----------------------------PACERM INTERIM NEWSLETTER----------------------------EMERGING RISKS – April 2009
1. EXTENDED FINANCIAL CRISIS – Summary of PACERM Discussion of 3/3/09
a. Global Context
Banking, housing and financial markets all in multi-year correction. Anticipate long slow grind to
recovery. Inflation risk probably low, but with industrial capacity falling, there is chance for deflation.
Next to fall: commercial real estate market; short term lending that is coming due next two years.
The big questions: How long will this last? How long for the whole world to “de-lever”? How well will
the stimulus package work?
National Association of College and University Business Officers (NACUBO) - Equity markets and
state revenues down; state appropriations decreased, while more financial aid is needed.
Unemployment up, which drives need for more financial aid, annual giving down.
Federal deficit up, which may impact/reduce federal grants in the future.
b. UW REVENUE PROJECTIONS AND ASSUMPTIONS
Core Education - Decrease next two fiscal years, then flat to moderate increase; mix of several
sources of funds:
State General Fund reductions; federal stimulus funds may be offset by additional legislative cuts, so no
net gain. Possible short term increase/surcharge in tuition above 7% cap. Other federal stimulus funds,
such as Pell Grant increases, may help offset reduction in scholarships from endowment; may help
students mitigate tuition increases.
50% reduction in Endowment distribution from FY08 to FY10, then flat.
Indirect cost recovery has been decreasing slightly due to mix of private grants at significantly lower
overhead rates. Federal stimulus may bring additional $200M to UW to spend in FY09-FY10 at full
indirect cost rate- a “sugar rush” for short term. Future federal research funding may decrease in order
to balance budget/ reduce deficit.
Educational Outreach and Summer Qtr may see moderate growth.
Medical – Moderate growth based on pro forma projections. Unknown impact from changes in payor
mix, unemployment/loss of health insurance; drop in elective surgery.
Non-Medical Auxiliaries - ICA, Housing/Food Services, Parking, others. Decrease next year, then
moderate growth.
Research - Assumption of moderate, steady growth in federal sponsored research. Flat projection for
state/private research. Federal stimulus may bring additional $200M to UW to spend in FY09-FY10;
requires resources to ensure timely action;, compliance with additional report requirements, HIPAA
rules, matching requirements may take funds from other areas. Future federal research funding may
decrease in order to balance budget/ reduce deficit.
PACERM INTERIM NEWSLETTER / EMERGING RISKS – April 2009
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EXTENDED FINANCIAL CRISIS – PACERM Discussion of 3/3/09 continued
c. MANAGING EXPENSES
Despite reduced revenues, UW under pressure for expense growth—desire to maintain salary
levels, benefits. How do we manage growth in expenses in the areas of activities we need to
do? Old model of state recovering and putting funds back into higher education may not
happen this time, due to the depth and length of economic downturn.
Research: new hires, young faculty struggling to win grants; may have easier time of it next
two years with federal stimulus increases, but then will be challenged. Danger that
departments “leverage out” their central resources to match/attract sponsored research funds.
How to communicate with faculty/administrators and get ready for cuts in central admin
services, prepare for staff layoffs. Will mean that some work will not get done at all; other
services may have long wait times; few choices, some work practices will have to change.
How to communicate with faculty/administrators and get ready for cuts in central admin
services, prepare for staff layoffs. Will mean that some work will not get done at all; other
services may have long wait times; few choices, some work practices will have to change.
TA reductions; may see more post-docs working here, they will not have opportunities to hire
elsewhere.
d. MAKING CHANGES – SURVIVING THE CRISIS
Not likely to return to the way we were before global financial crisis. Expunge “recovery” as
goal/plan. Need to “RE-SET” how we think about the institution and how we do business.
Need a new financial model. Look at UW “holistically” – we tend to manage now in boxes and
stovepipes; look at our state, federal, private sponsor sources of funds separately, but need to
operate more like a private institution. For example, perhaps research needs to fund its own
infrastructure needs. Integrate more. Extended global financial crisis is a mega-risk, and we
should be looking at: who we serve; how we serve them; and what are the dynamics of the
cost of service.
The “magic ratio” between how we optimize and leverage what we do with continually
decreasing resources. Over the next 5 to 10 years, need to redefine “productivity.” Be more
accountable to the public, do a better job telling how we do our business, being more
intentional about our undergraduate mission. Tenure under question by the public; need to
demonstrate how modern tenure “protects the right to pursue unpopular topics,” and create a
post-tenure review of productivity.
PACERM INTERIM NEWSLETTER / EMERGING RISKS – April 2009
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MAKING CHANGES – SURVIVING THE CRISIS (continued)
UW-Bothell and UW-Tacoma may be at greater disadvantage than Seattle campus. Created
with notion that state will fully fund the build out and student enrollment growth; that worked
for first 18 yrs but not going forward. Endowments also at greater risk because they are newer,
subject to more loss. All of this risks the build out plans.
Nationally, everyone is dealing with the same thing. How can we take competitive advantage.
We’re not going to raid other institutions, but we can come out ahead in market share.
Need to review the assumption that we need to build to keep taking more students. Over next
few years, demographics for undergrad age range will be going down. After that, changes in
populations and different expectations for post-secondary education are lower. May find
ourselves competing for the best students within ten years. Economy will pick up, jobs will be
available. Students will choose to work rather than go for degrees or return to school.
Make investments in places that will get us intellectual property rights.
2. Emerging Risks
a. Federal – ARRA/Stimulus Funding and Requirements
Colleagues around the county also see the potential downside to the boost in federal spending on
sponsored research. The Chronicle on March 25 headlined, “Universities are Wary of Drawbacks to a
Huge Boost in Federal Spending.” “The need to prove the job-creation value of the stimulus law has left
colleges facing an unprecedented level of paperwork and regulatory interpretations in tallying how
many workers benefit from a particular project.” “The stimulus money can mean huge disruptions in
budgeting. . . . [when] it goes away in three years.” These opportunities and impacts will be worth
keeping an eye on in our future PACERM discussions.; please bring whatever thoughts you have or hear
from colleagues here and around the country.
b. State budget cut impacts
Our COFi Council [Compliance-Operations-Financial] discussed risks they anticipate from the coming
cuts in our state budget, notably:
risks around how we manage the layoff process, the increased potential for grievances and
claims; and
future compliance risks, greater potential for fraud due to staff cuts, no separation of
responsibilities, checks and balances especially in small units and as central compliance services
are cut.
3. Regulators on campus
COFi status report of March 27 (attached) notes several areas state and federal investigators have
recently been reviewing UW programs.
Date:
March 27, 2009
To:
President’s Advisory Committee on Enterprise Risk Management
From:
Compliance, Operations, and Finance Council
Re:
Status Report
Regulators on Campus – a standing agenda item provides council members with the opportunity to
share what is happening in their respective areas. The following reviews were mentioned since we last
reported to PACERM:
The Department of Energy is performing a Title IX audit of Physics.
The Office of Federal Contractor Compliance is performing an audit of our affirmative action plan and
non-discrimination policy.
The Office of Biotechnology Activities (OBA), which is part of the National Institute of Heath, is
performing a review of our Recumbent DNA Research program.
The US Department of Agriculture (USDA) is overdue for their annual visit to our animal labs, and
should be here at any time.
The Washington department of Labor & Industries is reviewing a new safety complaint at Harborview
Medical Center, two other reviews are pending.
Veterans Affairs (VA) completed a review of the IRB process (i.e. the Review Board for the protection
of human subjects). We are still waiting for the final report.