Reducing the pace of growth at ETH

It is important to note up front that ETH Zurich’s financial health continues to be fundamentally sound, underpinned by a solid equity base. However, it remains true that the university has expanded tremendously in recent years, and our financial commitments have grown accordingly.

Growth on all levels

All academic departments have proposed many ideas for new priorities and professorships, which in some cases has led to significant growth in recent years. The Executive Board has been closely working together with several departments to strengthen strategic focal points and has embraced some new and highly relevant academic fields (energy, healthcare, digitisation, artificial intelligence, quantum technology, etc.). This has also helped the university meet the challenges posed by its growing student body, which has risen from around 13,000 in 2007 to over 23,000 today (+77%). Furthermore, the Executive Board also used the ETH+ funding instrument to strengthen its focus on interdisciplinary topics, substantially reducing the university’s free reserves in the process – an explicit request from the federal government. Expenses for central units and technology platforms have also grown in parallel.

Growth needs to be financially sustainable

This dynamic pace of growth has brought about many long-term financial commitments in research and teaching, requiring a substantial investment in the university's infrastructure. Our future budgetary needs will continue to climb noticeably as a result of these developments. One complicating factor is that over the past four years, the federal government’s funding contribution has not risen by 2–2.5% annually as expected. The university has been able to somewhat compensate for this funding gap thanks to an increase in third-party funding, donations and profits from investments. ETH Zurich receives over 70% of its funding directly from the federal government, which is facing large deficits from the fallout of the ongoing coronavirus pandemic, so we must brace ourselves for what we expect to be tougher financial times over the next several years.

Taking action to slow expansion

ETH Zurich will need to substantially slow down its recent rapid growth rate to ensure that the university can continue to fulfil its core missions of teaching, research and knowledge transfer while keeping its finances in check. “This does not mean that we generally need to cut back or downsize,” explains ETH President Joël Mesot. “However, we need to take action now and re-prioritise our growth plans. This is the only way to ensure sufficient financial leeway for strategic developments. We have long ‘braking distances’ in this regard, since ETH has a lot of expenses related to highly long-term commitments like construction projects and professorships.”

Supplemental budget and solidarity contributions for real estate

The recent pace of growth has been a particularly great challenge for real estate management at the university. Last year was exceptional in terms of investment, with record amounts going towards several large ongoing construction projects. For the next several years, the university had also foreseen investments in construction and renovations that would have exceeded sustainable levels. The Executive Board wants to reduce annual spending in this area to an affordable level of between 180 and 200 million Swiss francs over the medium term. Given this scenario, the Executive Board has suspended the renovation and expansion of the MM building and the Polyterrasse site. “One of the reasons we decided to put the expansion on ice is so that we can prioritise important academic projects,” says Ulrich Weidmann, Vice President for Infrastructure.

With four large-scale real estate projects currently close to completion, stopping the MM and Polyterrasse projects will not free up much in the way of funding for small and medium-sized projects for the 2021–2024 period. For this reason, the Executive Board has approved a one-time supplemental real estate budget of CHF 25 million plus CHF 8.5 million in additional funding. All departments have also agreed to an initial solidarity contribution totalling CHF 15 million for the current year. This constitutes a 2.27% shift of reserves in each department's annual basic budget.

All departments have also been asked to extend their combined annual CHF 15 million contribution to the next three years in order to finance university-wide infrastructure projects for teaching and research. “Our academic growth and the resulting need for space and facilities have made it a necessity to continue carrying out key infrastructure projects, but this wouldn't be possible with the budget provided by the Executive Board alone. We are counting on the support of everyone in our departments and hope that over the next few months we can clarify the details for making these additional contributions,” says Robert Perich, Vice President for Finance and Controlling. “That would be a strong and positive sign of solidarity and would show that we all have each other's back in challenging times.”

Downsizing our wish lists

In addition to the action taken regarding real estate projects, the Executive Board requested last autumn that all academic departments should review and reprioritise any additional professorships that they had requested for the future. This was done with the aim of dampening long-term growth and ensuring that professorships and the infrastructure they require can be funded over the long term, even during times of economic difficulty. The same applies to central units at ETH: Executive Board offices, staff units, administrative departments and technology platforms were all asked last summer to revise their planning and reduce their needs by a combined total of around 20 million francs per year.

“For many of us accustomed to the expansion of recent years, this process may be painful and come as a surprise. However, we should not forget that we are in a very comfortable position compared to our peer institutions internationally. We basically don't have to give anything up, but rather need to reduce the size of our wish lists,” says Mesot. “I believe that this will create a foundation where we can continue to run smoothly and sustainably finance our operations while ensuring that we are equipped for the future despite the challenges.”

A word with Robert Perich

Mr. Perich, the academic departments have been asked to make solidarity contributions and reassess their professorial planning. Is ETH running out of money?
No. ETH Zurich is fundamentally in good financial health and has a solid equity basis. Over the past five years, we have always posted positive annual results, even under the new, more transparent IPSAS accounting standards. We're now simply facing a reduction in the growth of federal funding and should expect that these funds are more likely to decrease rather than increase in the future. So it's our duty to react in a timely manner and start slowing down our growth. We don't want to stand in the way of important infrastructure projects though, so everyone needs to chip in – both the central service units as well as the academic departments.

Many people are surprised by this call to cut costs. Just a short while ago, we heard that ETH should be reducing its reserves and growing in strategically important fields. Was this a miscalculation?
It's important for me to clarify that we are not in any way talking about cutting costs, like what's happening at the moment in a lot of private companies and industries where people are facing short-time work, layoffs and business closures. We are talking about not being able to continue our previous rate of growth for the next several years. We will have to rethink our priorities and be even more selective in deciding where we choose to invest or what things on our wish list we can do without. Admittedly, after years of experiencing average annual growth in federal funding of 2.5–3%, we were expecting that federal contributions would develop more positively in the future. But our plans are always subject to these kinds of uncertainties. We are still in a comfortable position where we can react in a timely manner and adjust our plans so that we continue standing on solid ground.

Now the academic departments have to step up and reduce their own budgets in order to cover for central infrastructure projects. This probably hasn't sparked a lot of joy...
I completely understand that people aren't happy about this news. People are getting less than they wanted. For the time being they might have to do without a new professorship that was in the pipeline. It hurts. But ultimately, everyone at ETH operates within the same global budget. Investments in infrastructure aren’t just made for the sake of it, but are rather something that is of immediate benefit to the academic units as well. Now everyone, no matter whether they're in an academic department or a central service unit, has to pitch in to make sure that ETH stays on a sustainable financial course.

Should we count on more of these surprises in the future?
As I said, all plans are based on frameworks and assumptions that are inherently unpredictable and subject to change. Add on top of that the fact that ETH has to plan very far in advance, as the decisions we take today are often connected to very long-term financial obligations. A newly established full professorship requires, on average, more than 23 years of commitment from ETH Zurich as well as an investment of a few dozen million francs, based on full costs. So we all have to live with uncertainty and accept that sometimes plans have to be adjusted.

The ongoing corona crisis hasn't immediately made itself felt in ETH’s funding, but at some point the federal government could start making cuts. What would that mean for ETH?
It's currently still too early to talk about the concrete impact on ETH’s finances. But when you consider the enormous amount of new debt created to mitigate the impact of the corona crisis – we're talking about well over 30 billion francs here – it becomes clear that the federal government will be facing immense fiscal challenges over the next several years. It would be naïve and almost even a bit arrogant to assume that we won't be affected. This makes it all the more important for us to proactively take action to ensure that our long-term financial commitments grow more slowly.