Tilghman details impact of economic downturn
Posted January 8, 2009; 09:00 a.m.
While Princeton remains fully committed to its financial aid program and other high-priority initiatives, the current economic downturn has reduced the value of the University's endowment and has led officials to adjust future spending projections, President Shirley M. Tilghman told members of the campus community in a Jan. 8 letter.
Tilghman noted that, through Oct. 31, the University's endowment had declined by 11 percent during this fiscal year and that officials are planning for the possibility of a 25 percent decline by the conclusion of the fiscal year on June 30. In her letter, she detailed projections for how the economic turbulence will affect the University's operating budget, faculty and staff recruitment and compensation, and capital planning.
Tilghman stressed that Princeton remains committed to meeting the full financial need of students who qualify for aid. She said that the Priorities Committee will recommend the lowest percentage increase since 1966 in undergraduate tuition and fees for 2009-10 -- 2.9 percent -- in recognition of the impact of the financial downturn on tuition-paying families. The committee also will recommend a 3 percent increase in graduate student stipends and that the largest percentage increases in faculty and staff salaries for next year should be directed to the University's lowest-paid employees.
"Fortunately, Princeton planned conservatively during the good years, knowing full well that markets go down as well as up," Tilghman wrote. "Though this year's downturn is deeper than what anyone could have imagined, Princeton will be able to protect its key assets. Foremost among these is our human capital -- the students, faculty and staff who are the vital heart of a great scholarly enterprise."
Tilghman said that the current value of the endowment, which provides more than 45 percent of the University's operating revenue, is difficult to pinpoint. Values for nonmarketable investments, which make up more than half of the endowment portfolio, are reported only with lagged estimates until the end of each fiscal year.
"Although we cannot know what the next six months will bring, we believe it is prudent for the University to plan for the possibility that its endowment will have declined by 25 percent at the end of the fiscal year," she wrote.
Princeton's policy is to increase the endowment's contribution to the operating budget each year by 5 percent, as long as the amount is between 4.0 percent and 5.75 percent of the value of the endowment. The spending level is adjusted up or down if it falls outside of that range. On five occasions in the past 11 years the University has made special upward adjustments, and this year's spending rate is 4.76 percent.
"Looking ahead … a 25 percent decline in the value of the endowment would put our spending rate well above the upper limit of our range," Tilghman wrote. "To bring spending closer to the upper limit, we are planning to reduce the endowment's contribution to the University's general funds operating budget next year by $50 million. Even with this reduction, our spending rate would remain outside our target range, exceeding 6 percent, but we believe this spending level represents a measured response to the current economic climate."
One area where the University is not planning to make reductions is in financial aid. "We are completely committed to meeting the full financial need of the students who will be admitted this year, as well as currently enrolled students, some of whose families have already been affected by the recession," Tilghman wrote.
She noted that the University has met an unanticipated increase of some $5 million in demand for financial aid this year through gifts made during the 2008 Annual Giving campaign.
The University's Priorities Committee, a group of faculty, staff and students that recommends an operating budget each year, has proposed the 2.9 percent increase in the undergraduate tuition and fee package for 2009-10, which will be acted on by the trustees at their Jan. 24 meeting. The increase will not affect any student on financial aid, since the undergraduate scholarship budget also will be increased. Next year's undergraduate financial aid expenditure is expected to increase by $12 million, or 13 percent, over this year's budgeted amount.
Compensation and hiring
The committee also is recommending the 3 percent increase in graduate student stipends and the policy on faculty and staff salary increases. Tilghman noted in her letter that the maximum increases next year for tenured faculty and the highest-compensated staff will be capped at $2,000.
Tilghman also announced several other measures regarding faculty and staff employment:
- Searches for new faculty already authorized may continue, but any new requests to initiate or reopen searches will be reviewed by Dean of the Faculty David Dobkin.
- Dobkin will work with academic units to minimize the number of visiting faculty and fellows who come to campus next year.
- New searches for term, temporary or regular staff members must be approved in advance by a review committee composed of Provost Christopher Eisgruber, Executive Vice President Mark Burstein and Vice President for Human Resources Lianne Sullivan-Crowley. The committee also will review the status of searches currently under way to determine if any can be delayed.
Capital and other planning
Tilghman said that additional areas slated for review include the University's 10-year capital plan as well as other aspects of operations.
As announced in late November, administrators have reduced the cost of the capital plan by more than $300 million by delaying construction on some projects and scaling back on others. Tilghman wrote in her letter that opportunities for additional savings will be sought, but that two major projects -- the new Butler College dormitories and the new chemistry building -- will be completed as planned.
"To ensure that we are poised to rebound rapidly when the economic climate improves, we will continue to design and seek public approvals for high priority projects such as the new home for the Lewis Center for the Arts, the new psychology and neuroscience buildings and the Andlinger Center for Energy and the Environment, but authorization to begin all construction and renovation projects will be made on a case-by-case basis, contingent on funding," she wrote. "The projects in the capital plan are critical to the future of the University, and we are hopeful that they will move forward as soon as economic conditions allow."
Finally, Tilghman announced that all nonpersonnel administrative budget allocations will be reduced by 5 percent in the 2010 fiscal year. In addition, departments with restricted endowed funds should plan for an 8 percent decrease in their annual allocations from these funds, she wrote.
A website that describes the cost-savings initiatives is available at www.princeton.edu/savings. There is a suggestion box on the website for those with ideas to share.
"I am confident that we will be able to call upon the ingenuity and competitiveness of the entire Princeton community to help us identify and deliver ways in which we can reduce non-essential costs," Tilghman wrote.
She noted that the University's five-year, $1.75 billion Aspire fundraising campaign, launched in November 2007, will continue on schedule. "The initiatives embodied within the campaign are the University's highest priorities, and I am thankful for the energy that Princeton's volunteers, donors and friends have brought to the achievement of these goals," she wrote. "A campaign is a marathon, not a sprint, and I remain very optimistic about the prospects for success."
She concluded her letter by encouraging members of the University community to continue to work together on planning creatively for the future. "While all of us would prefer a different set of challenges and a sunnier economic forecast, I am cheered by the commitment and spirit that the entire Princeton community has already shown in these difficult times," she wrote. "I cannot imagine a better group of partners with whom to approach the tasks ahead, and I very much look forward to working with all of you in the New Year."