AUC Takes Measures to Vanquish Budget Crisis
University freezes hiring, accepts more students, expands parking hors, cuts down on expenses.
By: Ahmed El-Sebaie and Hana Afifi
The university took preliminary measures last week that are expected to generate over $5 million to overcome the forecast $9.7 million budget deficit.
The administration took the decision Tuesday to freeze hiring of faculty and staff, said Brian MacDougall, executive vice president for administration and finance, adding that this measure will generate $3 million.
“Positions are closed now,” MacDougall told the Caravan, adding, “When we [plan] Fiscal Year (FY) 15, we can reopen vacancies.”
The measure indicates that vacancies will be on hold until the university overcomes the budget crisis, explained MacDougall.
The administration took the decision to adopt such measures after the Commission on the Financial Crisis met Tuesday.
“[The Commission] reviewed the list of options and understood that these measures would need to be taken by the administration,” said MacDougall clarifying that the Commission is not a decision-making body.
The administration will also freeze professional development conferences in Europe and the US for faculty and staff, he said.
This measure along with stopping consultancy services and social events hospitality could save $1 million, said MacDougall, adding that there are some exceptions like paying for audit services for FY 14 from the budget.
The university also took the decision to freeze capital spending until July 2014, which consists of renovations and purchasing equipment. According to MacDougall, this will generate more than $1 million.
He added that AUC would also stop purchasing agendas and other gifts, which will save a further $40,000.
The university will also tighten up its policy on providing mobile services for staff, which could save $20,000, said MacDougall.
He added that the administration took the decision to extend paid parking hours to 6:30 p.m. as of Feb. 1, 2014, which could generate $30,000. Students are currently required to pay parking fees until 4 p.m.
AUC TO ADMIT MORE STUDENTS AMIDST CONCERNS OVER QUALITY OF EDUCATION
The university will also admit more students into the university. The Office of Admissions aims at accepting 320 students, but they will try to increase this number to 350, MacDougall said.
The additional 30 Egyptian degree-seeking undergraduate students would generate $300,000 for the Spring 2014 semester, assuming that each would pay approximately $10,000, MacDougall added.
AUC admitted 1,295 first-time freshmen in the Fall 2012 semester, among which 965 first-time freshmen enrolled (part-time and full-time), according to the university’s Factbook 2012-2013.
Concerns were raised at the university’s budget deficit forum last month regarding the effect of admitting more students on AUC’s academic standards.
“We will not lower our admission standards,” said MacDougall. Enrollment staff could contact students who met the Fall 2013 admission requirements but could not be admitted to the university as it had already reached its maximum capacity of newcomers, MacDougall added.
He added that the number of actual students compared to the predicted number for Fall 2013 decreased by 370 international and Egyptian students, out of which around 320 were international students who could not come because of the travel ban, said MacDougall.
This accounts for the forecast loss in tuition fees and enrolment regarding Fall 2013. However, further Egyptian undergraduate degree-seeking students withdrew from the semester, he added.
When hundreds of Egyptian students withdrew from the Fall 2013 semester, this affected the predicted number of students in Spring 2014 dramatically, said MacDougall.
MacDougall said that the administration was told that many Egyptian students transferred abroad because their parents thought it was safer, after the unrest in Egypt during the summer of 2013.
“[Some Egyptian students] found it easier and cheaper to go to North America and get a good quality of education that gets you a job. AUC is no longer competitive,” said Pandeli Glavanis, chair of AUC Faculty Senate.
Glavanis added that the fees are increasing and employers are no longer interested at hiring AUC graduates. Many parents are starting to realize that the investment they make by paying AUC fees for their children is not worth it, he said.
The executive vice president explained that the drop of the number of students by 370 students caused forecast tuition revenues to drop by $3.7 million; considering that each student pays around $10,000.
The university foresees a further drop in tuition income For Spring 2014 as it is expected that 600 less Egyptian and international students will enroll compared to what the administration expected when it was planning the budget for FY 14.
Overall, this makes the loss in revenue from the tuition of Spring 2014 over $6 million, said MacDougall.
CHIEF INVESTMENT OFFICER: GOING BEYOND THE 5% CEILING OF ENDOWMENT SPENDING REPRESENTS A VIOLATION
In last month’s forum, a professor suggested that the university draws 7 percent interest rather than 5 percent out of AUC’s $550 million endowment, arguing that this would reduce the forecast deficit by half.
In response to this suggestion, Lisa Anderson, AUC president, said that it is an option that the Board of Trustees would have to look into, adding that it is not recommended as the university wants to sustain the endowment for future generations.
AUC’s Chief Investment Officer (CIO) at the New York Office, Michael Stambaugh, told the Caravan in an e-mail interview, that pushing the current 5 percent in endowment spending by 2 percent to spend 7 percent would represent a “violation.”
“The cornerstone of endowment management is the concept of intergenerational equity where the investment staff, administration and board must carefully balance two opposing claims: the current needs of the institution and its constituencies [as opposed to] the obligation to preserve the endowment for future generations,” said Stambaugh.
MacDougall said that the university “would not want to” use more of its revenues from investments to account for the forecast budget deficit.
He added that the endowment is already half of what it should be; the investment portfolio is $550 million, while it should be $1 billion.
MacDougall added that the university wants the total value of endowment (the capital) to keep growing so that the investment income grows too.
“You don’t want [the endowment] to deteriorate,” said MacDougall, adding that the overall endowment needs to increase, as the prices and market value rise.
“An invasion of the endowment beyond the spending rule of 5 percent would violate the intergenerational equity concept and would weaken the financial position of the University going forward,” said Stambaugh.
The CIO added that the 5 percent spending rule is equal to around $25 million, which MacDougall said is calculated from the average of the market value of the endowment over three years (2012, 2011 and 2010 for FY 14).
He explained that this amount is part of the annual return from the investments, which comes in terms of cash and dividend, not the fixed endowment capital.
On Dec. 31 of every year, the university takes the 5 percent, which corresponds to the market value of the endowment, said MacDougall.
“The university would always want the annual growth in the endowment as measured by investment portfolio to be higher than the 5 percent draw. The current target [of 7 percent] will be subject to ongoing review, but the principle of earning more than you use or spend will be maintained,” MacDougall told the Caravan.
Stambaugh added that AUC investments have been strong this Calendar-Year-To-Date (CYTD), as the university made around $60 million. He added that through Nov. 30, the university’s fund witnessed approximately a 12.7 percent increase.
“The $550 million refers to aggregate assets and includes the endowment ($450 million) and USAID ($100 million) pools of capital,” said Stambaugh.
Stambaugh added that AUC has lost around $4 million this CYTD in fixed income securities which represent 20 percent or $100 million of the $550 million overall endowment.
However, he added that the losses that the university made “have been offset by the gains” in other areas.
According to Stambaugh, AUC has investments in areas including real estate, natural gas, loan equities, common stocks and bonds.
