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On a late afternoon in September, with summer very much in the air, the Duke Symphony Orchestra has just finished its traditional opening concert on the East Campus lawn. A half-dozen freshmen head to the scene just in time for the finale—the inevitable "Stars and Stripes Forever." One of them asks, "Is there free food here?" His friends weren't sure. But, they should have surmised, this is not the year for free food.
For a decade or so, higher education had been on a seemingly unstoppable roll, in happy harmony with the rest of the U.S. economy. Over the ten years ending June 30, 2008, Duke's $6.1 billion endowment had been growing at an average annual rate of 15.6 percent. That largesse was put to work. Aiming to keep higher education affordable, Duke, like many top-tier institutions, enhanced financial-aid packages. New programs grew from new thinking about research and learning, notably DukeEngage, which funds students in civic-engagement projects around the world. At a September faculty meeting, George McLendon mentioned a key measure of intellectual growth over his five years as dean of the faculty of Arts & Sciences: an increase of almost fifty tenured or tenure-track faculty members.
And the bricks-and-mortar expansion (with architecturally pleasing stone included for good measure) is even more striking: a new library building, a new engineering complex, a new science building, new and revamped athletics facilities, an art museum, and physical growth in schools ranging from divinity to business.
Today, though, campuses are no longer awash in a wave of prosperity. They're reeling from the shock wave of the Great Recession.
This fall, Harvard University reported that its endowment had plunged 27.3 percent in the past fiscal year. Harvard, in addition to halting a huge campus expansion plan, had already frozen nonunion salaries, offered voluntary retirement incentives for staff, and, in June, announced 275 layoffs. Yale University suffered about a 30 percent loss in its endowment. Yale president Richard C. Levin alerted the Yale community to expect "another round of reductions."
Earlier, Yale had anticipated that some 300 employees would be laid off; as it turned out, most of its reductions have been achieved by leaving vacant positions unfilled. At the ten University of California campuses, thousands of students, faculty members, and employees turned out to protest budget cuts, unpaid faculty furloughs, and tuition increases.
Duke was not immune. After all those years of growth, the university's endowment suffered a 24.5 percent loss in fiscal year 2008-09. (Duke's endowment still grew at a 10.1 percent average annual rate over the last ten years, a rate that places Duke second only to Yale.) Duke's giving total for fiscal year 2008-09 dropped 22 percent from the previous year, from $386 million to $302 million; the number of donors was about the same. Contributions to the university from The Duke Endowment, historically the largest donor, fell from $77.7 million the previous year to $40.3 million. Some of the giving from The Duke Endowment, and from other sources, was for particular projects, the university's Financial Aid Initiative among them, and wasn't bound to be repeated. But for The Duke Endowment, a private foundation based in Charlotte, as for every charitable organization, philanthropy was taking a tumble with the financial markets.
Those aren't surprising results in a stressed economic climate. In 2008, the average individual 401(k) account lost 28 percent of its value. According to the Federal Reserve, in the third quarter of last year, the net worth of American households fell by 9 percent—the largest amount in more than a half-century. For the full year, household wealth dropped $11.1 trillion, or about 18 percent. Most of the wealth was lost in the holdings of financial assets like stocks.
Duke is in a three-year effort to recover $125 million—$125 million, that is, less than what the university would be spending not just for what it's now doing but for what it would like to be doing. So part of Duke's response hinges on cutting back current expenses; part of it hinges on scaling back its plans and looking for other revenue sources.
At the same time, the university's spending policy calls for paying out a fixed rate, currently 5.5 percent, of the average value of the endowment over a three-year period. (In flush times, the board of trustees has occasionally limited the amount of endowment payout from one year to the next. More recently, Duke has been using accumulated reserves—the equivalent of a household's "rainy-day fund"—to avoid more severe cuts.) Given the dropping off in endowment returns, the next two budget years will be increasingly tough at Duke.
"Calibrating the size of the problem is quite difficult," says Tallman Trask III, executive vice president, "in part because the markets are moving all the time." The markets are up since the initial $125 million calculation, "but other things are down, including big gifts," adds Trask, the chief administrative and financial officer for the university. "I didn't ascribe a great precision to $125 million in the first place, and I'm not ready to ascribe a great precision to any alternative number yet."
Trask co-chairs the Duke Administrative Reform Team (which goes by the assertive acronym DART), a group of administrators, faculty members, and staff members that reviews ways to re- duce costs and improve efficiency. There's new scrutiny around energy, for example: In the winter buildings will be colder and in the summer, warmer—about two degrees in either direction. There are now strict guidelines for charging business meals to the university. One faculty member, in a recent conversation, couldn't help observing that Durham's finer restaurants are looking a lot less crowded, in part because the Duke corporate credit card is no longer so easy to reach for. Duke also will no longer fund home Internet services for faculty or staff members or pay for subscriptions or memberships in professional organizations.
At the same time, Duke is innovating in the interest of budget relief. It's converting to Voice over Internet Protocol (VoIP), a phone system that takes analog audio signals of your voice and turns them into digital data. In essence, VoIP uses a standard Internet connection and eliminates the need for dedicated phone lines and switching equipment—an estimated $2.7 million annual savings.
Before heading out for a run one hot September afternoon, Kevin White, who became Duke's vice president and director of athletics in the summer of 2008, contemplates his department's own economic innovations. Talking in his Schwartz-Butters Athletic Center office, which offers a sweeping view of Duke's athletics infrastructure, he employs the vocabulary of a business thinker, motivator, and citizen of the campus: "reshuffling the deck," "reprioritizing,""working smart," "being proactive," and "being true to our mission." White says, "We're preparing for the worst and hoping for the best. But the idea is to get through this period in an even stronger position."
Last spring, White worked with colleagues to craft a "Financial Exigency Plan." The plan envisions six levels of financial crisis—from the seemingly manageable pressures produced by the current downturn to shortfalls significantly greater than $5 million—along with accompanying actions. The plan would protect student-athletes and "the student-athlete experience," avoid layoffs until other money-saving methods are explored, and consider reducing the number of sports only as "a last resort."
Right now Duke Athletics is in the first of the six levels. The department has imposed economies in, among other areas, information technology (only computers that break down will be replaced and only then if other computers aren't available), print production and postage (primarily cutbacks in media guides and other publications), entertainment (including game-related hospitality and banquets), ticket distribution (tighter restrictions on complimentary tickets), training tables (reducing the total number of training-table meals served and the cost per meal), and team travel (negotiating group rates more aggressively).
Athletics is trying to increase revenue, "but in an environment like this, it's pretty difficult," says White. Shortly after he arrived, Duke and Nike Inc. reached a ten-year sponsorship agreement that will supply all twenty-six teams with uniforms, footwear, apparel, and equipment. Nike will also provide cash compensation annually to the department.
More recently, Duke completed a long-term marketing and media-rights deal with ISP, a Winston-Salem-based company with a college-sports focus. ISP will oversee the Duke Athletics radio network, the weekly football and basketball coaches' TV shows, scoreboard and stadium advertising, and GoDuke The Magazine. Capitalizing on one of its prime assets, men's basketball, the department is offering more premium seating in Cameron Indoor Stadium, without cutting back on seating (or standing) students.
On the other end of West Campus, geographically and perhaps metaphorically, the Nasher Museum of Art is also adjusting to challenging times—exacerbated by a drop in corporate support. But is this the right moment for buying art? According to Nasher director Kim Rorschach, "The most dramatic drop in prices has been in the over $5 million arena. And we don't play in that game because we don't have acquisition funds at that level. We tend to buy leading edge contemporary art, works in the below $100,000 range. Prices have dropped there as well, but not quite as much as we would like."
The museum is now conceiving all-purpose gallery configurations; in the past it would knock down and rebuild temporary gallery walls for each new exhibition. And it's cost-conscious around loans for those exhibitions. The current "Beyond Beauty" features photographic material from Duke's own Rare Book, Manuscript, and Special Collections Library. "Picasso and the Allure of Language" was organized with the Yale University Art Gallery; most of the works come from Yale collections. For a future exhibition, the Nasher and its counterparts at the University of North Carolina at Chapel Hill and UNC-Greensboro are collaborating for "The World Through Andy Warhol's Lens." Polaroids donated to each museum by The Andy Warhol Photographic Legacy Program will travel, in a grand combination, among the three museums, with the sharing of framing and other expenses.
Rorschach is an alumna of the financially stressed Brandeis University, which made news last winter by announcing that it would shut its Rose Art Museum and sell its entire 6,000-piece collection. The collection includes works by Warhol, Marsden Hartley, Robert Rauschenberg, Roy Lichtenstein, Jasper Johns, Helen Frankenthaler, Willem de Kooning, and other leading art figures of the last century. Brandeis officials have since backtracked on the idea of closing the building, but the future of the collection remains uncertain.
"I spent many formative hours in the Rose," Rorschach says. "The thought that Brandeis would dissolve it was personally devastating. Happily, many universities very quickly made very reassuring statements about the central importance of art, about the importance of managing collections to the highest professional standards and retaining the confidence of donors and supporters."
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