From: President John L. Hennessy
Date: Thu, Nov 13, 2008 at 4:42 PM
Subject: A Message From Stanford's President
Dear Alumni, Parents and Friends:
Many of you have contacted me over the past few months with questions about the recent shifts in the economy and how the University is affected. I would like to update you on our response to these challenges.
Financial Aid Commitments Still Secure
The questions came to me even before the academic year was under way,
from parents moving their sons and daughters into their residences
this past fall: Given the state of the economy, would the University
be able to meet its commitments to financial aid? Would we be able to
help in situations where decreased home equity might preclude a loan
they were counting on to help pay tuition? How would we deal with job
losses by a family member? Our response: We will stand by our
commitments and, yes, we will reconsider the financial aid needs of
any family negatively impacted by the economic downturn.
The questions continued through Reunion Homecoming Weekend as the Dow
Jones average dropped approximately 25 percent further. How was the
University's endowment affected? What would this mean for financial
aid, for operations and for the capital facilities projects already
The Tightest Financial Outlook in Decades
Let's start with the endowment. We weathered the period through early
summer comparatively well, achieving an overall return of 6.2 percent
for the year ending June 30, 2008. Since then, the endowment has
declined steeply, although somewhat less precipitously than the market
indices. In addition, sponsored research, our second largest revenue
source, has been declining in real terms over the past several years,
and given the challenges in the federal budget is unlikely to improve
quickly. Tuition, our third major source of revenue, cannot be raised
significantly out of fairness to our students and their families. All
of these factors contribute to the tightest financial outlook we have
seen in decades.
Fortunately, Stanford entered this period in a relatively healthy
financial position, bolstered by several years of revenue increases,
generous gifts from alumni, parents and friends, and remarkable growth
in the endowment, which for the first time ever became the
University's largest source of revenue.
To manage our finances going forward, we anticipate reducing the $800
million general funds budget - which pays for most of our faculty and
staff salaries, central administrative operations and non-research
expenses - by 10 to 12 percent over the next few years. Declining
federal research dollars could double the total revenue loss across
the University. We cannot achieve these reductions without some
significant and permanent cutbacks.
Cutting Costs Wisely
As we implement these budget cuts, we will do so with several
principles in mind. First, we will focus on preserving the investments
we have made in our faculty over the past decade. Likewise, we will
maintain our commitment to both undergraduate and graduate students.
The excellence of the University depends on its people, and we will do
our best to maintain the quality of our faculty, staff and students as
we make adjustments.
Second, we will review our capital projects. We are in the midst of a
major capital program that includes some vital construction projects.
Halting projects in mid-construction, even temporarily, would cost us
more money in the long run. But not all our projects will be built
according to the original schedule. We will reexamine projects that
incur significant amounts of debt.
Third, through support from The Stanford Challenge we have launched a
variety of efforts to address the most challenging problems facing
humankind: sustaining our planet for future generations, enhancing
peace and stability around the world, exploring the potential of stem
cells for autoimmune diseases, improving K-12 education in the United
States, and finding new ways to generate energy that will not increase
greenhouse gases. These are critical initiatives, and while we must
adapt our efforts to present circumstances, we will not shy away from
our long-term responsibility to lead in finding solutions for these
Trust in Our Stanford Community
We know we are not alone in dealing with this financial shockwave;
some of you will experience situations far more difficult than we see
on our campus. My sincere wish is that those whose lives have been
disrupted will find firmer footing in coming months. In any crisis, we
look to the people and places whose connections sustain and strengthen
us. I hope that your place in the Stanford community provides such
nourishment for you.
As always, I am happy to hear from you. Send your comment, suggestion
or question to me at [redacted] or to Howard E. Wolf, '80,
vice president for alumni affairs and president of Stanford Alumni
Association, at [redacted].
John L. Hennessy
From: John T. Casteen III, President of the University of Virginia
Date: Thu, 13 Nov 2008 15:56:03 -0800
Subject: Economy's Impact on U.Va.
Dear Alumni, Parents, and Friends:
All of us are feeling the effects of the global economic crisis. I write to let you know how this crisis is affecting the University and how we are working to protect and sustain our operations. Because press (and blog) speculations about what the crisis is doing to universities, including us, have been both numerous and generally mistaken, I want also to respond to a few misstatements about the impact of the financial meltdown on our endowment.
The economic situation affects us in several ways. We see evidence of the crisis in state budget shortfalls. Last month, Governor Kaine released a plan to meet the state's 2009 fiscal shortfall of $973.6 million. The overall reduction for us is $10.6 million, or ca. 7 percent of our General Funds. The Governor has deferred a 2 percent salary increase scheduled to go into effect November 25. This delay applies to staff and faculty members. We have never used layoffs here as a means to balance budgets. Layoffs are not a strategy for us now. We are cutting expenditures in many areas throughout the University. Units that depend heavily on tax dollars are particularly stressed as we round out this quarter.
These cuts did not come as a surprise. Through press releases, the Governor alerted everyone earlier this fall of the strong possibility of budget cuts ranging from 5 to 15 percent. Since then, we have been preparing for reductions. Deans and vice presidents have been planning permanent reductions in spending. The instructions given to them have included prohibitions on affecting essential services to students and to patients who depend on us every day. In bad times, we protect our core work of teaching, conducting research, providing best-practice care for patients, and providing public service. We do not look for ways to panic those who count on us. We seek to provide these essential services without noticeable interruptions.
A second effect of the global economic crisis is evident in the University's endowment, which has seen a decrease in value coinciding with the fall-off in global equity markets. The long-term pool invested by the University of Virginia Investment Management Company (UVIMCO) decreased from $5.1 billion on June 30 to $4.2 billion on October 31--a decline consistent with the best results reported so far by similar endowments. This is a 20 percent decrease. The S&P 500 index dropped 24 percent over the same period of time.
UVIMCO is taking all available steps to assure the long-term health of the endowment. We expect to see gradual recuperation when global financial markets begin to stabilize. With this in mind, we are continuing to build the endowment. We have added $150 million to UVIMCO's long-term pool since July 1. Last June, the Rector and Visitors approved an increase in the annual distribution of the endowment from 4.5 percent of equity to 5 percent. That adjustment in spending translates to $161 million in fiscal year 2008-2009. Despite the current economic crisis and consistent with the Rector and Visitors' instructions, we are making this distribution as planned. As a result, our schools and departments will have more resources at their immediate disposal for the remainder of this year than they had before the state cuts.
Though the recent drop in the endowment's value is consistent with what is happening all around us, it is an aberration in a long story of success. UVIMCO's staff and its board of investment professionals have managed the University's assets uncommonly well during the last decade, bringing in a 10-year average annual return of 12 percent through the period that ended October 31, 2008, including a 25.2 percent return in fiscal year 2006-2007. The average return on the S&P 500 index for the same 10-year period was zero percent. Prudent investment strategies have allowed us to weather previous downturns. During the first Gulf War, the University's endowment reported a negative 10.2 percent for the third quarter but finished fiscal year 1991 at plus 8 percent. During the 1987 stock market crash, the endowment reported a negative 12.2 percent for the fourth quarter but closed out the fiscal year at no loss. Our endowment bounced back from those losses. It will bounce back from these current losses. Our colleagues at UVIMCO understand the nuances of the global markets. They invest for the long term, as they should, not simply for a single quarter or even a single year.
Ill-informed stories in the press and in blogs about the structure and status of the endowment have created at least some misunderstanding and misleading speculation. The long-term pool invested by UVIMCO consists of three major components: the core endowment overseen by the Rector and Visitors, the University's corporate entity ($2.6 billion as of October 31, 2008); University-related foundations' endowments ($1.0 billion); and other non-endowment assets ($0.6 billion). While the core endowment is important for supporting initiatives such as new academic programs and the growth of the Board's AccessUVa financial aid program, funds from the endowment make up just 4.8 percent of the overall operating budget, which is $2 billion this year. Other revenue sources--tuition, state funds, sponsored programs, sales, patient revenues, private gifts--stabilize the University in tough times.
For several reasons, we remain confident about both the near-term and the more distant future. All three of the major rating agencies confirmed our AAA-bond rating in conjunction with the issuance of $231 million in tax-exempt long-term bonds in May 2008. Since then, and as recently as last week, our bonds have sold promptly when issued and at the best rates in the market. This bond rating provides financial strength and stability to help us get through this period of economic turmoil. During the current crisis, we have had no problem issuing debt, in part because of this strong credit rating. We do not expect this crisis to end next week. Our planning and financial positioning assume a long, slow recovery and more than a few new realities as the nation and the world move from today's economy to whatever circumstances we may confront in the future.
Despite today's economic environment, we continue to make solid progress in the Campaign for the University of Virginia. Current and future support commitments totaled $1.783 billion as of the end of September. Generous gifts made during the first half of the campaign have given us momentum heading into the second half. We are continuing to invest in new capital construction and new academic programs to support our students and faculty--and to create jobs for persons who live in this region. We are working steadily to create centers of excellence in science, engineering, and biomedicine, while continuing to support core strengths in the humanities. In all important ways, we are moving forward.
We have weathered economic downturns before. Public universities are subject to the same exaggerated up-cycles and down-cycles that have affected almost all public entities during the last half-century. The downturns disrupt important work. They can prevent students from distressed families from pursuing the best available educations, and thus create harm that extends across generations. Today's situation requires us to make hard decisions. If we make these decisions wisely and with our values clearly defined, today's crisis can also teach us new fiscal disciplines and improved strategic thinking. In some cases, we are deciding now what we cannot do and also what we must do. The discipline and analysis that lie beneath these decisions will make us more efficient and more effective. Through all of this, we will sustain our commitment to access for all qualified students who apply, to uninterrupted excellence in teaching, research, and patient care, and to a stable work environment for the staff and faculty members whose work and accomplishments have made our University the world's standard of excellence in public higher education.
Expert fiscal managers who handle our resources wisely and with their eyes on our goals as a university and members of our University family all over the world make us stronger in this down-cycle than other universities are. Private philanthropy gave our University its beginning. Private giving has sustained it during tough times. All of us are making hard decisions at home in these days. I have been asked this week for advice about what kinds of year's-end gifts might make the biggest difference this year. My answers to these questions necessarily vary because each of us has her or his top priority. Betsy and I put most of our gifts into a fund that will eventually provide scholarships for children of staff and faculty members. This year, we are making an additional year's-end gift to AccessUVa. Our reason for giving more to AccessUVa is that we are personally concerned that the first and most serious damage done by this economic downturn may be to top students whose parents will not be able to afford to send them to college because of the ongoing national catastrophe in student financial-aid programs. Others may make any number of other decisions about their own gifts. If Bob Sweeney or your school's dean or Craig Littlepage or I can help as you decide your own purposes this year, please send an email to one of them or to me. We will respond as quickly as we can.
Whatever you may decide to do (or not do) as this year approaches its end, I am grateful for your gifts and guidance and volunteer leadership in past years. You have helped make ours one of the top universities in the world. In this time of economic uncertainty, we will rely more than ever on you--on your time and talents and material gifts--to help us hold our ground and build new strengths for the future. For this, and for your unfaltering commitment to this bulwark of Mr. Jefferson's imagining and making, I am in every sense grateful.
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