President Boren says university has policies in place to cut costs during recession

By Meredith Simons
Staff writer/The Daily

Editor’s note: This is the first in a three-part series about OU’s efforts to deal with the economic crisis. Today’s article addresses the university’s cost-cutting measures.

Wall Street sank again Monday, with the Dow Jones industrial average sliding 7.7 percent on the same day that an economic research group officially declared the United States economy in recession.

Across the country, universities are struggling to cope with the effects of a recession that has endowments shrinking and donors, students and parents scrutinizing their spending.

At the University of Georgia, student learning center hours have been reduced to cut costs, while the University of Hawaii is turning off the air conditioning during nights and weekends, according to the Chronicle of Higher Education.

But OU administrators have expressed confidence that the university will be able to survive the financial crisis without implementing any drastic measures.

Looking ahead

OU President David L. Boren said he began to prepare for an economic slowdown months before the stock market began to slide in September, and he has been preparing the university to withstand a financial shock since this summer.

Boren said while he wrote and promoted his book “A Letter to America,” his ideas about the American economy took shape in a worrisome way. He felt the United States’ debt was out of control and a financial crisis “wasn’t a matter of if, but when.”

When the subprime mortgage crisis began to accelerate just as Boren was speaking to audiences about his book, which covers economic issues, his fears deepened.

“Things just crystallized in my mind,” Boren said. “You can’t spend a trillion a year and not pay for it and not eventually have a day of reckoning.”

At the time, OU was preparing a slate of new construction projects and engaging in a hiring spree that had brought on so many additional faculty members that 100 of them had been left without adequate office space.

“I kept waking up in the night during the summer,” Boren said. “I would wonder, ‘Should I start digging?’ ‘Should we keep hiring?’”

He eventually decided the answer to both those questions was no.

Dodging a credit crunch

During the summer, Boren convened a meeting of top administrators and told them to prepare for an economic slowdown.

He decided to hold off on any new capital improvement projects that would require the university to issue a large number of bonds.

Bonds, which are essentially loans with a set interest rate, have become less attractive as credit markets have tightened and interest rates have gone up.

The move has delayed several construction projects that have been underway for years, including the new aquatics complex and a new building for the School of Social Work. Boren said it could be another year or two before construction starts, even though the projects have been approved by the OU Board of Regents and private fundraising has begun.

“We’ve been drawing up architectural plans for several of these things, and we’re ready to go,” Boren said. “But we’ll just keep our powder dry until the markets get better.”

Although Boren and administrators have decided to limit new construction to privately funded projects, the university won’t be able to avoid issuing bonds entirely. Close to $80 million in bonds is needed to complete construction that is already underway.

“You can’t leave the research building with a roof not on it or the dorms not completely finished just because we’re in the middle of an economic crisis,” Boren said.

In order to avoid issuing bonds at highly unfavorable credit rates, university officials have made an arrangement with the OU Foundation that will allow the foundation to loan the university money if necessary.

Instead of issuing bonds it would have to repay with a 10 percent interest rate, the university will be able to borrow money from the foundation at about 6 percent interest, then convert the loan to bonds when the credit market improves, Boren said.

Cutting back

In addition to limiting new construction projects, Boren has also instructed administrators to limit the hiring of new faculty and staff for all but a few positions.

He announced in August that the university would be under a hiring freeze until the economic situation improved. In September, he downgraded the hiring freeze to a “chill” and said that while some positions would be filled, most hiring would have to be put on hold.

“We’ve had to replace about a dozen people, but that’s different than 75 or 100,” Boren said.

Boren also instructed colleges and departments to trim about one percent of their budgets for redirection to the general budget. Administrators were asked to postpone hiring new faculty or buying new equipment.

As a result, the university has spent close to $5 million less this year than it had at the same time last year, Boren said.

Administrators are also looking to keep costs down for the rest of the fiscal year. Officials have locked in future prices for natural gas, a move that is expected to keep utility costs down during the winter. A sustainability committee is researching ways to reduce energy use on campus, which will be good for the environment and OU’s balance sheet.

Problems and priorities

Boren said as he and other administrators work on OU’s budget for the next fiscal year and grapple with the shifting realities of a nation in recession, their goal is to produce a budget that will keep tuition and fee increases low and allow the administration to avoid laying off any faculty or staff.

Boren said he does not expect to be forced to lay off employees, but he is urging prudence in the budget-making process to ensure that layoffs aren’t necessary.

He is also hoping to avoid tuition and fee increases but said he can’t control how much money OU will get from the state, and therefore how much it will have to get from its students.

Boren said he would like to keep tuition and fees flat next year, but if the university is forced to collect more money from its students, his goal is to keep any increases to less than 5 percent.

Tuition and fees increased 9.9 percent this year.

Boren and other Oklahoma university presidents have proposed a deal that would guarantee a freeze on tuition and fees at Oklahoma’s public colleges and universities if the legislature appropriates an additional $80 million to higher education.

State officials have expressed skepticism that so much money will be available, but Boren is hopeful.

“The last thing we want to do is to have to raise tuition on our students,” he said.

Fast Facts: OU’s response to the recession

Since the economic crisis began, OU administrators have taken several steps to save the university money, including:

Delaying construction on projects funded principally by bonds, including the new aquatic complex and a new building for the School of Social Work
Putting a “chill” on hiring to limit the number of new faculty and staff positions that are filled
Trimming department budgets by one percent and redirecting savings into the general budget
Locking in utility prices for the winter
Proposing an $80 million deal that would freeze tuition and fees for Oklahoma students.