I want to update you after our March Board meeting with respect to the impact of the economy on the University during this and the next academic year.
These continue to be challenging times. From July 1 to December 31, 2008, the value of the University’s endowment declined by over 20 percent. During the first two months of 2009, the value of the Dow Jones Industrial Average fell by a further 19.5 percent. A decline so precipitous cannot help but cause anxiety and uncertainty about our University as well as the economy more generally.
The University is weathering the storm. I want to particularly praise the sacrifice, ingenuity and determination that so many at our University have made during this difficult period. We have again shown, as so often in the past, the nimbleness and resourcefulness to respond to a fundamental challenge.
Our primary objective in responding to the economic emergency is to protect the core programs and quality of the University. We have been sensitive to maintaining faculty and staff positions and student support, while making sufficient expenditure reductions to ensure the excellence of the University.
After a comprehensive review of the University and divisional budgets, we have achieved an approach which will preserve outstanding academic programs and patient care. New programs earlier initiated will be implemented. Student faculty ratios and class sizes will remain essentially the same.
Four factors nonetheless necessitate a significant response at this time:
- The decline in our endowment has reduced resources that can be spent to support academic divisions and the Medical Center. On June 30, 2008, our total investment pool had a market value of slightly over $1.7 billion. By year end 2008, the total had declined to approximately $1.3 billion. Our primary response to this deterioration has been to reduce the payout from the endowment. This academic year, we budgeted $93.4 million. The October 2008 Strategic Plan budgeted $98.2 million for the next academic year. For the next academic year, we anticipate reducing that amount to $83.6 million, which is 10.5 percent less than the last academic year budget and 14.8 percent less than the strategic plan budget.
- As with many of our peer universities, we have experienced a decrease in cash gifts to the University this academic year.
- To help our students and their parents with difficult economic times, some of our schools will provide more financial aid next year than this academic year. The College of Arts, Sciences and Engineering, for example, will provide $8.5 million more in financial aid next academic year. At the same time, the tuition increase in the College for the next academic year will be smaller than in recent years.
- To address expected shortfalls in Medicaid reimbursements by New York State and a structural deficit in the School of Medicine and Dentistry, the Medical Center and its affiliates have implemented a $39.8 million reduction in annual expenditures.
We have achieved economies in virtually every division of the University, including reductions in the budgets for central General Administrative and Institutional (GA & I), Operations and Maintenance (O & M) core budgets, vendor purchasing, and energy requirements for next year.
We have focused on minimizing job reductions. There has been no University-wide program of staff reductions. To date, 40 individuals in specific divisions have been laid off and 93 existing positions have been left vacant. In the Medical Center, 36 individuals have been laid off out of a total over 13,000. Some of these individuals are eligible for reassignment. There is now a higher bar to make new hires or fill existing positions. If the economic emergency were to deepen, the Medical Center and other divisions might need to make further staff reductions.
We do not anticipate changes in retirement and other benefits for next year, having recently successfully implemented a new approach to health insurance, which has slowed cost increases.
We will implement a one-year University-wide salary program. Under this program, all faculty, whether full- or part-time, will have their compensation frozen for the next academic year, with specified exceptions for market or job adjustments, promotions or tenure. Senior administrators and staff whose annualized earnings are more than $40,000 per year will have their compensation frozen for next academic year with specified exceptions for market or job scope adjustments or promotions. Staff whose annualized earnings are $40,000 per year or less will receive a one-time payment of $750 divided in two equal payments throughout the year. This program will not apply to affiliates of the Medical Center (Highland Hospital, Visiting Nurse Service, and the nursing homes) whose compensation and benefits are different than those throughout the University.
Late in 2008, I wrote to you that I would seek a freeze in my salary for next year and continue my donation to the University of 10 percent of my base salary. I now intend to go further and increase my donation to the University during this academic year to $100,000. I will direct that the increase in my contribution be used for financial aid in each of our six schools.
In our capital budgets, approximately $435 million worth of construction and renovation projects are on hold. Most significantly, these include the Clinical and Translational Science Building (CTSB), the Pediatric Replacement and Imaging Sciences Modernization (PRISM) Building and the new building for the Warner School of Education.
We anticipate moving forward on CTSB when New York State’s appropriation of $50 million is definitively committed to us and the Medical Center provides a revised budget, a financing plan and a liquidity plan. The design phase of the Warner project will continue without interruption. Several projects earlier launched, such as the Eastman Theatre Renovation and Expansion, have not been halted and will be completed.
The recently enacted American Recovery and Reinvestment Act will provide some significant opportunities to strengthen the University. Approximately $15 billion will be added to university-based research, including $10 billion for the National Institutes of Health, $3 billion for the National Science Foundation and $1.6 billion for the Department of Energy. These funds will be appropriated over two years and do not change the base funding for these agencies. This augmentation of federal research funds may lead to an increase in support of research at the College of Arts, Sciences and Engineering and at the Medical Center.
Student support will increase by $500 in Pell Grant maximum awards, $200 million for Federal Work Study and expansion of a middle income tax credit from $1,800 to $2,500.
The longevity and magnitude of the economic emergency will require us to be particularly careful with respect to major construction projects. It is clear that we will not be able to borrow up to $250 million in the first six months of 2009 as we had assumed when the strategic plans were being developed. When the economy permits, we will pursue a smaller debt program.
The economic emergency will slow implementation of our strategic plans. Notably the College, which has a strategic plan that includes faculty growth, does not plan to enlarge the faculty during the next academic year.
While our strategic plans are slowed, the Board and senior leadership team are committed to continuing them.
Momentum from initial implementation of our strategic plans already is serving us well. Applications for enrollment next academic year to the College, for example, recently crossed the 12,000 threshold for the first time in our history, in part because of the popularity of new programs in international relations, financial economics and economics and business strategies. This momentum may continue as new programs in public health and engineering are introduced. Applications for enrollment next academic year have also increased from this year’s levels for the School of Nursing, the Simon Graduate School of Business, and the Warner School of Education.
The University continues to succeed in its research mission. Last year, in aggregate, the University received a total of $389 million for sponsored research. Research expenditures expanded by 7.9 percent during the first six months of this academic year.
A pillar of our momentum has been the support of our alumni and friends. In the past three years, gifts to the University grew from $69.9 million to $84.7 million to $109 million last year. During these years, the University added a total of 20 new professorships, initiated the George Eastman Circle, our first University-wide leadership annual giving society, now with 1,096 members, and provided resources to a number of new buildings, including the Robert B. Goergen Hall for Biomedical Engineering and Optics, the James P. Wilmot Cancer Center, the Eastman Theatre Renovation and Expansion project and the Aab Cardiovascular Research Institute. While the current year likely will lag behind last year’s results in cash received, our future growth in advancement likely will continue in part because of a significant surge in pledges this year led by Board Chair Ed Hajim’s $30 million commitment to the School of Engineering and Applied Sciences.
I am gratified at how well the Board of Trustees, faculty, students and staff have pulled together during a time of economic crisis unlike any we have experienced during our adult lifetimes. I am particularly grateful to our alumni and friends for their support during this difficult time. We will get through this and I am optimistic that our University will continue to progress and implement our strategic plans.