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Published: Tuesday, 7/1/2003

Board rejects budget with $8M deficit

Russell Armistead, vice president of finance for the Medical College of Ohio, expected the board of trustees to reluctantly approve a budget with an $8 million deficit yesterday.

The board, in no uncertain terms, said no way.

Stunned by the projected losses, the board members said it was time to start hacking, and hacking hard, at MCO's expenses for fiscal year 2004, which starts today. Hospital operations probably will escape unscathed, but not the college, which has about 1,000 medical and advanced-degree students.

“We cannot run a medical school that's running an $8 million loss a year. It's not acceptable to me, and it shouldn't be acceptable to anyone,” said board member Charles Dana.

The board, in an unusual move, refused to approve Mr. Armistead's suggested budget. Instead, it directed him to come back to them within two weeks with a range of options on making immediate cost savings.

Those suggestions will include everything from accepting an $8 million deficit to getting to break-even, a move that could result in hundreds of layoffs on the college side of MCO's operations. The cuts would include reductions in college support staff, but not positions on the hospital side like nurses or other patient care staff.

Getting the whole $8 million out of faculty and staff - which make up 80 percent of MCO's expenses - would have a “huge” effect, Mr. Armistead said.

Mr. Armistead now must scramble to come up with some ideas, get them approved by the board, and send the budget to the state in time for a July 15th state deadline. MCO officials are checking to see if July 15 is the absolute deadline.

Mr. Armistead warned the board the situation could be just as dire for fiscal year 2005, with projected deficits of about $8 million forecast again.

But the board made clear that while it might accept some form of deficit spending for 2004, that was it.

“We will not approve a deficit budget [for fiscal 2005],” said George Chapman, chairman of the board's finance committee.

MCO, founded in 1964, has lost money for the past three years in a row, but this was the first time MCO's board was being asked to contemplate a deficit budget in the school's history. Continuing state cutbacks - about $1.5 million in fiscal 2003, and another similar decrease in fiscal 2004 - haven't helped.

MCO also must comply with new accounting standards that require it to account for depreciation expenses. That change is responsible for most of MCO's projected losses.

MCO's hospital operations turn a profit, about $1 million annually, but MCO's college operations - which, unlike the hospital, rely on state support - don't.

Mr. Chapman said it was time for MCO to face reality and start downsizing.

“A sign has to be sent to the community that we can't run this place on a deficit. We have to make decisions now,” he said.

Mr. Armistead warned the board that because of union contracts, as well as faculty contracts, it was hard for MCO to make immediate cuts. He told the board he could come up with some general ideas, but without adequate time to brief MCO's faculty, it would be tough to get support from them.

He added that he had hoped to take several months to get faculty input before suggesting cuts.

Mr. Dana said that was unacceptable. In fact, he had to be talked out of immediately going through the budget and cutting line by line. He said the board couldn't wait months to get faculty input.

“What are they doing? They're not making any money [for MCO],” he said.

Mr. Armistead, an outside consultant hired by MCO and acting in several interim roles such as vice president of finance, is bound to become an unpopular figure on MCO's campus as he comes up with cutting proposals.

He's already faced criticism and some grumbling from some of MCO's 3,400 employees who are irritated that MCO is paying him $2,000 a day to fill the roles of vice president of finance and director of MCO Hospitals.



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