Budget Address to University Senate

Jonathan Holloway
President, Rutgers, The State University of New Jersey

February 18, 2022

Good afternoon. I want to start by thanking Jon Oliver and the late Peter Gillett, who immediately endorsed my desire to speak before the University Senate on the topic of the university's finances. I am also grateful to new Senate Vice Chair Adrienne Simonds for her support. Throughout higher education one often hears about the difficult relationship between university or faculty senates and an institution’s central administration. It has brought me great pleasure from the start of my tenure to know that the senate leadership has been committed to writing a different narrative about how such a relationship could be expressed and experienced. I pledge to you that my administration will do everything it can to be a strong and engaged partner in this new chapter of this relationship. We will not always agree—I believe in aspirations, not mythologies—but at least by being committed to working collaboratively we can move this great university forward.

When we first met I talked about three basic value propositions for my administration: a relentless pursuit of academic excellence, a commitment to the ideal of a beloved community, and a determination to make Rutgers less complex. Today's talk is specifically in service to that third proposition. To my knowledge, this is the first time that the university president has come to the senate to present a broad articulation of the university's finances, to speak to some of its mechanics, and to offer a roadmap of where the university is headed and why. While this may be the first time such a talk is given, it will not be the last. It is my plan, with the senate leadership's blessing, to come to you every fall to offer an annual state of the university address and then, every winter to offer an update on university finances. By building this practice into the calendar, I believe that the intentions, aspirations, and realities that are woven into the university's budget will become significantly clearer to anyone who is curious about where we are headed and why. I also see this as an educative opportunity through which members of the community can better understand the various dynamics related to the budget so that they, in turn, can offer constructive advice on how to improve this community.

Prior to Rutgers, I served in private institutions that didn’t have a tradition of opening their financial books, something I worked to change during my time in those universities. When I got to Rutgers, I presumed I wouldn't have to do that work here since the institution's records were open to the public. Eighteen months later, knowing the university better than I did when I arrived, I understand those who felt frustrated by a perceived administrative failure to be open about its finances. Let me be clear; I do not think for a minute that the university was trying to hide anything. It was not. I do believe, however, that the central administration missed opportunities to make things much less opaque. I am here today to start correcting that oversight. Joining me in this work, and specifically for the Q&A, is Mike Gower, executive vice president and chief financial officer.

Now, as before, the university will continue to share its financial data annually. Each June, we have an open meeting with our Board of Governors to approve our university budget, tuition, and the underlying budgets across the chancellor units. That will not change. Because it will not change I will not be taking time today to delve into granular aspects of our finances. And I will continue to ensure that I and members of my leadership team are available for questions at other times of year as well. That said, I want to point out that Mike Gower's team, in the spirit of working to make Rutgers less complicated, has built a new website (https://finance.rutgers.edu/financial-services/budget) that makes it significantly easier to find information on all of the university finances. Mike joins me in hoping that this new site will be seen for what it is: a clear articulation of Rutgers' finances—from Dining Services to Continuing Studies, from the Agricultural Experiment Station to the School of Criminal Justice, from Camden Student Affairs to the Cancer Institute of New Jersey. Will it answer every single question you might have? I can't claim that it will, but I do know that the site was built to make finding information about the budget radically easier. I applaud the Finance team for its work on this project.

I've spoken about why I wanted to give this overview presentation, what I hope will come from it in terms of a shift in institutional culture, and where you can go for an enhanced and simplified view of the university's budget. What I want to do now is walk you through some general principles guiding the university budget. In turn, this will help clarify how our institutional priorities are connected to the financial outlook of the university.

I start with the obvious: we are living in extraordinary times. The budget under my presidency has been under unprecedented financial pressure. Just 18 months ago, we were looking at a deficit of $250 million—all related to the ways COVID impacted the university's finances. Had it not been for significant infusions of federal and state funds, had we not been able to arrive at agreements with our unions about furloughs and salary increase deferrals, and had it not been for the hard work by everyone in the community to curtail spending wherever possible, we would still be in dire straits.

Will we be OK? Absolutely. But our return to something we all recognize as normal will be slow due to internal and external forces. As we look at the financial trends like inflation, the changing socioeconomic profile of our student applicant pool, political debates about the return on investment of higher education, and state investment in the university, it is clear that we are looking at a multiyear return to normal.

Here are some basic facts:

Our annual budget is $4.8 billion. Revenue comes from state appropriations, tuition and fees, patient services, housing and dining charges, and restricted funds including grants and contracts and student aid. By far the largest single source of revenue is tuition, fees, and associated federal and state student aid. That accounts for over $1.6 billion every year, or just over a third of the budget. Immediately after that are patient care services, at just over 20 percent of the budget.

As a public university we also receive support from the State of New Jersey. When you include state appropriations and state-paid fringe benefits, we receive just over $900 million on an annual basis. This is a lot of money, but it is under 20 percent of our annual needs, and, in my opinion, it is not nearly enough. And while I have an excellent working relationship with Governor Murphy and I know that he wants to do everything possible to support Rutgers, the fact is that state investment in the university is not what it should be. This is a problem that has plagued New Jersey, and the nation, for decades. As of fiscal year 2019, New Jersey ranked 21st among the 50 states in terms of support for higher education per capita. It ranked 40th in the nation in support of higher education when measured against the personal income of state residents. I appreciate every dollar we get from the state—I truly do—but imagine what we could do if the state increased its investment: improved infrastructure, new or refurbished buildings, higher research productivity, and a more accessible institution.

An important source of revenue at any university is its endowment. Rutgers' endowment currently sits at $1.9 billion. It is critical to remember, however, that endowments are not savings accounts. These funds are also often restricted for specific purposes. We can only plan on taking, on average, 5 percent of the revenue generated by the endowment to use for our expenses. Last year, this meant just over $55 million to defray expenses. Again, this is on a budget of $4.8 billion.

Another point about the endowment that is worth making: it exists to support a community of nearly 100,000 faculty, staff, and students. To put it plainly, given the size of the community and its needs, the endowment is nowhere close to where it needs to be. For example, Ohio State has $6.8 billion in endowed funds and Michigan has a $17 billion endowment for their similar-sized communities. One of the reasons I was hired was to change the balance sheet in this regard. As a result, as the limitations on travel ease, I will be on the road as much as my schedule allows, meeting alumni and other potential donors wherever they are, working to reconnect them to the university, and doing what I can to inspire them to begin or increase their support of Rutgers.

These are the facts about the budget. I'll take a moment to address the budget as a concept and then say a few words about the way in which it is fashioned.

When I talk about the university budget, you should know that that term is a bit misleading since it suggests a simple, unified account of revenues and expenses. It is more accurate to talk about the university budget as a compilation of many budgets, encompassing the chancellor-led units and the central offices. The budget process at Rutgers is complex, and as soon as one budget is approved, planning for the next one begins. Similarly, the budget is not uniform—some funds can only be used for certain purposes (gifts, grants, and endowment returns can be especially limiting), other funds are flexible, and yet others are put into reserve for future years’ initiatives.

When the budget process begins, each chancellor-led unit expresses its priorities—a collection of very specific unit needs with an emphasis, where appropriate, on local instantiations of university principles. Budgets encompass a broad range of commitments and aspirations, capturing everything from employee compensation to new programs to debt service for capital projects. My role in the process comes at the very beginning and at the end. It is my job to articulate the university's direction and, in so doing, sharpen attention to its mission—this happens at the start of the process. I also have fiduciary responsibility to be a steward of the university and its finances. What this means is that when the administrative and chancellor-led units requests come in, I am obliged to make choices that reflect a balance between current needs and future plans, always with the long-term financial stability of the institution front of mind.  

And while I have the freedom to make strategic decisions about the direction of resource deployment, it may come as a surprise to learn that the great majority of our expenses are fixed or immovable. For example, the bulk of our expenses is found in our people. Rutgers is enormous and requires tens of thousands to make it run. Although we will always be working to make sure that we have the right people in the right places, we can anticipate that 65 percent of our budget is going to be dedicated to salaries and fringe benefits for our employees.

Another 10 percent of the budget goes to scholarships and fellowships, leaving only 25 percent of the total for everything else. Other costs can't be displaced because to do so would be negligent or it would leave us out of compliance with federal or state regulations. I am talking here about the costs associated with providing support for our students and faculty ranging broadly from our physical infrastructure, including approximately 30 million square feet in nearly 1,000 buildings across 6,000 acres with a presence in every county in New Jersey, to the digital infrastructure that links us all together. And I’m talking about complying with things like Title IX processes and reporting, regulatory reporting of all types, maintaining the proper insurance programs that help us manage risk, and so forth.

Because these are close-to-fixed costs, it is appropriate and necessary to think about the university's revenue streams and the opportunities we might have to grow them. This is something I think about all the time. The hard truth, though, is that we have limited tools at our disposal to make the kinds of shifts in revenues that I believe are needed to put us in optimal financial shape. I've already referenced the main sources: tuition, patient services, state support, research funding, and gifts and endowment. Because of our rightful commitment to keep Rutgers as accessible as possible, it is very difficult to raise tuition to a place that most accurately reflects the costs of running the university. At the moment, inflation is sitting at 7 percent. We also must abide by agreements to increase salaries in the current fiscal year by 5.5 percent (a larger than average percentage to make employees whole after a year of no increases during the pandemic) across most of the represented and non-represented faculty and staff. The simple truth: we cannot raise tuition to match current inflation rates or to cover the cost of rising salaries. The arithmetic is simple, and it leads to a sobering reality: in order to keep tuition as low as possible we must look to other sources of revenue.

The work in this space is challenging. We already know, for example, that state investment is unlikely to increase in a substantial way in the near term, that our endowment is too modest, and that non-endowment giving to the university is not what it needs to be. And we know we can’t cut our way to a better financial model. We need to find ways to grow in support of our ambitions. Despite these headwinds, we remain determined; we are determined to redouble our efforts lobbying the state and federal government for increased support; to help our current and future donors engage in long-term thinking as we emphasize the importance of the endowment; and to be aggressive in making connections to our heretofore non-engaged alumni in order to build a pipeline for giving at all levels.

While we do this work, we will continue to look for ways to increase our revenues in health care and research output—something that is already on a very positive trajectory. With a similar goal in mind, we have just started to reorganize the administration in the corporate engagement space so that we can more effectively pursue strategies that will allow us to deepen our connections to the broader New Jersey business, technology, and innovation community.

However, just as we will be creative in enhancing or generating new revenue streams, there are many areas of the university that will simply never be revenue-generating and should not be expected to be. These areas, which in fact cover almost every undergraduate-focused discipline at Rutgers—are investments for the university. It has been our practice to use the language of “subvention” and “deficit” to describe non-revenue generating units. This approach does these units a disservice since it can suggest that we expect them to generate profits. Going forward, I have asked my administration to recast its thinking on this matter, reconceptualizing non-self-sustaining units as institutional investments that are important elements to the work of the university. To offer but a few examples where this new way of thinking applies: we invest in the libraries, we invest in the humanities, and, yes, we invest in athletics. In their own ways, each of these areas are important articulations of the health, mission, and narrative of the university. There are also important returns on these investments: educated citizens and improved social and economic outcomes, life-changing research discoveries, stronger and closer-knit communities.

On this matter let me be clear: we are not going to do anything clever with the finances; we are not going to cut corners that would run afoul of standard accounting practices. And we are not giving anyone a free pass when it comes to prudent stewardship of resources. What I am talking about is engaging in a semantic reorientation so that we can have a more substantive and honest conversation about how the university uses its resources and why. For this reason, I intentionally have mentioned athletics here.

For too long the entire Rutgers community has been laboring under the illusion that athletics will generate enough revenue to pay for itself and, then, in time turn a profit. Let me disabuse you of that claim. While I would be thrilled if athletics were to cover all of its expenses, it is highly unlikely that it will.

Only 2 percent of major college athletics programs run in the black, and not many more than that break even. The better way to think about athletics is that it represents a commitment by the university that helps tell a compelling story about this institution—one that will inspire applicants, alumni, and friends to learn more about we have to offer as a university in 2022. In this regard, the story-telling capability of athletics far outstrips any other thing that we do at Rutgers. Some of you may not like to hear it, but this is just honest talk. Despite the brilliance of our faculty, the importance of our impressive research breakthroughs, and the many talents of our students outside of athletics, there are no other activities at the university that can summon tens of thousands of people together in person to support Rutgers, not to mention the millions more who will follow us on television or online. What deepens my support for athletics at Rutgers is that we have coaches who are strongly committed to integrity and to seeing their players graduate. I take great pride in the fact that we have one of the top-performing athletic programs in the country in terms of academic performance. I hope you share in that pride.

Finally, for those who remain dissatisfied and would prefer to see the athletics program dissolved in order to redirect funds elsewhere in the university, keep in mind that athletics represents 2 percent of the operating budget. Put another way, dissolving athletics would not solve our budget challenges.

As I move to concluding my remarks, I want to emphasize that through all of this—that which is nothing but hard and that which is brimming with possibility—we remain steadfast in our commitment to access and affordability, and we are determined to find the resources that will support the research and teaching mission of the university. Those will remain priorities in any budget I sign off on. And although there are financial headwinds to confront, I am confident that we will do so successfully. To a significant degree, my confidence is grounded in the fact that the university leadership is becoming increasingly coordinated and focused. The budget planning work that is happening within the chancellor-led units is moving outside of its traditional silos, and inter-unit cooperation is emerging in a way that breaks with past practices. These broad and inclusive conversations will ensure that the university budget reflects our collective ambitions and goals—all of which are united by a pursuit of academic excellence and social mobility. By way of illustration, just last week, the chancellors, a few other cabinet officers, and I were discussing the use of $60 million in discretionary funds that are to be dedicated for strategic purposes. While the specific initiatives will chiefly be funded at the chancellor level, we have all agreed that the funds will be directed toward student aid and scholarships, the launch of new academic initiatives and institutes, faculty recruitment and development, strengthening equity and access across Rutgers, and critical needs for our academic operations, like the enhancement of technology infrastructures that will help us manage our systems and processes.

Because of where my position resides at the university, I necessarily have limited these closing comments to the work happening across university leadership, and specifically among the chancellors. I would be remiss, however, if I failed to mention that I know that every single one of you has an important role to play in the university budget. Whether you head a department or division; whether you run a lab or oversee teaching assistants; whether you work in the trades, health services, or advising; or whether you teach in the writing center or commute to classes…each of you matters to the larger university financial system. So many of you made painful sacrifices to help the university through the pandemic budget crises. That work has not gone unnoticed. And as I have tried to make clear in today's talk, more hard work is ahead. My hope is that this talk and the administration's commitment to make the university's financial status less opaque will be seen as an important step in easing that work. To the extent that we are successful in taking that step, I know that the entire community will be able to move forward with a greater sense of purpose, a greater sense of collaboration, and a greater sense of confidence that Rutgers can become the very best version of itself in the years ahead.

Thank you.