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Saint Louis University

Rob Altholz is the University's vice president for business and finance. He recently discussed with Grand Connections some common questions employees have about the University's budget process.

GC: Explain briefly how the University's budget is determined every year. How long is the process? Who is involved?

Altholz: The budget process is one of the single most important tasks that this community undertakes each year. It involves deans, directors and vice presidents and the faculty and staff who report to them. In recent years the process has begun in October with all of the major decisions Ñ such as those about tuition, room and board rates, University-provided scholarships, salary rate increases, increased programmatic funding and the amount of capital expenditures Ñ approved by the president and the vice presidents by the end of November. The budget is presented to the finance committee of the board of trustees and the entire board of trustees in early December for their review and adoption. In January, my office officially notifies the vice presidents of their individual divisional budgets so that they can begin planning for the upcoming fiscal year, including recruiting for new approved faculty and staff positions. It obviously is not possible to fund all requests for new or additional funding, though almost without exception those requests are important and legitimate. Each vice president presents his or her requests for new or additional funding in priority order in writing to Dr. [Richard] Breslin and me. This is followed by a meeting at which each request is thoroughly discussed. We would like to be able to fund each request, but that is not possible. For fiscal year 1999, more than $2.5 million of such requests were approved, all of which will be devoted to the academic and campus living experience of our students.

GC: The sale of Saint Louis University Hospital will have an effect University-wide. What does the sale mean to all of us?

Altholz: I'm glad you asked this question because it is very important as we all move forward that the financial impact of the sale is clearly understood. First of all, it is imperative that we all remember why we undertook the sale of the hospital. Simply put, from our perspective it was an asset of diminishing value. From the mid-1980s until the mid-1990s the hospital was very profitable and it was able to subsidize the academic and research needs of the various health sciences schools. SLUCare, which consists of the University Medical Group (the clinical practice of medicine by the School of Medicine faculty) and the hospital, continues to do so in the current fiscal year to the tune of about $15 million. However, the growth of managed care and the reduction of governmental support for health care made it clear to the administration and the board of trustees that the profitability of the hospital could not be sustained. To Tenet, however, the acquisition of Saint Louis University Hospital enables them to provide the high-end tertiary and quarternary care not available at their facilities in this region.

When the hospital is sold, the $15 million of subsidy payments will cease, while the academic and research needs of the various Health Sciences schools will not. The central objective of the sale was to assure that the University's leadership position in health professions' education be sustained and expanded in the future. The executive committee of the board of trustees unequivocally articulated this objective in the motion it unanimously approved in November 1997, which states in part, "That the total net proceeds of the sale of the hospital be placed in an endowment to be known as the Health Sciences Fund so that the health professions education activities of the University are sustained and appropriate growth is supported." The current Pooled Fund Endowment spending formula will generate approximately $15 million of endowment spending in the first year from this new fund. Initially, therefore, the endowment income simply will replace the subsidy that previously had been provided by SLUCare.

However, the story does not end there. SLUCare has made annual payments to the University of more than $9 million for services provided to it by the University and for an allocation of central University overhead costs. The UMG will continue to pay its share of these expenses; some will be paid from the income from the new endowment fund and, of course, to the extent possible at this time, some of these central expenses will be cut. In addition, we have reviewed the allocation of fringe benefit costs and have determined that the historical allocation to the UMG has been too large and that the allocation to the other divisions of the University too small. This imbalance will be rectified. It is imperative as we go forward that allocation of all overhead, fringe benefits and other such costs be fairly and appropriately allocated to the various operations within the University The net effect of these factors is that there is a negative impact on the fiscal year 1999 University operating budget of approximately $5 million.

Taking all of this into account, the fiscal year 1999 operating budget was approved by the board in December with total revenues of $167 million and total expenses of $174 million. The difference of $7 million is being filled through the use of University reserves resulting from small operating surpluses from preceding years and the use of some accumulated operating cash investment earnings. These reserves, obviously, can be used only once. We are, in effect, giving ourselves the next 16 months to rectify this inherent imbalance in the University's operating budget through a systematic, University-wide endeavor to implement new or enhanced net revenue opportunities and cost reductions resulting from process improvements.

GC: Our endowment is among the top in the nation. Why can't some of that money be used to eliminate deficits and help the budget problem?

Altholz: I'm particularly proud of the growth of the University's endowment fund. When Fr. Biondi and I arrived at the University in 1987, the value of the endowment was $141 million. It currently stands at about $540 million. It ranks second among all Jesuit colleges and universities, ahead of Georgetown and Loyola of Chicago, and behind only Boston College. As a matter of fact, following the sale, the endowment fund will rank first among Jesuit colleges and universities and second among all Catholic universities behind that football school in Indiana. Just kidding, Notre Dame alumni! The real importance, though, of an endowment fund, of course, is to provide a stable and growing source of financial relief to the University's annual operating budget. The growth of the endowment has allowed this relief, through spending of a portion of the total investment return which has been more than 14 percent annually over the last 10 years. Endowment spending has grown from about $6.5 million in fiscal year 1988 to nearly $23 million in the current fiscal year and will grow to more than $25 million next year. The formula that determines the amount spent from the endowment is reviewed annually and ultimately is approved by the finance and investment committee of the board of trustees. Saint Louis University's spending formula is consistent with colleges and universities across the country.

GC: What kinds of projects can be initiated to make Saint Louis University more efficient and spur growth and development?

Altholz: Some come to mind, but faculty and staff throughout this institution are aware of many more, both from their experiences here and elsewhere, as well as from their knowledge of what other universities and businesses are doing across the country. I personally am determined to make our business processes as efficient as possible while ensuring that all requirements and controls required by external agencies and all other reasonable internal controls are established and adhered to. As we did with purchase requisitions, we need to rid ourselves of paper forms, whether it be for travel requisitions, PAFs, budget preparation or policy and procedure manuals. Our staff, working with ITS, is concentrating heavily on World Wide Web developments in this regard.

GC: Various projects to improve the quality of academics and student life are being initiated. What are they?

Altholz: Over the next year or so we will spend about $4 million on physical improvements in the residence halls and in the classrooms. Now that we have gone a long way in improving the beauty and safety of our campuses, we need to increase our attention to the physical needs within our buildings. The president is committed to doing just that. The other highest concern expressed by students and their parents is, of course, their cost to attend this very special university. Tuition revenue pays for only about two-thirds of the cost of the total cost of education. The rest is made up by endowment income and gifts to the University. But even paying this partial cost still is very hard to bear for many students and their parents. Therefore, it is very noteworthy that at the same time that the University announced that undergraduate tuition and fees in fiscal year 1999 will be $16,100, the president also announced that financial aid provided by the University will increase by $3.2 million.

GC: Any other thoughts or comments?

Altholz: Just one. The absolutely most wonderful thing about a university from a financial point of view is that there are no outside shareholders to whom a dividend must be paid. Every dollar of revenue that we receive, therefore, is used only to support the academic, research and other needs and objectives of our students and faculty. Period. End of story. The next marginal dollar of revenue that we earn will be spent in this way. Can we do better? Of course, we can. Administratively, we need to ensure that all of our processes are as efficient as possible, consistent with the necessary controls I discussed earlier. Academically, we need to constantly re-evaluate the programs we offer and the means by which we deliver them. The president of my former employer, Yale University, said recently that Yale cannot be all things to all people. Yes, Yale, with an endowment of nearly $6 billion! As we enter the 21st century, we must determine not only what we will be, but also what we will not be. By doing so, I am enormously confident that we will achieve our goal of being the finest Catholic university in the country.