The University has announced another budget cut for fiscal year 2003. Dec. 4, Provost Mel Bernstein, Executive Vice President and Chief Operating Officer Peter French and University President Jehuda Reinharz led a forum in Olin-Sang Auditorium informing faculty of new reductions to the University's budget. French also led four meetings on the budget with academic and non-academic staff. This followed a Nov. 18 memorandum in which Reinharz announced that the University's operating expenditure base would be reduced by a further $1 million and that capital expenditures would be cut by as much as $1 million as well.

This new reduction to operating expenditures for fiscal year 2003 follows an already announced reduction of $2.6 million, made on Aug. 30. This is the first time in the current financial crisis that capital expenditures have been cut.

This budget cut will considerably affect an already diminished ability to improve existing campus facilities. "We have a very significant problem with the physical plant here," French said. "We have been spending about 50 percent of what we should be to keep the plant in steady-state condition."

The University currently spends $6 million annually in capital expenditures to maintain and improve the physical plant, which consists of all the existing facilities on campus, such as academic buildings and dormitories. Reinharz's memorandum calls for a 16.7 percent cut to what French said is already only 50 percent of what the University should be spending.

The memorandum points to various advances the University has made to secure its financial standing, but emphasizes that the financial markets are the continuing cause for Brandeis' financial woes. "The (financial) situation has not improved, and the third quarter of 2002, the period from July 1 through Sept. 30, was particularly depressing for financial markets," Reinharz said in his memorandum.

In addition to budget cuts, Reinharz referenced new difficulties with the University's financial reserves, money set aside for difficult financial periods such as the current one. "We have also significantly improved our position with respect to financial reserves, though complex technical requirements imposed from outside the University require that we temporarily restrict portions of University reserves to make up for the reduced value of various endowment funds," Reinharz wrote.

The wording does not directly state that certain regulations have required the University to set aside $4 million from reserves to cover the gap between the book value and the market value of certain investments. The book value is the original sum donated to the University, whereas the market value is the current sum as defined by the financial markets.

"From fiscal year 1995 until fiscal year 2002, the market value exceeded the book value on endowment funds," French said. "Because we've had three years of a downturn in the financial markets, some funds dipped below the book value."

The regulation requiring the University to set aside funds is Rule 124 of the Financial Accounting Standards Board (FASB). "FASB sets accounting standards that apply to all not-for-profit institutions in the United States," Executive Assistant to the President John Hose said.

French said reserve funds will not be consumed in this process, but simply restricted from use. "Just about every college and university ran into this problem in one way or another," he added. According to French, this occurs "when (a not-for-profit institution) gets an endowment gift in a down market."

The University has acted to close the gap between book and market value of investments because if it does not, it will receive a qualified opinion from FASB. "They (the U.S. government and other foundations that produce grants) will not react in a positive way," French said. "We take that extremely seriously."

Hose rejected any claim that the University's financial maneuvering represents a lack of foresight. "Far from there having been bad planning, ever since Dr. Reinharz has been president, the University has been setting aside funds for precisely this potential eventuality," Hose said.

"Reserves give (an institution) flexibility to deal with unforeseen circumstances," French said in response to the same claims.

When asked why the student body has not been informed of any of the financial difficulties while the faculty and staff have been, French responded, "We have been approaching this in a way that will not affect students."

"If we have choices to make (that will directly affect students)," he added, "we'll be right there (discussing them) with students.