Question 4.3 Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?
The instructions for completing this question call for the program to provide evidence of efficiencies and cost-effectiveness for the current year over recent years, including the prior year, in this case for FY 2005 over FY 2004 and 2002. We will discuss such evidence later in this response but first will discuss the University's long range planning to reduce its dependence on the federal government and to control costs, as Gallaudet's overall financial planning is best understood in this context.
Reduction of dependence on federal funding
Gallaudet's plan to reduce its dependence on federal funding dates to the early 1980's when the University was advised by staff at the Department of Education that it would be wise to increase its tuition rates, given the expectation that federal funding would become tighter as the federal budget deficit increased. Historically under an agreement with the Department, Gallaudet 's tuition rate had been set at the mean for land grant universities, on the principle that Gallaudet functioned as the national university for the deaf. Under a new agreement setting Gallaudet's tuition in the upper quartile for land grant universities, the University began a long term plan to increase its tuition rate so that it is now near the top of the range of public universities. Under its current agreement with the Department, Gallaudet's annual tuition increases during the 1990's and early 2000's did not exceed 10% annually, but for many years ran at 7% per year. Beginning in 2005 the University reduced annual increases in tuition to 3%, due to concerns about the continued affordability of a Gallaudet education and general concerns in Congress about tuition increases that exceeded those of the CPI.
Also beginning in the mid-'80's and accelerating under President Jordan, Gallaudet made a commitment to increase its private fund raising. The consequences of these actions can be seen in the attached chart which plots cumulative increases in Gallaudet's federal appropriation, its total operating income, and the CPI between 1985 and 2005. Note that the Department's advice was prescient--the appropriation lagged the CPI by about 1 percentage point a year for the first ten years of the period, but the increases in Gallaudet's total income exceeded it. During the second decade shown on the chart, following the balancing of the federal budget, increases in the appropriation exceeded those of the CPI with the result that the purchasing power of the appropriated funds is now approaching what it was in 1985. During the 20 year period, Gallaudet's appropriation as a percentage of its total operating income declined from 81% to 67%. Note that the 67% figure for FY 2005 does not apply institutional financial aid as a discount to tuition income, because that was not the practice in 1985. With institutional financial aid shown as a discount, the federal appropriation as a percentage of total operating income is 69% in 2005. In 1981, appropriated funds comprised 85% of Gallaudet's total operating income.
Private fund raising and appropriations
Beginning also in the mid-1980's and aided after 1988 by the federal endowment matching program, Gallaudet greatly increased its fund raising efforts. During President Jordan's tenure, the endowment has increased from $10 million to $165 million, and operating investment income now exceeds $4 million annually. Gallaudet's endowment income in 2005 exceeded the total value of its endowment principal in 1985.
Before the Jordan presidency, all major construction programs on the campus were funded by federal appropriations. Under President Jordan all major construction has been funded either by cost sharing with the federal government, or, as in the case of the last two buildings constructed on the campus, by privately raised funds alone, including a recent 3 year capital campaign that resulted in $40 million in donations. The University is currently in the midst of a capital campaign to fund construction of a new building to be named the Sorenson Language and Communication Center after its major donor. This building will replace the aging and deteriorating Thornberry building. Because it has been able to raise these funds, Gallaudet will have the opportunity to introduce a "visucentric" design philosophy in this building-that is, Gallaudet can experiment with architectural components based in communication and esthetic notions unique to the deaf community. In recent years, Gallaudet's overall strategy has been to seek private donations primarily for construction and endowments and to seek support for inflationary increases and limited program expansions from the federal government and income from tuition and fees. Gallaudet also provides funding for construction and deferred maintenance projects from its annual operating income.
Major cost saving and efficiency efforts during the 1990's
During the 1990's Gallaudet undertook two major efforts to provide for future budget flexibility: the closing and sale of its Northwest Campus and a 20% reduction in staffing. The Northwest campus, a former private junior college facility that had been acquired by the federal government, was given to Gallaudet in the early 1980's to house anticipated overflow at the main campus due to a very large cohort of students deafened during the rubella epidemic of the mid-1960's. Following passage of this cohort through the University, Gallaudet determined that the campus could be closed in the mid-1990's. With the permission of the Secretary of Education, as required in the EDA, the campus was sold in 1995 and the proceeds of the sale were retained within the University's capital structure, in this case the endowment.
During the same period, the University concluded that its total payroll expenses were growing faster than its total income, reducing the institution's flexibility to respond to its program needs and to unanticipated contingencies. The University undertook a long term staffing reduction program beginning in 1990. As of 1999, the total number of regular status positions had been reduced from the 1989 total of 1,303 to 1,101, a reduction of 16%. The total number of on-board employees of all types was reduced from 1,444 to 1,084 during the same period, a reduction of almost 25%. The University continues to maintain a strong position control process. During the early 2000's there was modest growth in positions and employees related to expansion of some programs, including income supported programs such as the Video Relay Service, but employee numbers have been stable during the past 3 years. The total number of employees on-board in 2005 was 1,138, 306 or 21% fewer than in 1989. The attached chart, from the University's February 2006 Board of Trustees agenda, details positions and on-board staffing by type during the past 2 decades.
Recent measures to improve service levels and efficiency
In this section, we present details of efficiency measures during the past several years, as well as examples of self-supporting service expansions that have required no funds from the central budget.
- Relative reductions in administrative funding/increases in program funding--A University Budget Committee was established in 1998, and it has had as one of its objectives to ensure that funding is available to support enhancement of academic programs. During the period of its operation, costs for academic units have grown relative to increases in inflation and costs for administrative units have declined relative to inflation. Between 1998 and 2005, funding increases for the academic instructional, research, outreach and support programs controlled by the Provost in the University and Clerc Center outpaced growth in inflation, while funding for the Division of Administration and Finance, including costs associated with implementation of Peoplesoft, a major new information system, lagged growth in the CPI. As was the experience of many universities, Gallaudet found that Peoplesoft, while it now functions superbly in support of financial, personnel, and academic operations, was extremely expensive to implement, but implementation and support costs have declined during the past several years. During the past 3 fiscal years, Gallaudet has had to absorb spiraling costs in a number of administrative areas. In spite of infrastructure improvements we have undertaken in recent years to improve energy efficiency, the total cost for utilities at Gallaudet rose by $1.8 million, or 50%, between FY 2002 and 2005, and we expect these costs to continue rising steeply in FY 2006. The fees for the independent financial and compliance audits required by the EDA increased by a similar percentage during the same period, and we have also experienced substantial increases for insurance and for compliance with federal and local environmental regulations, all without proportional increases in our overall administrative expenses. However, primarily because of reductions in the cost of Peoplesoft implementation, expenses for the central administrative functional category of institutional support actually declined by 12% between 2002 and 2005, while expenses for instruction increased by 19%.
- Expansion of service at no cost to the University-the Video Relay Service--VRS is a service that the American deaf community has sought for many years, and it has now become a reality because of advances in technology that have allowed the Telecommunication Relay Services (TRS) provision of the Americans with Disabilities Act to be extended to video relay services. The following passage from the FCC website describes these services:
This type of TRS enables individuals who use sign language to make relay calls through communication assistants (CAs) who can interpret their calls. The caller signs to the CA with the use of video equipment and the CA voices what is signed to the called party and signs back to the caller. This type of relay service is not required by the FCC, but is offered on a voluntary basis by certain TRS programs. This option is helpful for people who use American Sign Language (ASL), and for people who cannot type on a TTY easily, such as children who are ASL users.
Through the National Exchange Carrier Association (NECA), the law provides funds from the charges collected by telephone companies in the United States. The University has entered into a partnership with Sorenson Media, a public utility registered in the state of Utah, to provide this service. Gallaudet splits a fee with Sorenson to provide the interpreting service upon which VRS depends. The University's relationship with Sorenson in this enterprise has a number of benefits both for the University and for the American deaf community. First, and most obviously, deaf Americans in general and Gallaudet students and employees in particular receive high quality video relay service, which allows deaf people for the first time to communicate with anyone by telephone through the medium of a sign language interpreter. Second, the location of this service on the Gallaudet campus will allow our student interpreters to gain valuable experience in this fast growing segment of the interpreting market. Third, at least partly because of the University's partnership, Sorenson has recently pledged a substantial gift to Gallaudet to support construction of a new language and communication building on campus, as described above. In 2004, Gallaudet provided 638 thousand minutes of interpreting through VRS at a total cost of $1.79 million and with associated revenue of $1.94 million, a surplus of $150,000. The comparable figures for 2005 were 693 thousand minutes of interpreting, $1.93 million in cost and $2.08 million in revenue. This is one example of the University's program to streamline and improve the profitability of its business operations while expanding the amount of service provided. These auxiliary services include the Kellogg Conference Hotel, the bookstore, and the Gallaudet University Press.
A note on cost per student calculations
Gallaudet calculates its cost per student at the University level from its annual audited financial statement and its published enrollment reports. Expenses for research, public service, and auxiliary enterprises are subtracted from total expenses and this subtotal is divided by total headcount enrollment. Since the late 1990's, following new accounting rules promulgated by the Financial Accounting Standards Board (FASB), private higher education institutions have reported the depreciation of their facilities as expenses distributed to the various functional categories of expense. Thus, Gallaudet's cost per student figure for University programs includes depreciation as an expense. It is also important to note that no attempt is made to prorate out administrative costs associated with research and public service.
