Tilghman letter updating the University community on Princeton's response to the economic downturn
Letter sent by President Shirley M. Tilghman on April 6, 2009
Dear members of the Princeton University community,
I am writing to provide you with an update on the continued impact of the economic downturn on the University. Since I wrote to you in January, I have been greatly heartened by the thoughtful response of the community to the goal we set for ourselves: protecting those commitments that are most central to our mission. These include maintaining our historic leadership in financial aid for undergraduates and fellowship support for graduate students; preserving, and whenever possible, enhancing the quality of the faculty; and sustaining the quality of our dedicated staff. We have sought to preserve our human capital by achieving vacancy savings on both the academic and administrative sides and by identifying categories of spending where we could conserve or do without. 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. We also continue to benefit from a long tradition of prudent management of the University's resources, which puts us in a relatively strong position to weather the economic storm. Finally, the loyalty and generosity of our alumni/ae, parents and friends remain a source of great strength. 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.
Unhappily, the news from the financial markets has not improved since January. Indeed the markets have continued to decline in value, and Andrew Golden, the President of the Princeton University Investment Company, has now 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 have been using in our budget projections for next year. This is, of course, a "best guess," but it is one that we must take seriously.
As we respond to this more pessimistic outlook for endowment earnings, we have been forced to revisit the FY2010 budget that was approved by the Board of Trustees in January to identify additional savings. That budget, you may recall, contained a very modest salary increase pool that directed the largest percentage increases to the University's untenured faculty and lower-paid staff, and capped all increases 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 lay-offs that might affect their co-workers. Given the new estimate of reduced endowment income, Provost Chris 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. I deeply regret that this action will add to the financial challenges that many of you face.
It is also essential that we begin to plan beyond the coming academic year. Over the last two months Provost Eisgruber and Executive Vice President Mark Burstein have described in a variety of campus meetings the impact of the market downturn on the financial status of the University, emphasizing that it will take multiple years to restore a decline of 25% in endowment value. With the prospect of a 30% decline in value by June 30, 2009, followed by the likelihood that next year will see no rebound in earnings, we must begin detailed planning for that multi-year budget reduction process now. Even with the substantial savings we anticipate in the 2009-10 academic year, we will be spending 6.7% of the endowment's value next year, well outside our target range of 4-5.75%. 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.
For the coming academic year each department has already been asked to prepare for a 5% reduction in its non-personnel administrative budget and an 8% decrease in its income from restricted endowment accounts. These savings, when combined with actions taken centrally, will result in an overall reduction of $88 million in the FY2010 budget. This represents a reduction in the operating budget of 6.8%, based on 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% cut in endowment spending on top of this year's reduction. Even with this further belt-tightening, we will not be in compliance with our policy for at least another year after that.
In the near future department managers will be receiving from the Provost a two-year savings target to be achieved by FY2011, which will include the savings they have already planned for in the coming year. 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. 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. 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.
The revised estimate for the endowment's performance will also affect the 10-year capital plan. The slowdown in all new projects, which we put in place in January, remains in effect, and any decision to go forward with a renovation or new construction project will be made on a case-by-case basis, contingent on having 100% of the funding in hand. The stimulus package that was just passed by the Congress contains some funding for infrastructure, and Dean for Research Stew Smith is actively seeking to attract some of those resources to Princeton. In the meantime we will continue to move forward with designs and approvals for the highest priorities in the 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.
Let me conclude by thanking Provost Eisgruber, Executive Vice President Burstein, Dean of the Faculty David Dobkin, Vice President for Finance Carolyn Ainslie and Vice President for Human Resources Lianne Sullivan-Crowley, as well as the many members of their staffs, who have worked so tirelessly over the last several months to implement these painful but necessary budget cuts. And I thank 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. I am truly grateful that the sense of community we celebrate in good times is in such clear evidence when times get tough.
Shirley M. Tilghman