President’s Pages in Princeton Alumni Weekly
The New Normal
June 10, 2009
In January I wrote to the members of the Princeton community to provide an update on the impact of the economic downturn on the University’s finances and to outline the steps that we were taking to protect the core teaching and research missions of the University. Unhappily, the news from the financial markets got worse, and in April Andrew Golden, the president of the Princeton University Investment Company, advised us that we should be planning for a 30% decrease in the value of the endowment on June 30, 2009, the end of our fiscal year, rather than the 25% we were using in our budget projections for next year. Furthermore, because of continuing uncertainty about the timing of a sustained market recovery, we are adopting the conservative assumption that the endowment will remain flat for the next fiscal year.
With these projections in mind, we revisited the 2009–10 academic year budget, which was approved by the Board of Trustees in January, to identify further savings, and have set additional savings goals for the 2010–11 academic year. We reluctantly eliminated salary increases for all but the lowest paid staff and untenured faculty for the coming academic year, thereby achieving over $4 million in savings. We will reduce spending from the endowment by 8% for each of the next two years, and we have asked each department and program to reduce its budget by 7.5% over these two years, for a total reduction in our operating budget of $170 million by academic year 2010–11. At the same time, all new construction and renovation projects continue to be on hold until the means to finance them have been identified.
Even with this significant belt-tightening, we expect to spend 6.7% of the endowment’s value in 2009–10, well above our target range of between 4 and 5.75%. While dipping even more deeply into our endowment would offer additional short-term relief, it would compromise our ability to give future generations of Prince-tonians the outstanding education they deserve. We believe it is appropriate to spend somewhat above the target range for a limited period of time, but it is also critical to put a plan in place that will return us to that range in a measured way.
While we have been prudent in our spending policies over recent years, the exceptional growth in the value of our endowment allowed us to strengthen our financial aid program, enlarge the undergraduate and graduate student bodies and inaugurate the four-year college system, expand and renew the campus, and create exciting new academic initiatives. Going forward, we want to preserve the most important steps we have taken, but we also must prepare ourselves for what Provost Chris Eisgruber ’83 has aptly dubbed the “new normal.” We continue to benefit from very substantial resources, but the Princeton of tomorrow will be leaner than the one we know today.
My conviction that we will come through this difficult period stronger than ever has been reinforced in the past few months by our University community’s remarkably energetic and thoughtful response to Princeton’s altered financial circumstances. Well before the start of the next fiscal year, we have identified over 90% of the $88 million we are aiming to save in 2009–10, thanks to everyone’s willingness to make do with less and, in many cases, to propose cost savings of their own. Some 350 suggestions have been sent to email@example.com , including a number from alumni. From cancelling the annual staff picnic, to re-evaluating our policy of unlimited free printing, to circulating faculty minutes electronically, to setting up reunion tents in a way that allows us to reuse all the underlying platforms, people are stepping forward with ideas and pulling together to change the way we operate, even when they themselves will feel the pinch. Cost savings are also being pursued at a University-wide level, including a rigorous evaluation of all new and vacant positions to ensure that only the most critical are filled, new procurement policies that leverage Princeton’s buying power more effectively, and a multifaceted energy strategy that will lower our consumption by 26% in the next seven years, yielding annual savings of $8.5 million and simultaneously reducing our carbon footprint. Our entrepreneurial scientists and engineers, led by Dean for Research Stew Smith *66, have been aggressively pursuing federal stimulus funds to support research and improve our laboratory facilities.
Our alumni and students have also stepped up to the plate. The undergraduate student body recently voted to donate the $60,000 reserved for a student government-sponsored fall concert, as well as other funds, to student-initiated service projects that will benefit those in our neighboring communities who have been hard hit by the downturn. And alumni, many of whom are under financial strain themselves, have turned out in large numbers at regional events and have participated in this year’s Annual Giving campaign in numbers that, as of mid-May, have almost pulled even with those of last year at this point and, we hope, will soon exceed them.
While some may look to economic indicators for signs of encouragement in these trying times, Princeton can also look to its faculty, staff, students, and alumni, who have risen to the fiscal challenges confronting us with resolution, generosity, and imagination. I could not be prouder of them all, or more grateful.