| From the President |
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March 3, 2009,
Volume 55, No. 24
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Positioning Penn to Deal with the Economic Crisis and Maintain Stability
In my December message to the Penn community, I outlined a series of cost-containment measures that the University is taking in response to the economic downturn. Today, I can report that as a result of these and other measures, Penn is continuing to move forward on our highest priorities under the Penn Compact: increasing access by making a Penn education affordable to every student who enrolls here; integrating knowledge by hiring and retaining the finest teacher-scholars across all 12 schools; and furnishing our faculty, students, and staff with the resources needed to engage communities locally and globally.
Given the new economic hardships many Americans are facing, I want to focus on the steps we are taking to strengthen Penn’s commitment to access. We can reassure prospective and current students alike that our financial aid packages will continue to meet the full need of every Penn undergraduate. We are moving forward to substitute grants for loans for all undergraduate financial aid packages beginning in September 2009. As previously outlined, typical students from families with income less than $40,000 will pay no tuition, fees, room or board. Students from typical families with incomes less than $90,000 will pay no tuition and fees. All undergraduates eligible for financial aid will receive grants rather than loans in their aid packages.
We also will continue offering generous stipends to compete for the finest graduate students, who will become the academic leaders of the future. Since 2004 we have increased base stipends by 56% for graduate students in Arts and Sciences while raising the base stipend for all graduate students by 22%.
To underscore our commitment to affordability, we announced today the lowest tuition increase in more than 40 years: 3.75% for the 2009-10 academic year. Our total FY10 charges—tuition and fees plus room and board—will increase by 3.8%, substantially lower than our original planning parameter. Concurrently, we will be expanding our financial aid budget by $17.6 million, or 15%. These increases come on top of the 43% increase in our financial aid budget since 2004.
For a university as heavily dependent on tuition and as deeply committed to need-based financial aid as Penn, curtailing the tuition increase will intensify budgetary pressures on all of us. But with the mounting financial stress that many of our students and families are experiencing right now, we feel a responsibility to relieve some of their pressure by tightening our own belts further and by continuing to manage our investments prudently.
In that vein, I can report that Penn is faring well—despite a deepening economic crisis that, over the past two months alone, has brought greater unemployment and upheaval to businesses, governments, institutions, and families throughout the region, the nation and the world. You may recall the measures announced in my December letter (Almanac December 9, 2008). We froze our baseline FY10 budgets for core administrative services at FY09 levels. We asked each School and Center to implement additional necessary measures to create balanced and sustainable budgets and to fill only those open staff positions that are essential either to its operational needs or to meeting the requirements of sponsored research. Our University’s leadership agreed to forego salary increases next year. We eliminated reclassifications of positions and in-grade salary adjustments. And we decided to move forward as scheduled only on new buildings and renovations that either are fully funded or have reliable funding strategies already in place.
These University-wide cost cutting measures, which will remain in effect through June 2010, are projected to save Penn approximately $57.7 million. Further administrative belt tightening by our individual Schools and Centers will produce additional savings and enable Penn to continue investing more resources in support of our highest priority academic goals. Examples of School savings include:
• The Wharton School moved quickly to eliminate $10 million in expenses by June 30, 2009, including $5 million from cutbacks to small capital projects;
• All units at the School of Medicine are planning their FY10 budgets at FY08 levels, which will save approximately $100 million;
• Several of our schools—including Arts and Sciences, Engineering, Wharton, Medicine, and Veterinary Medicine—are reducing current payroll expenses through a variety of carefully targeted measures and pushing back the timetables on selected capital projects.
Pressures have mounted in light of Governor Rendell’s recently announced proposed FY10 Commonwealth budget, which includes a 10% cut to Penn’s annual appropriation. This cutback places intense pressure on Penn Vet, our State’s only school of veterinary medicine, which relies on Commonwealth support for approximately 35% of its revenues. It also will strain our Health System, School of Dental Medicine, and Penn Museum, all of which count on some Commonwealth funding for important clinical and research programs.
As we look for additional cost-saving opportunities, we will also continue our prudent investment philosophy. Our Office of Investments detected early warning signs of emerging risks in the financial markets and took steps to protect Penn’s investments. By carefully and selectively expanding our portfolio into alternative asset classes such as private equity, real estate and natural resources, the University has been able to prudently manage its overall liquidity.
Our funds also have performed better than the market as a whole. However, as is the case with other institutions of higher learning, Penn’s endowment suffered large losses in the first half of FY09. From July 1 to December 31, 2008, the value of our endowment declined 19.1%. Yet, with only 9% of Penn’s annual operating budget funded through the endowment and with substantial liquidity, Penn is relatively well positioned provided that we take all the measures necessary to absorb the substantial impact of these and any other losses that may loom ahead. Although we remain deeply concerned about the potential for the financial crisis to deteriorate further, our investment team is thinking strategically about how we can turn this challenge into an opportunity by making smart investments at a time when prices are low.
We are confident that our long-term investment and spending strategies will enable us to maintain a stable environment for moving forward throughout downturns in the economic cycle—even downturns as severe and unsettling as those we face today. By working effectively and swiftly, the University to date has avoided a mass reduction in workforce or across-the-board spending cuts.
We have raised $2.3 billion—66%—of our $3.5 billion goal of our Making History campaign, which broke all of our fundraising records last year. We are currently at 78% of our FY09 goal for cash receipts, remarkably ahead of last year’s record-breaking pace. While we are also ahead of our goal for new commitments, we must prepare for the pace of new commitments to slow down until the economy shows signs of picking up. Although the economic crisis is proving a challenge for everyone, our donors remain devoted to Penn and steadfast in their support of our strategic goals. This is providing us with critically needed strength to pursue our highest priorities in difficult times.
Further, as the federal government takes sweeping action to spur economic recovery, additional opportunities will materialize for expanding our teaching and research enterprise. The recently enacted $789.5 billion American Recovery and Reinvestment Act provides more financial assistance and tax credits for college students and their families, and billions of dollars more for scientific research—with $10.4 billion targeted over the next two years for the National Institutes of Health and $3 billion more for the National Science Foundation. Given our heightened strategic focus and great inter-school strengths in regenerative medicine, cancer, heart disease, nanoscale science and technology, neuroscience, and many other areas, Penn is very well positioned to capture our share of these precious research dollars, which also will serve to stimulate the American economy.
No one knows exactly how long this crisis will last or how much more pain and hardship it will inflict on individuals and institutions alike. In the meantime we will continue to plan ahead in accordance with our strategic priorities, we will continue to manage the University’s resources sensibly, and we will continue to rely on you—our University community, our greatest resource—to maximize Penn’s strength and keen sense of common purpose through a period of economic turmoil that is without precedent. With your support and assistance, for which I will always be grateful, Penn will emerge an ever stronger University.
—Amy Gutmann |
