FROM THE PRESIDENT

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Maintaining a Balanced Budget

To the University Community:

As we begin 2002, we can look back over the past few years on a great number of achievements in which we can all take pride. Our investments in the campus and the community have produced real improvement in both, with new academic facilities and neighborhood amenities that have made Penn and University City such appealing places to study, work and live. Our reputation as one of the world's foremost research universities has continued to grow, enhanced by the addition of outstanding scholars and the creation of important new research programs. Our endowment performed well this past year, posting a positive return in the face of a general market decline. Our Health System has returned to profitability. We have met virtually all of the major institutional goals mapped out in our five-year Agenda for Excellence, in many cases surpassing them.

All of this leaves us well positioned for the future. But we are now operating in a different climate from the one we enjoyed in years past. The economic downturn that began last summer has been exacerbated by the events of September 11 and has spread throughout the nation. Each day's news brings new stories of corporations cutting back on their operations and laying off workers. Although we are fortunate to be in a sector that fares better in times of recession than the economy as a whole, we are not completely immune to the current economic situation.

Our operations have been affected by recent economic changes in several ways. The biggest impact is in the cost of employee healthcare benefits, where our costs have taken a sudden jump, climbing 13 percent this year after a decade of much more modest annual increases. More students are applying for financial aid now than in recent years, as layoffs and corporate downsizing have reduced some family incomes. The decline in the economy has also caused state revenues to fall. This has already led the Commonwealth of Pennsylvania to reduce its appropriation to the University by one percent this year, and further reductions are possible in light of the state's fiscal straits. We are seeing across-the board increases in our insurance costs, as insurers raise rates to pay for claims related to the terrorist attacks of September 11. We are also experiencing declines in enrollment in our executive-education programs as companies cut back on expenses.

All of these changes mean that we must take corrective steps now if we want to maintain a balanced budget and continue to make important investments in our key academic priorities over the next several years. First, we must reduce administrative costs. To achieve this, I have asked each central administrative department to plan to reduce its budget by five percent in the coming fiscal year. Our goal is to identify and eliminate unnecessary expenses and realize increased efficiency so that our central administrative offices will continue to provide vital services to our students, faculty and staff, but at a lower cost. We must also offset the sudden rise we are currently experiencing in employee healthcare costs, and work proactively to keep future increases to a minimum. And we must continue to make wise, strategic choices in our academic investments.

Thanks to careful planning and extraordinary faculty, students and staff, Penn has been able to flourish over the past five years. We are now in the process of identifying the major goals we will seek to achieve during the coming five years in our next strategic plan and we look forward to community-wide input as the plan develops.

Our goal is not merely to weather the current recession. We are determined to do much more--to build boldly on the momentum of the past five years and make even greater strides over the next half-decade in scholarship, research, teaching, community development, public service and civic leadership.

Achieving our goals will require the active involvement of every member of the Penn community. I look forward to working with you as we seek to make a great university even greater.

-- Judith Rodin, President