Jan. 28, 2009
Dear fellow members of the Columbia community,
I write because we are now entering the University's season for preparing next year's operating budgets, and it is therefore an appropriate time to provide an update on the economic environment we face and the context in which next year's budgets will be crafted.
We are all aware that the global capital markets and the nation's economy continue to experience significant problems, with resulting financial challenges for businesses, governments and universities across the country. At Columbia, it is difficult to give a general picture of the impact of the current conditions because each of our schools and administrative units has a different set of revenue sources and expenses. This fiscal diversity means that our schools must identify their own ways of achieving a sound financial equilibrium. To the extent I can, however, I want to offer some general observations and specific information about our university-wide experience and the future we will face together.
In the last six months, Columbia has maintained its impressive momentum as one of the world's great research universities. Across our schools, applications for admissions for the coming year are extremely strong, reflecting the competitiveness of both our undergraduate and graduate programs. Our physicians remain the doctors of choice for patients who need the best health care, and patient care revenues have grown significantly in the first half of this year. Columbia's research community is competing successfully for grants even in a time of a decline in real federal funding. Sponsored research has substantially outpaced the prior year's performance for the same period. The bonds with our alumni and friends have never been stronger, nor has their generosity been greater. For the first six months of this fiscal year, gifts and pledges exceed last year's record pace, and The Columbia Campaign passed the $3 billion milestone—ahead of schedule.
Yet encouraging as all this is, it tells only part of the story. The nation, New York State and the City are all confronting serious financial challenges, and the consensus is that matters will not improve in the short term. We must, therefore, plan with the assumption that the rapid pace of gifts to the University may slow and that the financial health of our students and their families may necessitate an increase in financial support from Columbia. Columbia's greatness is built on our tradition of attracting remarkable students regardless of their financial situation, a commitment that is unqualified.
Furthermore, Columbia's endowment, like most investment portfolios, has declined, although we believe that we have fared reasonably well under extremely difficult market conditions. For a variety of reasons, October 31st has become a date when some other universities have offered reports on their investment performance. Our performance in that period was a decline of 11.8%. Using the most current information available, and in the normal form of tracking investment performance, during the six-month period ending December 31st, the total return of the University's investment portfolio declined by approximately 15%. Given the volatility of capital markets, one cannot accurately project what will unfold in the spring.
It is important to recognize that although certain parts of the University (such as the central administration) are significantly dependent on endowment for operating revenue—and will therefore have to meaningfully constrain spending—the University as a whole counts on its endowment for only 13% of operating budget. Our relatively small collective dependence on endowment means that the current market downturn hurts less than it does for some of our peers. But let there be no doubt, we still have to face hard choices in the months ahead. To facilitate a smooth transition to these new financial realities, we are asking all budget units to model an 8% decline in endowment funds available for operations next year. Hopefully, by accepting and planning for this new reality, we will be in a position to move forward in strength.
Let me conclude by saying that we enter this new environment after a strong period of rapid growth in both resources and enhancement of our academic mission. Without doubt, the global economic scene is forcing us to pull back in our personal and professional lives. I am completely confident, however, that by addressing our challenges in a forthright manner and by focusing our resources on sustaining the core of our intellectual life we will emerge even stronger in the years to come.
Lee C. Bollinger
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