THE UNIVERSITY OFCHICAGO 9 11COEDAN OFFICIAL PUBLICATION ISSUED BY THE OFFICE OF THE SECRETARY OF FACULTIES VOLUME III, NUMBER 10THE UNIVERSITY AND ITS BUDGETNovember 1, 1969This is a special report to faculty, students, andother members of the University community onThe University of Chicago's annual budget. It analyzes the budget in some detail and, in addition,makes a number of observations regarding the fiscalproblems of private higher education in general andThe University of Chicago in particular. The reportwas written by Ben Rothblatt, Assistant to the Provost. In view of the financial difficulties facing theUniversity, the need for such a document seemedobvious. I hope it will be read not only widely butcarefully as well.John T. Wilson, ProvostIn a letter to a colleague, written during theearly years of the University's existence, thenPresident William Rainey Harper described hisbudget-making difficulties in these words:... In the making out of the budget ... a greatdeal of time has been spent in conferring withthe various departments concerning the reappointments for the next year. I wish you couldhave been in the office during some of the days.We are, of course, carrying a good many peopleat a rate which is just above that of starvation.Naturally enough these good people feel thatthey can earn more and deserve more. It hasbeen my function during these days to persuadethese people that they are advancing the causeof science and serving the University. I havesucceeded in most cases in showing them theutter absurdity of being mercenary; the sublimity of self-sacrifice . . .Were he to return to the University today, Mr.Harper would note with pleasure the improvedlot of the faculty, and he would find many otherremarkable changes. But he would have littledifficulty in recognizing the task of budget making,still essentially as he described it in 1894.The art of budgetary planning in a private university has been characterized by a more recentPresident of the University as a "subdivision offortune-telling and witchcraft." To confirm the CONTENTS / December I, 19691 The University and Its Budgettruth of this proposition one has only to conductminor excavations among the ruins of past University of Chicago plans, ranging from the days ofPresident Harper to much more recent instances.Not all plans represent wasted effort. Before theUniversity opened in 1892, President Harper embodied his dream of establishing a great universityin a series of detailed and carefully wroughtdocuments incorporating his plans and their financial requirements, and much of this dream hasubsequently become reality. But building th*.University has been a constant struggle, and nolittle part of the struggle has been financial.Harper's letters and memoranda are poignantreminders of the problems. Could he raise moneyto build a dormitory? Would funds be forthcomingto hire an eminent professor to build a new department? This aspect of university life has changedlittle. The rhetoric is perhaps more subdued, butthe sums are now much larger.Budget planning is, in very simple terms, aquestion of money and its effective utilization inachieving desired goals: how to support the primary functions of the University — teaching andthe discovery of new knowledge — and how todecide on the best use of available funds forcarrying on these functions. All of this is inthe face of growing demands on the Universityto perform still more tasks, which, in effect,means diverting resources from teaching and research to other purposes.The goals and functions of the University andthe way that the University proposes to fulfillthese functions are thus reflected in one of theUniversity's basic planning documents, the annualbudget. The 1969-70 budget of The University ofChicago is a mimeographed document, an inchand a quarter thick. It specifies in detail theincome which the University hopes to receive inthis academic year and projects in equally minutedetail the distribution of these funds over that1same period. Although the budget, dealing as itdoes with approximations of reality, is a formof fiction, it is on the whole deficient in literaryvalue. Much of the language it contains is derivedfrom fiscal custom and strikes the general readeras archaic and quaint, perhaps mysterious. It maybe possible to dispel at least some of this mysteryand a few of the myths associated with it. One ofthese is the University's "great wealth." Another isthe related fantasy that the University has abalanced budget.A budget projects the distribution of resourcesover a period of time, usually one year. It is aplanning document in the sense that it plans theallocation of funds not yet received for specificfuture activities. The budget is sometimes mistakenly perceived as a policy document. It reflectspolicy but does not set policy. If it did, thatwould mean that the availability of certain fundsdetermined what the University ought to do.On the contrary, the budget proceeds from aprior determination of goals and policy. It isthus a link between the financial resources ofthe University — its assets and a set of expectationsof income — and the kinds of activities required toperform the University's functions.Making the annual budget occupies the betterpart of a year and the energies of many people.The first part of this process involves predictingthe amount of income that will be available inthe coming fiscal year (beginning July 1); thesecond part consists of allocating funds basedon this estimate. Total income is the aggregateof student fees, income from endowment, incomefrom patients in the hospitals, private gifts andfoundation grants, government contracts andgrants, auxiliary enterprises, and sundry income.Estimates are based on data received from deansof the various academic areas, the Dean ofStudents, the Treasurer, and other administrativeofficers. These estimates are of varying reliability;some in fact are highly uncertain. And since muchof the income can be spent only for specialpurposes, this fact must also be taken into account.Simultaneously with predictions of income, estimates of expenditures also come from the divisionsand schools, as well as business and servicedepartments.From combined estimates of anticipated incomeand expenditures, a preliminary budget level isarrived at. Since the budget should balance, theincome and expenditure totals are identical. Whenthe total planning figure has been derived, afterit has been presented by the President to theBoard of Trustees for approval, each area of the University is given a tentative allocation tobe used in making its own detailed budget. Thesesub-budgets are then submitted and over a periodof about two months are further refined — notinfrequently involving the kind of interactionso well described by Mr. Harper. After finaladjustments have been made in unit budgets,the Comptroller constructs a consolidated budgetto be submitted to the Board of Trustees in April.Approval by the Trustees means that the budgetis now official for the coming academic year, andthat all the units of the University are committedto both attempting to fulfill predictions of incomeand living within allocations of expenditure. (SeeFigure 1.)Three general observations may put this brief(and necessarily oversimplified) description of thebudgetary process in sharper focus. For one thing,many people are involved in the making of thebudget and the final figures are arrived at onthe basis of full discussion on the part of allparticipants. Secondly, the budget is an aggregate,a collection of sub-budgets of the various University divisions, schools, and nonacademic departments, which in turn are aggregate budgets offurther subunits, such as academic departments.A third point is that the area of discretion isextremely limited. This year's budget is, necessarily, a revision of last year's budget. Most fundsare committed; faculty members have contracts,nearly always longer than one year, many of themlifetime. Buildings exist and must be heated,lighted, and maintained. Pressures for salaryincrements continue; nonacademic salaries in manycategories, for example, are determined by priorcontracts. The cost of materials and servicesincreases. Thus even though the total budget riseseach year, a large proportion of that increase iscommitted to simply maintaining the generalincrease in the cost of living. Very little remainsto make dramatic improvements in particularareas, let alone to undertake new obligations.In 1969-70, the jjptal operating budget of TheUniversity of Chicago is $139,500,032, an increaseof more than $11 million over last year. Thisfigure represents projections of both total revenuesand total expenditures for the overall operation ofthe University. Following are the major categoriesof estimated revenue: $23 million (about 17 percent) should come from student fees. Approximately $21 million should come from patient feesin the University Hospitals and Clinics. Thelargest single portion, providing 29 per cent ofincome (about $41 million), should come fromgovernment sources. These funds are for specific2FIGURE 1Flow Chart of BudgetingEstimatesPreliminaryBudgetTentativeAllocationSub-budgetssubmittedand refinedConsolidatedbudgetprepared income ExpendituresDean of Students OfficeTreasurers OfficeHospitals and ClinicsAuxiliary EnterprisesDevelopment Office AdministrativeDepartments AcademicDepartmentsDepartmentHeads DeansPresidentBoard of TrusteesPresidentV.P. Business a Finance ProvostDepartment HeadsAdministrativeDepartmentsDepartment HeadsV.P Business a Finance DeansAcademicDepartmentsDeansProvostComptrollerPresidentBoard of Trusteesresearch projects, with the largest segment (morethan $15 million) earmarked for the support ofwork in the biological sciences. Investment incomefrom the University's endowment funds shouldtotal $i 1.6 million, about 8 per cent of totalUniversity income. Other income of nearly $16million, much of it from private foundations andtwo-thirds of it designated for specific research and educational activities, should amount to 11per cent. Twelve per cent ($16.5 million) shouldbe produced by the University dormitories, apartments, dining halls, the University Press, theBookstore, and other so-called "auxiliary enterprises." This is $357,700 less than the amountrequired to operate these enterprises. Finally, ifthe budget is to balance, $9.3 million must come3from unrestricted gifts — that is, gifts which maybe applied to operating expenses, as opposed togifts for buildings or other specific purposes. Another way of putting this is to say that the University has a planned deficit of over $9 million,accompanied by the hope that sufficient gift moneycan be raised to meet this deficit. Listing thisitem as "gifts applied" allows the University tohave a budget which, on paper, appears balanced.But underlying this euphemism is a planneddeficit of more than $9 million.If gift money sufficient to cover the planneddeficit is realized and if predictions of income arefulfilled, the University will be able to operatewithin its budget. But many of the University'sneeds are not provided for by the operatingbudget, and these needs can be met only bygifts far in excess of the amount required tobalance the budget. Additional funds are urgentlyneeded for the construction of new facilities andthe renovation of older ones, for increased financialaid to students, and to provide matching funds forgovernment and foundation grants. Further restricted funds are also needed to finance important new academic programs over a period ofyears, as well as to continue support of someprograms whose original funding by grants wasfor a finite period of time. Still more funds mustbe raised and added to the endowment, so thatearnings may keep pace with rising costs. (SeeFigure 2.)Since income, with good fortune, will amountto $139,500,032, it is exactly that sum which theUniversity can plan to spend. This is approximatelyhow it will be spent: about 50 per cent of thefunds ($69 million) will go for instruction andresearch, which for the most part means facultysalaries as well as salaries of research associates,secretaries, and other supporting staff. Add tothis library costs ($3,785,000), student services(over $2 million), and student aid (nearly $11million — over $4 million of which is from government and foundation sources), and the strictlyacademic costs amount to 61 per cent of totalexpenditures, or about $85.7 million. The Hospitalsand Clinics, precollegiate education, and the^ Industrial Relations Center will spend nearly $25million. Maintenance and operation of the physicalplant and the cost of business operations (nearly$10 million) bring the total to about 86 per centof the budget. Auxiliary enterprises account fornearly $17 million (12 per cent of the budget) andthis sum is nearly offset by income. All thatremains is the less than 1 per cent of the budgetrequired for the cost of general administration and the 1.5 per cent for development — the costof generating the gifts that will produce a balanced budget, including the operations of the Public Information Office, the Alumni Association, andRadio and Television, as well as the Office ofDevelopment.The income and expenditures figures just citedare those of the so-called Consolidated Budget.This budget includes income and expenditures fromgovernment contracts and restricted funds, inaddition to funds for the regular, ongoing functionsof the University which are not specifically supported. These restricted funds from both government and private sources are of vital importanceto the University.In the coming year, restricted funds will providenearly $5 million in student aid. In addition, research contracts and grants offer numerous employment opportunities for graduate students, providing invaluable research experience and trainingas well as financial support. A major share of thecost of new construction is provided by restrictedgifts and grants not included in the budget. Oneexample is the Regenstein Library, now underconstruction, which will meet a longstanding needfor a graduate research library in the humanitiesand social sciences. The new library, to be completed in 1970, will house over 3 million books andperiodicals, using the newest methods of electronicinformation retrieval; it will seat 2,260 studentsand provide study space for 250 faculty members.The library will cost $20 million. After an initialgift of $500,000 from the Harriet Pullman Scher-merhorn Charitable Trust, a $10 million gift fromthe Joseph and Helen Regenstein Foundationenabled construction to begin in 1967. Furthergifts included a grant of $3,410,772 from thefederal government. But still to be raised is thesum of $6,500,000, in addition to funds neededfor maintenance.Beyond student aid and funds for construction,restricted gifts and grants make possible a broadspectrum of important research activities in manyfields. All are projects that individual faculty members wish to do and that faculty committees inthe divisions and schools have initially screenedand then endorsed. Grants for research projectsin which faculty have not already expressedinterest are not accepted by the University. Ifrestricted grants were not available, research inmany areas would have to be curtailed, thuslimiting research opportunities for students aswell as faculty. Some would go on in any casebut would require the use of funds now free forother purposes.4t-hOOOOOOOOO^HOOsOiOOOOOONONHCOOO\OOCco~o~oTso'"cm o~oo in oo~o~NONNOOlONOlO0sC0^-isO00Os*-l00*-<Ovo^co^cnP vo th co 10 i-T ,_, OOOOOO O OOfOOCM IO O ^IO oooooo o 00co oooooo o Os O O Osco th iO rJH iO O OOn 00 iO *h "* O*H-^ ^OS IO "* fO o l-»OC) 00 ^ to O oON r-. 00 OS tH 00OS CM rf f^ CM O th ¦^rJH ^ -* CM CMi& I €^ «©= #=> «£= OOOOQO O O OONOOlO^CO CM'^T^TtCCOt— Os CM Tfi£ 1=1P-t oen c318 Ah! 5ien ^ c3 £ SCU o *>e/3. c3en <uc3O <u Cl ^Q SS.S"S.S gco pu, O Q pq & cJo Wa HI -aWbo¦£ w ojr <$'So ^5 3 3 Rj «._§HH hJ C/3 Ph O C/3 °lHI<3 v*1 ph O m «-^ "H G fl) CD o oHCQo O ,_( o 00o o SO oo o CO O SO,— 1 Os CO o ¦t-~Os IO IO o CMCM 00 r-~ CM COO 00 IO SO OsCM O o 8 O O co OO OiO o CO OOOOO 8o IO oooooo o O oooo O O O O IO iO Os oo iO Os vO CO O 00 O CM*- rj< CM vOoo 00 OhioO X— *^ ^ *>• o ^00 t^ Os rj< to oOs o J>- !>. Os th t— IOtH o 1>- CM Oh ^ CO X>- CO SOCO <-H4& CM CM4& 4/9=t51-* <"O o ^ ^OXJa afl O aIo o *5b£^4 Ma;;-KJ 3 a. ^^O c3 pas a81 s«s<u<U i-ic % 2 I111 IoMH p-JIHi^ r obO«o cq 3f-H Od 2 »-.3 <H d en Ou^ enen e§•a a OHSince government and other restricted fundsare self -balancing (that is, expenditures are controlled by income available through grants, contracts, and other funds restricted to specific purposes), they tend to distort the picture of theUniversity's financial situation. A clearer view canbe produced by looking at the General FundsBudget.If government and other restricted funds andauxiliary enterprises were not included, 1969-70expenditures would be just under $75 million(compared to $139.5 million on the ConsolidatedBudget). Further deducting expenditures for theHospitals and Clinics and the Industrial RelationsCenter (which operate on a self -balancing basis)and precollegiate education (which does not) reduces the expenditure budget to slightly under$50 million. This is the General Funds Budget.In one sense it represents the basic Universitybudget — stripped of all government contracts,funds restricted to special purposes, and activitiesin which expenditures are for the most part dependent upon, and equal to, income. It is this basicbudget which does not balance, producing theplanned deficit in the current year of over $9million — a deficit which must be covered by $9million in unrestricted gifts. Additional governmentcontracts and other restricted gifts and grantswould do nothing to make up this deficit unlessthey were for activities already included in thebudget. This year's planned deficit is about $1million greater than last year's and $2 millionlarger than the planned deficit of two years ago.Almost inevitably the deficit will rise each year.(See Figure 3.)So much then for the myth of the balancdbudget.To return to what was described as the "mythof the University's great wealth." As universitiesgo, The University of Chicago is often consideredto be among the wealthiest. Its endowment, witha market value of about $327 million, is exceededin size by those of only four or five Americanprivate universities. Its physical plant cost $177million and would probably cost about twice thatamount to duplicate. Its faculty salaries are verynearly the highest in the nation. Its tuition, although not the highest^ is in the top range. Itseems a paradox that this apparently wealthyinstitution must begin each year with a planneddeficit of such magnitude.It is relatively easy to see that the University'sphysical plant, valuable as it is and necessary asit is to carry on the University's activities, is nota financial asset in the sense that it does not FIGURE 3Gifts Budgeted To SupportGeneral OperationsYear Amount1960-61 $1,890,0001961-62 1,797,0001962-63 1,908,0001963-64 2,588,0001964-65 3,000,0001965-66 4,526,0001966-67 6,441,0001967-68 7,613,0001968-69 8,397,0001969-70 9,328,000produce fiunds for operating purposes. In fact,operating and maintaining the University's buildings and equipment will cost about $10 million thisyear. The physical plant, therefore, consumesfunds; it does not produce them.The University operating budget provides nofunds for capital construction; nor does it providefor depreciation on buildings, except in the caseof the Hospitals and Clinics. Long-range facilitiesneeds are often difficult to anticipate. New fieldsdevelop and require new equipment and facilities.Not too long ago few could have predicted theneed for a space sciences laboratory or a computation center, much less a facility for electronicmusic. Other needs were more predictable butdifficult to satisfy. Years ago, for example, it wasrecognized that the old Law School Building, oncethe very best of its kind, had become seriouslyinadequate. Yet from the time of that realization,it took twenty-five years before a new Law Schoolcould be built.The backlog of needed construction is considerable. These needs range from the renovation ofolder student residence halls, the remodeling ofHarper Library, and the construction of a newbookstore to such projects as the Student Village,new teaching and research facilities for the Biological Sciences, and a new music building. If allcurrently planned construction projects were built,they would cost an estimated $100 million, notincluding projects already approved and funded.All projects will have to be deferred until fundscan be found. Some will never be realized. Othersare immediately needed — for example, renovationrequired for compliance with city building codes.Even if depreciation funds could be provided,they would likely be inadequate. Although theHospitals and Clinics do have depreciation funds,6there is now, for example, an urgent need fornew operating rooms, which the University hasthus far been unable to finance. To meet buildingneeds of various kinds, therefore, capital giftsover and above the needs of the budget are essential. Otherwise, to meet its most pressing construction needs, the University may have to drawon unrestricted gifts. But these funds may beused only if they are not needed for currentoperating expenditures.Cobb Hall is another case in point. The originalclassroom building on the Quadrangles and a fineexample of Neo-Gothic architecture, it had servedfor years as the central undergraduate teachingfacility. Deterioration over the years, as well asits inadequacy for new undergraduate needs, ultimately rendered it totally useless. Finally it wascompletely rebuilt, preserving only its exterior,at a cost of about $2.5 million. Gifts and a grantproduced about $1.6 million; the remainder hadto be taken from unrestricted funds that mightotherwise have been used to support the budget.What of the endowment? Can these funds bedrawn upon to make up deficits, to expand existingactivities, and to support new ventures? Unhappily,this is not the case. The endowment is notincome. It is a source of income. In 1968-69, theinvestment income produced by endowment wasjust over $11 million, and of that amount $8.6million was unrestricted, available for general purposes. This income from endowment provides avitally necessary part of the operating budget ofthe University. But, although endowment incomeusually increases from year to year, it in factrepresents a proportionately smaller annual shareof the University's total income. In 1900 endowment fund earnings paid 25 per cent of the totalcosts of higher education in the United States;by the late 1950s the figure was 5 per cent. Inthe current year endowment earnings shouldamount to about 8 per cent of this University'srevenues. The University cannot spend endowment funds — even those which may legally bespent — without reducing future income essentialto support of the annual budget. (See Figure 4.)This is why the myth of the University's greatwealth is indeed a myth. The University cannotspend the endowment without grave consequences.It cannot use restricted funds for other purposes.It can never be certain of having enough moneyto operate. Predictions of income are estimates,by their very nature highly uncertain. This isespecially true of gifts, which fluctuate from yearto year. Increasingly this uncertainty applies toincome in other categories as well. The University has always lived with such uncertainty and indeedhas gone through several periods of great financialstress. At the same time it has traditionally usedits resources to the maximum. (See Figure 5.)Chicago's financial situation is not unique; to agreater or lesser degree it is shared by all universities, public and private. Put in the languageof the economist, the problem is essentially this:the price of "inputs" or "service" keeps risingwhile "productivity" remains constant. In industrythe situation is quite different; wages have beenrising steadily, but so has productivity, largelybecause of technological advances. As long as output per hour increases along with wages the costof a product can remain about the same. Incontrast, although salaries in education have beenrising, the teaching output per faculty man hourhas remained the same. Technological progress hasnot made it possible for fewer faculty members toteach more students in less time. Nor will it, unlessthe character of the University is to be significantlyaltered in the direction of more mechanical meansof instruction, larger classes, and thus greater impersonality. Therefore, the unit cost of the educational "product," which has gone up, is likely tocontinue to rise. There seems no escape from thisfact. It is unlikely that there will ever be anacceptable substitute for face to face instruction.Although it might be possible to make somereduction in formal class time, such a step wouldprobably be accompanied by increases in other"inefficient" methods, such as group and individualtutorials. "Efficiency" would mean larger classesand fewer courses offered.The steady rise in academic salaries is not theonly factor which has contributed to rising costs.Research has increased in both quantity and complexity. Much of it is very expensive, requiringsophisticated scientific equipment, costly computers, and expanded library service. Some, but notall, of these costs are provided by governmentgrants, many of which require the University tosupply matching funds. In addition, universities —at considerable cost — have moved into new academic fields, such as non-Western studies, information science, and new aspects of biology. A byproduct of advancing knowledge is the increasedcost of training graduate students. Communityproblems and responsibilities have also claimed anincreased share of university funds. These areamong the factors which account for the phenomenal growth in university budgets in recent years.In the last twenty years, Chicago's budget hasquintupled, while over the same period enrollmentshave risen less than 10 per cent.7FIGURE 4Percentage of Endowment Income to Total Income(Excluding Argonne National Laboratory)LUO<LUOcra.1959 I960 1961 1962 1963 1964 1965 1966 1967 1968 1969Given the fact of rising costs and ruling outthe possibility of significantly increasing educational productivity by, for example, greatly expanding class size, what are the possibilites forfinancial viability? Can income be increased sufficiently to offset rising costs?Tuition has been increasing at a fairly sharprate, but these increases have not kept pace withincreased cost per student. In addition, tuitionincreases have been accompanied by a spectacularincrease in the rate of student aid; the netincrease from student fees has therefore beensmaller than it appears. In any case, it wouldbe most difficult to raise tuition sufficiently tocover the actual cost of education, in light ofthe fact that at The University of Chicago theaverage annual cost per student, without referenceto capital costs, is currently -about $5,500, wellover twice tuition. In certain fields the cost per student is now estimated to be nearly $15,000 ayear. According to a recent study by one leadingeconomist, per student cost is rising at the annualrate of 7.5 per cent.Can endowments and endowment income begenerated at a pace equal to the rise in costs?Recent experience indicates otherwise; the risein endowment has not kept pace and neither hasthe increase in income from endowment, eventhough some universities, including this one, havebegun to adopt more aggressive (and thereforemore risky) investment policies in an effort toincrease long-run capital gains from endowment.Since this policy might mean less endowmentincome in the short run, the Board of Trusteeshas approved spending a portion of net capitalgains from endowment funds. Funds in an amountsufficient to maintain the normal return on investments would be used, thus providing both current8FIGURE 5Guts, Grants, and Bequests Received, by Purpose1965-69 (Millions of Dollars)General UnrestrictedFord Foundation Challenge Grant| General Restricted , Loan, and AnnuityEndowment LJ Plant1964-65 1965-66 1966-67 1967-68 1968-69come and the necessary financial stability inle interim period.Can gifts from individuals and foundations be:celerated? For the most part, gifts to the Uni-nrsity are increasing year by year. But much ofis gift money is for restricted purposes, and'me gifts carry with them additional obligations, as, for example, funds which pay for only partof a new building and provide no funds foroperating and maintenance costs; or a chair fora new distinguished professor, without funds toincrease his salary in the future or to provide himwith an office and secretarial help. At the sametime, the competition for gift money grows more9intense, not only from other universities but alsofrom other kinds of agencies with urgent socialpurposes.Another source of funds is, of course, government. Federal funds have supported an increasingly large share of university work, mainly research,in the last twenty years or so ; but this support hasbegun to level off, again in the face of pressingnational priorities. Public universities have someassurance of rising support. In fact, unlike a private university, a state university can produce along-range plan for, say, a multi-million-dollarbuilding program with reasonable confidence that itwill ultimately come to fruition. This is not truefor The University of Chicago or for other privateinstitutions. It would not be at all difficult for TheUniversity of Chicago to state its need's in the formof a legislative request. But private universitiesneither make such requests, nor do they receivestate appropriations. Recognizing the special financial problems of private universities, as well astheir unique contributions to their regions, somestates have begun to explore the possibility of making direct grants to private universities, and at leastone has already instituted a program of directgrants. In this state, recommendations for directgrants and other financial assistance were recentlymade by the Commission to Study Non-PublicHigher Education in Illinois.Projecting from recent trends in all of the majorincome categories — tuition, gifts, endowment income, and government grants — the future looksbleak. Whatever increases one can anticipate fromthese sources will fall far short of increases in expenditures. And as time goes on the gap betweenincome and expenditures will grow wider. This isthe essence of the growing financial dilemma of theprivate university.Various solutions have been proposed, rangingfrom increased efficiency in university operations,to greater government support, to placing more ofthe financial burden on the students. On this latterview it is argued that students benefit financiallyfrom education and therefore should pay its "realcosts." Among the means proposed are long-termgovernment supported loans at low interest rates.Another proposal, based on the theory that thecountry as a whole benefits at least as much asindividual students, is that the federal governmentshould increase its support of higher education bymaking direct grants to universities for operatingexpenses. These might take the form of supplemental "cost of education" grants for each student.Some more sanguine prophets believe that universities could effect economies in their operations and could by greater efficiency reduce deficits significantly.All these proposals have some merit. But greatlyincreased government support will not be availablein the immediate future and may not be sufficientto meet the need. Nor are long-term guaranteedloans for students on the immediate horizon, notto mention outright subsidies for students unableto borrow. Finally, although universities are undoubtedly capable of making some economies intheir operation (as are most large organizations),major reductions in expenditures would necessarilyinvolve lowering educational standards and curtailing some academic activities.Maintaining the educational quality of the University in the face of rising costs and mountingdeficits is therefore a problem of the greatest magnitude. It is not likely to be solved soon, perhapsever. Lowering the quality of education is unacceptable, even as a short-run measure, and cutting back on academic activities could lead to ageneral decline which would be not only rapid butirreversible.Recognizing this problem, the University severalyears ago made an extensive study of its needs andresources. Faculty members, administrative officers,and trustees participated in this two-year analysis,in which deans and department chairmen statedacademic priorities for the ten-year period 1965-75. On the basis of the information assembled, itwas concluded that a program designed to improveall aspects of the University's academic life wouldrequire $1.4 billion in the ten-year period, withincome estimated at just over $1 billion, leavinga gap of $360 million.As the first phase of a ten-year program to raisethe $360 million, the University embarked on theCampaign for Chicago with the goal of $160 million over a three-year period. Of this amount $88.2million was to be for building needs, $52.3 millionfor program support for the budget, and $19.5million to be added to endowment.At the initial stage of the Campaign the University sought a challenge grant from the Ford Foundation, presenting its plans and projections for thedecade in support of the request. Noting that "Chicago is experiencing a renaissance as one of theworld's leading universities," the Ford Foundationawarded its maximum challenge grant of $25 mil*lion to the University. The grant required matching donations of $75 million.The three-year campaign reached its $160 million goal in December, 1968, thus confoundingthose experts who had predicted that it could notpossibly succeed. During the three-year period the10University greatly strengthened its faculty, increased annual student aid by nearly $4 million,launched several significant new academic programs, and made substantial headway toward meeting its building needs. In some respects, however,the Campaign fell short of .its program goals. Lessthan half of the announced goal for building fundswas attained; capital needs are therefore still enormous. A considerable portion of Campaign fundspledged and received are for long-range or otherfuture programs and cannot be immediately put touse. Funds for immediate needs were in relativelyshort supply, and much of the underwriting of current operations has come from the unrestrictedfunds provided by the Ford challenge grant, whoseother great contribution was to stimulate gifts fromother sources. The full amount of gifts eligible toserve as matching funds for the Ford grant wasrealized in the summer of 1969, and the last payment of the Ford grant will be made in the currentacademic year. The University, therefore, facesthe problem for 1970-71 and beyond of findingother funds to provide budget support for currentoperations, in addition to raising the large amountsneeded for buildings and to fulfill the academicgoals of the ten -year program.This University is perhaps more fortunate thanmost. It has reached a level of high distinction in its faculty and students and has wide support forits efforts. This support has come to the University not because of its weakness but because of itsacademic strength. And the uses of financial support have reflected the University's academic goals,with the highest budgetary priorities given to faculty salaries, student aid, and library needs. Butto survive as a leading university, Chicago must resist temptations to expand recklessly or to otherwise misuse its resources. The test for the University will be to continue to do its own work well.Meanwhile the struggle for financial equilibriumwill go on much as it has in the past. The storyis told, perhaps apocryphally, of one of WilliamRainey Harper's visits to - John D. Rockefeller.Harper had been warned to forego his usual request that Mr. Rockefeller make up the year-enddeficit, as he had been doing for several years.Instead Harper suggested that they begin their visitwith a prayer, since they were both religious men.Harper's prayer was fervent and intense. He informed the Lord and Rockefeller of the financialplight of the University and respectfully asked theLord for help. Help came, of course — from Mr.Rockefeller. "Whether true or not," a later President of the University remarked, "there is a lot ofhistory in that story."APPENDIXFinancial Highlights1968-69 1958-59 1948-49Expenditures for total operations, excluding Argonne National Laboratory $135,488,000 $ 50,811,000 $23,783,000Expenditures for general funds (unrestricted) 47,445,000 19,399,000 12,282,000Federal funds for designated current expenditures 41,438,000 10,817,000 5,340,000Student aid, including loans and deferred tuition 19 , 962 , 000 3 , 205 , 000 1 , 061 , 000Student fees 21,908,000 6,778,000 5,455,000Patient fees 22,807,000 10,903,000 4,299,000Gifts used for current operations:Restricted 10,688,000 4,970,000 1,496,000Unrestricted 6,571,000 2,501,000 2,334,000Gifts for plant, endowment, loan, and annuity funds 11,935,000 4,521,000 1,666,000Earnings of endowment funds 12,948,000 7, 799,000 3,940,000Market value of endowment 326,740,000 210,318,000 86,395,000Book value of endowment 233,050,000 133,048,000 71,317,000Book value of plant and equipment 117,066,000 81,034,000 52,863,000THE UNIVERSITY OF CHICAGO RECORDOFFICE OF THE SECRETARY OF THE FACULTIESHawCz<!wl-HHSo>oowooosroerao30ONOasu>m ± c Z03IP -o </» |z? > o 0p - mmmm <*! 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