Tilghman describes additional steps to deal with economic downturn
In an April 6 letter updating the University community on the impact of the economic downturn, President Shirley M. Tilghman outlined additional budgetary measures to be taken because of continued decline in the value of the financial markets.
They include the elimination of raises for tenured faculty and staff with salaries exceeding $75,000 and a reduction in the 2011 fiscal year budget similar to the reduction already called for in the 2010 fiscal year budget for a two-year total of $170 million in savings.
Tilghman sent a letter to the University community on Jan. 8 warning of an expected 25 percent decline in the value of the University's endowment by the end of the 2009 fiscal year. The endowment provides more than 45 percent of Princeton's operating revenue.
"The markets have continued to decline in value, and Andrew Golden, the president of the Princeton University Investment Co., has now advised us that we should be planning for a 30 percent decrease in the value of the endowment on June 30, 2009, the end of our fiscal year," she wrote. "This is, of course, a 'best guess,' but it is one that we must take seriously."
Tilghman said that administrators had been forced to revisit the 2010 budget to identify additional savings. As approved by the Board of Trustees in January, the budget contained a modest salary increase pool directing the largest percentage increases to untenured faculty and lower-paid staff. All increases were capped at $2,000.
"In a variety of settings over the last few months, we have heard from both faculty and staff that they would be willing to forego their increases to minimize the number of layoffs that might affect their co-workers," she wrote.
She noted that Provost Christopher Eisgruber sought the advice of the members of both the Priorities Committee and the Committee on Appointments and Advancements (the Committee of Three) on a proposal to eliminate raises for tenured faculty and for staff with salaries exceeding $75,000, while continuing to provide increases for most untenured faculty and for staff with salaries under $75,000.
"These representatives of the community who participate in setting salaries each year encouraged us to take this step, which will result in savings of approximately $4 million next year, and the Finance Committee of the Board of Trustees accepted this recommendation last weekend," Tilghman wrote. "I deeply regret that this action will add to the financial challenges that many of you face."
With the likelihood that it will take multiple years to restore the value of the University's endowment, Tilghman said that the University must begin planning beyond the coming academic year.
"Even with the substantial savings we anticipate in the 2009-10 academic year, we will be spending 6.7 percent of the endowment's value next year, well outside our target range of 4 to 5.75 percent," she wrote. "If we are to preserve the spending power of the endowment for future generations, we must begin to bring our spending closer to the policy that governs how much of the endowment we may prudently spend each year."
Each department already has been asked to prepare for a 5 percent reduction in its non-personnel administrative budget and an 8 percent decrease in its income from restricted endowment accounts for next year. These savings, when combined with other centralized actions taken by the administration, will result in an overall reduction of $88 million in the 2010 budget. That figure represents a 6.8 percent reduction in the operating budget from this year's $1.3 billion budget.
"We are now certain that a reduction of similar magnitude will be required in the 2010-11 academic year, which means another 8 percent cut in endowment spending on top of this year's reduction," Tilghman wrote. "Even with this further belt-tightening, we will not be in compliance with our spending policy for at least another year after that."
She noted that department managers will receive two-year savings targets from the provost in the near future. "There is no question that this overall two-year target of $170 million in savings will be difficult to achieve, as the first round of cuts eliminated the majority of things that were relatively easy to forego," she wrote.
"The steady growth in both faculty and staff that we have enjoyed over the last 10 years will end, and the University will have to contract in size," she added. "However, if we do this carefully and responsibly it is my conviction that the University will come through this difficult period stronger than ever. This is a time that calls for us to be as thoughtful as possible about what is most important to the success of Princeton, and to preserve those qualities aggressively."
Tilghman said the revised estimate for the endowment's performance also will affect the 10-year capital plan. She said the slowdown in all new projects implemented in January remains in effect. Decisions to go forward with a renovation or new construction project will be made on a case-by-case basis, contingent upon having 100 percent of the funding. Additional resources could come from the stimulus package passed by Congress, which contains some funding for infrastructure.
As stated in her earlier letter, the University is continuing to move forward with designs and approvals for the highest priorities in the capital plan: the new home for the Lewis Center for the Arts, the Neuroscience Institute and the Andlinger Center for Energy and the Environment. "It is our intention to be 'shovel ready' at the moment when funding becomes available," she said.
Since writing her January letter, Tilghman said she has been "greatly heartened by the thoughtful response of the community" to the goals of protecting the commitments that are most central to the University's mission: maintaining its historic leadership in financial aid for undergraduates and fellowship support for graduate students; preserving and enhancing the quality of the faculty; and sustaining the quality of its dedicated staff.
"Because of your willingness to make hard but strategic choices, we can say with confidence that we have been able to reduce our spending without compromising the quality of the education we provide or the research and scholarship we conduct," she wrote.
She also expressed appreciation for the "loyalty and generosity" of alumni, parents and friends. "As I have traveled around the country over the last three months, I have been continually struck by the larger than expected turnouts at Princeton events, and the interest in and concern for the impact of the downturn on the University expressed by everyone I meet," she wrote.
In addition, Tilghman thanked the members of the University leadership and staff who have worked on the budget planning process, and "all members of the Princeton community who have worked in partnership with them, without complaint and with both inventiveness and determination, to execute the plan." She concluded, "I am truly grateful that the sense of community we celebrate in good times is in such clear evidence when times get tough."