The school tabled some construction plans and may have to curtail recruiting of "star" faculty in areas such as diabetes research, said Dr. Craig Brater, the school's dean.
On top of that, the school cut 36 positions and halted spending for several programs after it was hit by decreases in state funding and grants, and a rise in expenses.
Brater said the medical school has been lucky "in large part" to receive the funding it needed over the years. He also said he realizes the state has budget problems of its own to deal with, but the School of Medicine needs investment just like any other business.
"If you want to relocate a new company to Indiana, that's going to require an investment," he said. "If you want to see new research flowing into here or Purdue or IUBloomington, it's going to require an investment."
The decrease in state funding, Brater said, was the main reason behind the worst cuts the medical school has seen in decades, although several other factors also played a role.
The School of Medicine's allocation from state government will fall from $87 million in the current fiscal year to $84.7 million in the year starting July 1, according to Brater. But the actual cut goes deeper.
It amounts to a 10-percent reduction in spendable money, or what's left over after the school pays assessments for centralized services that the university system provides.
The resulting fallout of job losses and program reductions surprised many people at the state level, said Kent Weldon, Indiana's deputy commissioner for higher education.
"Nobody ever thought, 'Oh geez, we're going to whack Brater's budget by [$5.2 million],'" Weldon said.
The state Legislature's main funding priorities for higher education included enrollment growth, need-based grants and maintenance, said Rep. Jeff Espich, R-Uniondale, chairman of the House Ways and Means Committee.
Many schools received a "modest cut" in overall funding, he added. Both Espich and state Sen. Luke Kenley, RNoblesville, said the decision to make further cuts ultimately lies within the halls of Indiana University.
"Sometimes we live with their decisions whether we think they're exactly right or not," Kenley said.
The medical school was not alone in taking cuts this spring. More than 90 positions will be eliminated across the IUPUI campus due to shortfalls.
However, the medical school was the single area hardest hit on the IUPUI campus, IUPUI spokesman Rich Schneider said.
Indiana University maintains the second-largest medical school in the nation, according to spokeswoman Mary Hardin. It includes about 1,200 faculty and 2,500 students spread over nine Indiana campuses.
The school's main campus is located at IUPUI, where all students attend their final two years of classes.
Brater called the funding reduction and resulting fallout a good example of "unintended consequences." Bad timing played a large role.
That state reduction arrived for the same fiscal year in which the school projects an $825,000 decrease in research grants. That leads to another punch in the gut.
Federal grants pay for direct costs associated with a research project and indirect costs. For every $1 the National Institutes of Health awards, for instance, it also provides 50 cents in support money for things such as paying utility bills, according to Duane Gaither, the school's executive associate dean for administration and finance.
When grant money declines, so does that indirect support.
While less money is coming in, more may have to go out. School officials project a 6-percent increase, up to $42 million, for the assessment the school pays to cover heat, lighting and other utilities.
The school did raise tuition for the coming year, a move that will add more than $2 million, Hardin said.
But Brater said the medical school's base budget has stayed flat the past few years.
"There's a limit to what we can do and what we can sustain programmatically if the base budget continues this trend," he said.
Deciding what to cut
Brater said medical school leaders followed the state General Assembly budget process throughout the spring and started talking about how to address a shortfall after numbers came into focus.
"We first sat down and said, 'OK, here's the magnitude of the challenge.' And then we said, 'Philosophically, how do we want to deal with it?'" Brater recalled.
They decided to have the central administrative portion of the school's general fund, or base budget, absorb most of the blow.
The alternative would have been to spread cuts among the school's 26 academic departments, a move that might have dampened their development. Brater noted that the school has launched a bioinformatics program and hired new chairpeople for surgery and biochemistry.
"We brought them here with the challenge to build their departments and their programs," he said. "We thought it would be inappropriate to turn around and take resources away from them."
Therefore, cuts focused on areas such as the Ruth Lilly Medical Library, which will lose six positions and start operating on reduced hours. The school also cut five jobs from its visual media office, which includes medical illustrators and videographers.
"Of course, you never think there's any fat," Brater said. "But we thought there were some areas that could deal with it better."
School leaders aimed their cuts at areas that might be repaired quickly if they went too far. Brater noted, for instance, that it would be easier to find a replacement for visual media in the local job market as opposed to a grant administration expert or a professor with a narrow research focus.
They also curtailed funding for some programs that fall outside the central focus of a medical school. This includes the "Sound Medicine" public radio show and the Mini Medical School it hosts for the community.
The end result
All told, 23 people learned they will lose their jobs after the new fiscal year starts July 1. The school eliminated 36 positions, including 13 vacant jobs.
"We've had lean years over the past decades, but this is the first time we've had major cuts like this," said Gaither, who has spent more than 38 years at the school.
Beyond the hard numbers of jobs lost lies the life sciences impact.
Brater said the school can still continue projects such as its new Research III building. But they've tabled plans to build some much-needed research space along the Central Canal downtown for the vascular biology program.
Brater said the school has some "real opportunities" to bolster its diabetes program with elite researchers. However, recruiting those people may be tough.
"Some stars have indicated to us they would like to move here if we can make that happen," he said. "Well, I'm not sure we can identify the resources to make that happen."