how tuition-dependent is Duke?

On the campus side, it’s about $2.5 billion. That includes research, at about a billion dollars. The health system is about another $2.5 to $3 billion. In terms of tuition dependence, Duke is pretty consistent with peer institutions. Depending on the year, net tuition represents 16 to 18 percent of the university’s total revenue.

Is there a common misperception around Duke’s financial model?

Probably the idea that the university has excess money, a misperception driven by the “sticker price” of our tuition and the size of our endowment. It costs far more to educate our students than that sticker price. People also think we make money on our research, but we spend more on the research enterprise than we get as reimbursement from the sponsors of the research. Our model survives on fundraising; DUMAC [Duke’s independent investment management company]; and the health system, which generates resources that it then plows back into advancements in patient care.

Individual stock portfolios have been doing well, but Duke’s endowment earnings have taken a hit recently—and not Duke’s alone. What explains that?

The reality is that the strength of the economic environment is inconsistent. Wall Street represents just one aspect of a complex economic environment, major segments of which are still struggling. DUMAC maintains a fully diversfied investment portfolio for Duke. Even though recently our returns have lagged relative to returns seen in the U.S. stock market, we’ve had great success over the past twenty years across our more diversified investment base.

Duke is thought to be pretty decentralized. How does that play out in budgeting?

Over 98 percent of Duke’s budget is controlled by individual units, not by the central executive body of the university. We want the deans and department heads and program leaders to be able to make most of the resource-allocation decisions, since they are best positioned to do so in their fields of expertise. It’s no coincidence that the very best universities in the world tend to be decentralized. Centralized decision-making can be efficient, but that doesn’t mean you’re ultimately placing money in the right spots.

You led Duke through a cost-cutting exercise during the global financial meltdown. Have the lessons stuck?

Yes, that culture of cost-consciousness has survived out of necessity for virtually all of our schools. I’ll give you two examples. We continue to watch administrative staffing very aggressively, even as faculty numbers expand in some areas with program investments. And in the past, we often had decentralized units creating their own purchasing deals with outside vendors. Now we have a purchasing model that leverages technology to ensure that those units take advantage of our institutional scale and contracts to find the best prices that Duke can possibly achieve.

What concerns you as you look ahead?

The outlook for investment income, which has been such a huge driver of our growth over the past twenty years, is the most concerning. Everyone sees a period of low growth at least for the next three to five years. In that context, we will certainly need to be more deliberate about our priorities, as we simply can’t afford to do everything. The university’s financial model will remain pressured on other fronts, including research funding for our faculty and affordability for our students.

The health system and the university—particularly the medical school—have a mutually dependent relationship, and there are very real threats to the financial model of the health system as well. We have a giant medical infrastructure. Together the health system and the medical school represent 75 percent of all the financial activity of Duke each year, so the continued success of those units is also of paramount importance.

Are we still going to see construction cranes as a consistent part of the campus scene?

It won’t be as chaotic as when we had construction at the same time with the library, West Union, and the chapel. But we have an undergraduate housing initiative, which includes new residence halls on both East and West Campus and the back-to-back renovations of Crowell and Craven quads. We have an academic planning process that, among other things, is putting an emphasis on building up the sciences. And we have the arrival of our new president, who will bring his ideas and energy to these initiatives and build upon all we’ve achieved under Dick Brodhead’s leadership. So Duke is certainly not going to be standing still.