Update on University Finances
January 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.
Sincerely,
Lee C. Bollinger
President
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