5. Financial Report

A Decade of Growing Financial Strength

Columbia's forward momentum has steadily increased since the mid-1990s, as each year's academic advances--recruiting outstanding faculty and attracting an increasingly selective student body--have built on the platform of previous successes. The University's ability to select only the strongest students is a good illustration. Undergraduate admissions exemplify the pattern in virtually every school: since 1993, when 30 percent of all applicants to Columbia College were admitted, the College's selectivity has steadily improved each year to reach just under 14 percent for the admissions cycle in the 1998-99 operating year.

The University's academic quality is the foundation of its current financial strength, underpinning increased tuition from expanded programs, rising income from research activities, and revitalized giving from alumni and friends of the University. Maintaining Columbia's forward momentum also requires thoughtful management to convert growing financial resources into further academic progress. The steps in this academic and financial cycle of mutual benefit and growth necessarily occur over multiyear periods, particularly in institutions as large and complex as the University. Since any one year's financial report offers only a snapshot of this process, it is worth revisiting the University's progress in the 1990s.

TRENDS IN ENDOWMENT SPENDING as a Percentage of Prior-Year Beginning Market Value

By almost any measure, Columbia's financial condition is considerably stronger than it was at the beginning of the decade, when the University was adversely affected by government cutbacks, sharp increases in fringe-benefit and financial aid costs, and chronic deficits in several of its schools, particularly in the Arts and Sciences. In contrast, the University finished the 1998-99 operating year with an increase in unrestricted net assets to support current operations of $80.3 million. The 1998-99 year was also a key year in the financial stabilization plan for the Arts and Sciences, representing the last year in which the Arts and Sciences would require any endowment income above the level prescribed by the Trustees' spending rule to balance its budget. Across the University, total spending from endowments as a percent of the endowment's market value at the beginning of the prior year has declined from the unsustainable level of 6.2 percent in 1989-90 to 4.2 percent in 1998-99.

Part of this financial turnaround has been achieved through cost containment. Restructuring the University's benefits plans has held the rise in fringe benefit costs from 1994 to 1999 to an average annual increase of 2.9 percent. Gap-closing initiatives in the early 1990s reduced the central administrative workforce by approximately 10 percent. This reduced level of staffing has been maintained despite a nearly 13 percent rise in student enrollments, a 10 percent increase in utilized space on the Morningside campus, and a 30 percent after-inflation increase in the total University payroll over the past decade. This reduction in overhead has been achieved through the redesign of business practices, including the integration of technological support and outsourcing.

The dramatic growth in the University's operating revenues and endowment has, nonetheless, been the more significant contributor to the University's present financial strength. Total fund-raising cash receipts in 1998-99 rose (for the seventh consecutive year) to $284.5 million, representing an average annual rate of increase since the 1993-94 year of 15.3 percent. Reflecting, in part, past investments in faculty recruitment and research facilities, patent and royalty income reached $95.8 million in the 1998-99 operating year, capping increases since 1993-94 that averaged 28.9 percent per year. Total tuition revenue has grown at an average annual rate of 7.8 percent since 1993-94, as full-time equivalent student enrollments have increased by approximately one thousand students, even as the selectivity of University programs has been maintained or increased. Finally, budgeted endowment distributions under the Trustees' spending rule have risen at an average annual rate of 9.5 percent since 1993-94, supported by the endowment's annualized investment rate of return of 15.4 percent over the past five years. The University's net endowment assets totaled $3.637 billion at June 30, 1999; while total assets grew to $5.960 billion.

The combined benefits of cost-containment measures and record-setting fund-raising and endowment performance have enabled the University to invest further in its academic mission. Since 1993-94, direct academic expenditures on the Morningside campus (primarily faculty salaries and financial aid) have increased at an average annual rate of 6.8 percent. Under the University's first five-year capital plan, annual investment in plant (both construction and renovation) has grown in the same period from $82.2 million to $144.8 million, an average annual increase of 12 percent. The University's net increased borrowing in support of the capital program, $255 million from 1994 to 1999, has been facilitated by the strong growth in University assets and revenues. In fact, in May 1998, Standard & Poor's raised the University's bond rating to AAA, making Columbia one of the few universities that have the highest rating from both Moody's and Standard & Poor's.

This annual financial report offers a more detailed look at the operating year ended June 30, 1999, the last year in a decade that has seen this strong mutual reinforcement between the University's academic excellence and its financial strength. That positive interaction owes much to the long-lived national economic expansion and the associated strong performance of financial markets. But, ultimately, Columbia's resurgence in this decade is the result of innumerable decisions by individuals--the students who self-selected to study with Columbia's faculty in a world city, the faculty who chose to stay at or were drawn to Columbia, and the alumni and friends of the University who chose to recognize its excellence with their support. In that sense this report is another chapter in a story of individual contributions of all kinds to a remarkable institution.