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Updated: Princeton releases annual budget, increases tuition and financial aid, forecasts deficits

Total undergraduate fees will increase 4.1 percent in the 2014-15 school year, according to the annual operating budget report released by the University’s Priorities Committee on Monday.

The report calls for a total operating budget of $1.6 billion, a slight increase from last year’s $1.58 billion budget.

As the University’s finances continue to recover from the financial crisis, the report forecasted budget deficits starting in 2015 for the following six years, as well as the possibility of lower endowment returns in the near future.

“We must maintain financial discipline in the years ahead and reset community expectations for growth that were driven by exceptionally favorable long-term investment conditions unlikely to recur in the foreseeable future,” University Provost David Lee GS ’99 wrote in a letter introducing the report. Lee is also the chair of the committee.

The Priorities Committee is a subsidiary of the Council of the Princeton University Community that is charged with recommending a budget for the upcoming school year. Other members include the dean of the faculty, the executive vice president, the treasurer, six faculty members, four undergraduates and two graduate students.

Also included in the new budget is an 8.5 percent increase in the funds allocated to undergraduate financial aid, bringing the total from $121.3 million to $131.6 million.

The committee said it expects the increase in financial aid funds to outpace the increase in the percentage of students receiving aid, which is predicted to rise to 60 percent from 59 percent among all classes. This year’s plan continues the University’s “stay-even” budgeting philosophy, which is designed to ensure that fee increases are not shouldered by students receiving financial aid.

In an interview with The Daily Princetonian, Lee said that he believed the core principles of the University’s financial aid policy would continue to influence budgeting in future years.

“The values underpinning this idea of providing access to Princeton without prohibiting students from coming because of cost — those values will be here indefinitely,” Lee said. “How those values translate to the actual financial aid package depends on the broader economic circumstances of the time.”

The Priorities Committee suggested that the most likely causes of the expected deficits were the budget’s sensitivity to labor costs and endowment contributions, which make up 50 percent of revenue and expenditure, respectively. However, deficits in higher education may bear little resemblance to deficits in a corporate setting. As a nonprofit institution, the University is not looking to score a profit; therefore, budget deficits and surpluses are perhaps better thought of as errors in budgeting. The projected deficits are “modest,” the report said, and will be covered by the $18 billion endowment.

The report cited the deficits as artifacts of “conservative assumptions” in predictive models. Such conservatism reflects a broader turn toward expectations of smaller endowment returns across the Ivy League following deeply negative returns in fiscal years 2008 and 2009.

“It would be unwise to develop budgets that depend on returns resembling the bull markets of the 1990s,” the report read. “In the decade ahead, we will need to manage growth with careful attention to optimizing resources to best support our priorities.”

Lee suggested that conservative budgeting is necessary for the University to adapt to a “new normal” following the financial crisis.

“In the years leading up to the recession, our returns were outstanding, off the charts,” Lee said. “Of course, we had this huge correction and that really affected how we view expectations. Post-recession, we’re resetting our expectations to a new normal, so things aren’t exactly back to the way they were before.

The University’s endowment returned 11.7 percent in the most recent fiscal year, up from 3.1 percent the year before.

Despite the increased returns this year, the Priorities Committee cut allocations in half — to $600,000 — for so-called “programmatic recommendations,” or solicitations for budget increases requested by administrative offices. However, the committee accepted new proposals to fund the position of director of undergraduate research as well as expand Sexual Harassment/Assault Advising, Resources & Education activities.

The Priorities Committee also funded two of four proposed positions to bolster the University’s IT cybersecurity. An IT Security Specialist will be appointed to “oversee the identity management system” and a Network Operations Center Security Specialist to harness data analytics to “help protect our resources.”

Cyber security has become an important issue for universities, as cyber attacks have been increasing in number, the report said. Last July, Stanford University reported a “breach of its information technology infrastructure” and encouraged Stanford network users to change their passwords.

The Priorities Committee declined to fund an additional Network Operations Center Security Specialist as well as an IT Forensics Specialist.

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