Dean’s Advisory Council: Strategic Planning Implementation (Part 1)

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PuzzI want to describe the role of the Dean’s Advisory Council in implementing our strategic planning priorities and evaluating other resource needs.  There are three main components of work for the DAC at this stage of the process.

  • What permanent and one-time resources are available?  Should we permanently allocate part of our endowment income?  Should we permanently allocate a part of our membership dues?
  • What investments are needed to implement our strategic priorities and other existing or new activities?
  • In allocating scarce resources, how do we balance our strategic priorities against each other and against other new and existing positions and activities?

In order to avoid overwhelming you with too much information at one time, I will blog about each of these components separately over the next few days.

What permanent and one-time resources are available?  Should we permanently allocate part of our endowment income?  Should we permanently allocate a part of our membership dues?

We need to decide what funding will be available for investments this fiscal year (2010-2011), which necessarily also involves making some projections about budget cuts and funding for next fiscal year (2011-2012).  The School’s endowment generates approximately $500,000 of income each year, and so far we have reinvested that money to increase the size of the endowment—which in turn increases the amount of income that is generated.  My plan has been to wait until the endowment income reaches $1 million per year before permanently committing it to support the School’s mission.  That has seemed like a reasonable goal, but there is no requirement that we wait.  Should we use some of that income now for strategic investments or should we continue to let the endowment grow?  This is a policy question that the DAC will discuss, and so will the School of Government’s Foundation Board at its next meeting on November 5.

I also have asked Brad Volk to make a recommendation to the budget committee (Volk, Thornburg, Nicolet, and me) about whether we need all of our local government membership dues to meet existing operating expenses each year.  There have been so many budget cuts and related changes in recent years that it is difficult to establish a reliable baseline.  If we find that the money collected annually from dues exceeds our operating expenses—after making conservative estimates—then we will consider allocating the difference for permanent investments.

The budget committee will bring a recommendation to the DAC on both of these questions—whether to permanently commit endowment income and membership dues to support some of our strategic priorities.  Let me know if you have thoughts about this question, especially how to manage our endowment income at this point.  Next, I will blog about determining what investments are needed to support our mission—whether new priorities or existing activities.

7 thoughts on “Dean’s Advisory Council: Strategic Planning Implementation (Part 1)

  1. I heard last night on the news about the likelihood of having a $3 billion dollar shortfall and Perdue is looking at up to a 15% decrease. How will using this money affect the School if we have to take another large hit? What type of things is the DAC looking at pursuing? Will it be money well spent?

  2. Mike,

    I am confused by your use of the term “investments.” On one read, I thought you meant re-investing the income from the endowment. Then when you mentioned “strategic investments,” I thought you meant investments in starting up programs that are part of our strategic plan. “Permanent investments” could refer to that as well, but might also relate to my first reading — investment into the endowment. Now that I’m thinking (too much) about it, it occurs to me that the phrase could also include investment in the building and in equipment.

    Diane

    1. It is confusing because I am using investment in two ways. In terms of the endowment income, I am asking whether we should “reinvest” the income each year to continue increasing the size of the endowment. I am also saying that we are trying to figure out our available money so that we can decide whether to make some “strategic investments,” which does mean support for new or existing programs and activities. I suppose we could decide to spend money on equipment or the building–another potentially strategic investment–but I was thinking more in terms of programs and activities, and that could include faculty or staff positions, for example. My next post will talk about the specific investments that are likely to be under consideration. Thanks for your comment.

      Mike

  3. “Should we use some of that income now for strategic investments or should we continue to let the endowment grow?”

    What are the strategic investments? Can they save money overtime to compensate for some of the loss in endowment growth? What are the tradeoffs, short and long term?

  4. The $1M goal is a good goal – growing the endowment to the point that it generates this level of income will give the SOG a solid (or, as solid as any endowment fund can be in these turbulent times) fiscal base. Given that a commitment of income to programs would be a recurring commitment (as opposed to nonrecurring), that portion of the investment income lilkely would be permanently removed from the reinvestment stream at least until state funds rebound or other revenue streams grow, thus permanently impacting the time frame for reaching the goal (again, having to take into account the unknown variable of the performance of the endowment fund itself which will also impact when the goal is reached, but we can’t control that). Carolyn heard the news report on potential budget cuts correctly – without an extension of the current temporary sales and upper income tax surcharges (which generate about $1.2B), the working deficit number in Raleigh for the 2011-13 buennial budget is $3B – $3.5B, which equals a 15% cut to the state’s General Fund. UNC is currently running 5% and 10% cut scenarios, and OSBM is running 5%, 10% and 15% cut scenarios. Obviously, if the General Assembly extends the temporary taxes or otherwise increases revenues, this deficit figure decreases, but a scenario where the deficit gap is closed entirely with revenue increases and no cuts is virtually impossible. So, we will be facing cuts, and those cuts will likely be deeper in the coming biennium than what we received in the previous/current fiscal years. It is also very difficult to predict how long this revenue situation will last – budget analysts in Raleigh are predicting anywhere from 4 – 6 fiscal years before revenues bounce back to FY08 (pre-recession) levels, assuming no change/increase in revenue streams (i.e., permanent tax increases or tax restructuring). Given all this, dipping into our endowment income now may foreclose the opportunity to dip into this “reserve” in the coming fiscal years without doing long-term damage to the goal of $1 in investment income. I don’t envy you, your budget team, and the DAC for the difficult decisions you are wrestling with, and appreciate the careful stewardship with which you are managing the SOG through these challenging budget times.

  5. Mike, you ask–
    Should we permanently allocate part of our endowment income? Should we permanently allocate a part of our membership dues?

    Does the decision have to be permanent? What about a five-year (or some other number) plan and looking at the situation at the end of that time?

    1. Laurie,

      Absolutely right. It does not have to be permanent. One question is whether we want to make a permanent investment of any kind from the endowment at this time. A related question is the one you raise. Do we temporarily commit to spend some of the income (or the dues) for some purpose? For example, we might decide to use a part of the endowment income to jump start a program for five years, but then expect the program to generate enough revenue to become self-sustaining after that period. The endowment income that had been committed for five years then would be available for reinvestment in the endowment or to support some other program or activity, either temporarily or permanently. Good question.

      Mike

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