Prudent planning helps University deal with volatile economic conditions

While Princeton is not immune from the effects of the nation's economic downturn, prudent long-term planning is helping University administrators meet the financial challenges and respond to additional needs for financial aid.

In two recent University community forums, President Shirley M. Tilghman, Provost Christopher Eisgruber and Vice President for Finance and Treasurer Carolyn Ainslie discussed the University's response to the current economic climate.

"These are hard times," said Eisgruber at the Nov. 10 meeting of the Council of the Princeton University Community (CPUC). "No institution, including this one, can be entirely insulated. We are in the process of looking at our budgets and our operations to find the right ways to adjust for what we are seeing."

"On the other hand," he added, "I also want to emphasize there's no sense in which Princeton is specially exposed to the economic climate in which we are right now. When we plan as an institution for our future, we budget in a way that assumes not only that there will be good times but there will also be hard times. During the past few years in which we have enjoyed very strong markets that yielded very strong returns on our endowment, we have been criticized for not spending enough. Shirley Tilghman and others responded to that by saying that we don't plan on the basis of what happens in one year -- we plan looking at the long term, recognizing that there will be bad years as well as good years."

Addressing the Nov. 3 faculty meeting, Tilghman said that administrators have analyzed this academic year and see no reason to implement programs such as hiring freezes or budget cuts. However, teams are examining the timing and scope of projects that are part of the University's 10-year, $4 billion capital plan.

At the CPUC meeting Eisgruber said that the University will have to delay some construction projects and that salary increase pools will be smaller than in recent years. He and Tilghman both emphasized the University's commitment to meeting its highest priorities, including sustaining the strength of its academic programs and its landmark financial aid program.

"We will be need-blind in our admission, and we will meet the full need of our students who come here," he said. "We recognize that our students will be experiencing greater need as a result of the circumstances in which they and their families find themselves because of current economic conditions, and we will be stepping up to meet that need."

The Office of Financial Aid estimates it will spend an additional $3 million to $4 million this year to meet the increased need.

"I've told [Financial Aid Director] Robin Moscato to meet every single request and to make sure there is not a single student who leaves because he or she can't meet the financial obligation to the University," Tilghman said.

In response to a question about whether the University would be able to maintain income levels for graduate students, Eisgruber reaffirmed the importance of graduate students to the University and said the University would do as much as it could regarding salaries and stipends for all groups.

"This is part of what the Priorities Committee has to contend with, in that we will be looking at the pressures felt by all parts of our community," Eisgruber said. "We recognize how important our people are to the core of what it is we do."

Ainslie, who joined the University Oct. 1 but has worked in the field of university finance for more than 20 years, provided an assessment of Princeton's current financial condition at the CPUC meeting.

"Princeton is incredibly financially healthy," she said.

She based this evaluation on factors such as an AAA bond rating, endowment performance, diversity of revenues, a strong fundraising and alumni base, a robust demand for undergraduate and graduate programs, a manageable debt burden, and stable and experienced leadership.

The endowment, which this year accounts for 48 percent of the University's operating budget income, stood at $16.3 billion at the end of the last fiscal year on June 30, 2008. The investment return for the year was 5.6 percent, compared to 24.7 percent the previous year. The 10-year annualized return through June 30, 2008, was 14.9 percent.

Princeton's endowment spending policy allows the University to achieve a balance between present and future needs. The University's spending rule states that the amount of income distributed per unit of endowment will increase each year by 5 percent. The goal is to achieve a spending rate (the amount of endowment income distributed per unit of endowment divided by the unit market value of the endowment) of between 4 percent and 5.75 percent. If spending falls outside that range for a period of time, the University reviews its spending to determine whether adjustments are required.

"In looking ahead, we will continue to monitor the activity of our markets as we think about endowment payout," Ainslie said.

Showing the final slide of her PowerPoint presentation, she indicated that administrators will continue to monitor the overall financial environment and will draw on the University's well-established and thoughtful budget process to ensure financial health and stability. The goal, she explained, is to develop reasonable and balanced annual budgets with appropriate reserves and contingencies that allow the University to sustain its core mission without dramatic changes during the fiscal year.

Eisgruber concluded by noting one major project that will continue full-steam ahead: the University's five-year $1.75 billion fundraising campaign launched a year ago. "The campaign continues to go forward with enthusiasm," he said.