<p>In a message e-mailed to the University community this evening, Brown University President Ruth J. Simmons described the effects of the global financial crisis on the University and outlined measures Brown will take and may consider. The text of the president’s message follows here.&nbsp; (See also President Simmons’ <a href="/pressreleases/2008/11/economy">Message of November 4, 2008</a>)</p>

To Faculty, Students, Staff, Alumni and Friends of Brown University:

It has been some time since I wrote to you about the anticipated effects of the global financial crisis on the University. Since then, the crisis has expanded and deepened, bringing extraordinary upheaval throughout many for-profit and not-for-profit sectors. At Brown, upon the close of the 2008 year, we learned more about the apparent effect of significant credit, liquidity and revenue constraints on our near-term planning. That information has led us to plan the implementation of a number of measures to reduce expenditures, constrain expansion, and limit major new obligations until we see a return to robust growth in revenue.

Before telling you of those measures, I want to reiterate that the context for any actions we take remains as I stated in my previous letter. We will act in accord with our values as a community; we will focus on preserving the quality of our academic life; and we will continue to protect our capacity to support our financial aid program. Finally, even during these perilous moments, to the extent possible, we will make selected investments in opportunities to improve the quality of our academic programs.

Let me now report in some detail on what we have learned about the effects of the crisis on our plans.

Endowment
Like most large endowments, our Long Term Pool has a significant allocation to non-marketable asset classes which are challenging to value in the current environment. Therefore, for planning purposes, the staff and Corporation committee overseeing our investments have advised us to use a working assumption of a total Brown endowment of $2 billion at the end of the fiscal year on June 30, 2009. While our payout policies are designed to spread the impact of market losses over three years, acting on this planning assumption would ultimately mean a reduction in revenue from the endowment of more than $40 million and a concomitant reduction of $40 million from our operating budget.

Fundraising
Although December is an important month for fund-raising, we will not know the exact performance of the Annual Fund for some months. However, as of December 31, we were lagging approximately 4 percent behind the previous year in unrestricted dollars raised for the Fund. Given the environment, this is quite extraordinary and it is surely an indication of the enviable support the University enjoys from its alumni, parents, and friends. Still, any reduction in the Fund total by fiscal year end will mean a dollar-for-dollar reduction in our operating budget.

The larger Campaign for Academic Enrichment, with a goal of $1.4 billion, has achieved $1.317 billion to date. Within that total, we have raised $604 million in new gifts to endowment, including $251 million in endowment for financial aid. The recent launch of an expanded goal for financial aid from $300 million to $400 million, under the leadership of Richard Barker ’57, is proceeding well, with a number of leadership gifts identified for this important purpose. Nevertheless, given the depth and breadth of the recession and its impact on Brown alumni around the world, we must assume that it is likely to affect all categories of giving and especially capital gifts for some of our major building projects. Thus, for planning purposes, we are assuming that annual fundraising for FY09 and FY10 will be up to 10 percent less than in FY08 and gifts to endowment and capital projects will be down significantly as well. While we have stepped up our travel and fund-raising efforts in an attempt to mitigate this result, we must nevertheless prepare for the possibility of a reduced number of donors and smaller gifts.

Financial aid
The impact of the recession has been felt by most students and their families. In light of our commitment to meet the full need of our financial aid students, scholarship expenditures have increased. Given all the changes that have occurred since the FY09 budget was approved last February, we now expect scholarship expenditures to be almost $1 million more than planned and we anticipate a much greater impact in FY10 and beyond.

Debt markets
Debt markets continue to be extremely volatile and the annual cost of debt service and liquidity protection has risen dramatically. Even for high-quality borrowers like Brown (Moody’s has just reaffirmed our credit rating with a stable outlook), credit remains extremely tight. As a result, we are not expecting to increase our borrowing markedly over the next year or two. This will result in less flexibility in beginning capital projects that are debt-funded.

Actions to be Taken

Of course, these effects pale in comparison with what has occurred in the larger economy. Major global financial institutions have disappeared or been completely transformed. A $700 billion bailout plan of the financial system — matched by equally large commitments in other countries — has been shown to be inadequate to solve the crisis and a new administration in Washington has proposed a plan for almost $1 trillion in new spending and other initiatives to stimulate the economy. Even in our own world of higher education, major universities have canceled faculty searches, undertaken layoffs, announced flat or reduced salaries for faculty and staff in FY10, cancelled capital projects, and instituted broad cuts in operating budgets. We, too, must take account of the all-too-real constraints imposed by this crisis.

For the last several months, we have had extensive discussion within the University and with the Corporation about how Brown should navigate these challenging circumstances. The University Resources Committee (URC), made up of faculty, students, staff and administration and chaired by the Provost, has been in deliberations throughout the fall to recommend budgetary priorities for the coming year. In addition, the Corporation created an ad-hoc committee to work closely with the Administration on planning a response to this crisis. We are now agreed that we must take immediate action to adjust our sights and our plans to take account of the loss of revenue from the sources cited above.

Amount of Reductions Needed

The best estimate we can make at this time is that we need to reduce projected annual expenditures by approximately $60 million compared to the level that we were planning when the May 2008 financial plan was submitted to the Corporation. We arrive at this number in the following way:

  • A reduction in the payout from the Endowment because of market losses. Based on an assumed payout rate of 5 percent of the value of the endowment, the market losses that have already occurred will reduce annual operating revenues by approximately $40 million.
  • An expected decline in annual fundraising for unrestricted use. The Brown Annual Fund (BAF) is spent directly in support of the operating budget. A decline of 10 percent in the amount raised through BAF and other annual fund-raising efforts would reduce operating revenues by $4 million.
  • A decline in the amount of new endowment expected through fundraising. If we raise $120 million less for endowment over the next four years than was previously projected, operating revenues from this source would be $6 million less than they would have been otherwise.
  • Impact of smaller increases in tuition and greater need for financial aid. Taken together, these trends could result in net tuition revenues — tuition minus financial aid — that are $10 million less than we had projected in our forward budget.

Ongoing and Recommended Actions

I recently received the FY10 budget that the URC developed and recommended to me. I will be submitting a budget to the Corporation later this month that will include the following:

  • A tuition increase below that projected in the Five Year Budget Plan.
  • No salary increases for essentially all faculty and staff (except for promotions, pre-existing contracts or when specific market pressures require it).
  • A reduction of $4.5 million in the overall budget for administration. This will require both reductions in the number of positions in most units and reductions in operating expenses in essentially all of them. Considerable work has been done with the leaders of those units to identify the most effective way to achieve these savings, and we expect that work to be completed no later than the end of the spring semester.
  • A reduction in the planned increase in the size of the faculty. While the size of the faculty will not be reduced below its current level – totaling approximately 100 more FTEs than the 2002-03 faculty — the overall number will fall somewhat shy of the levels anticipated in the Plan for Academic Enrichment.
  • A postponement in the planned growth of the Graduate School. We are unable to increase the number of PhD students admitted each year, a goal articulated in the Plan for Academic Enrichment. However, the overall size of the Graduate School population is expected to grow slightly, as the full impact of the first year class works its way through the system.

I fully understand that the pain must begin at the top and we in the senior administration are making major cuts in our own budgets in order to meet this challenge. These will be detailed in the coming weeks.

Further Actions Anticipated

Even beyond the actions the URC has recommended for FY10, we must find additional ways to reduce expenditures. Possible actions being considered include the following:

  • Deferral of all discretionary capital projects until all the funding required for those projects has been raised and, in addition, until we have a clear plan for incorporating the operating costs of those new or renovated facilities into the operating budget.
  • Additional spending reductions in administrative and support areas of at least $12 million. In order to achieve this goal, we will continue the hiring pause for staff positions for the time being and will work with the Vacancy Review Committee and the Organizational Review Committee to identify possible reductions. We will also be working with senior administrators, department chairs, and others during this time to identify areas where services can be cut back, eliminated, or provided more efficiently through greater consolidation across departmental lines.
  • More modest increases in compensation in future years. There is also likely to be little or no increase in the base graduate student stipend for the next few years.
  • Smaller increases in the number of faculty positions over the next three to five years. The Dean of the Faculty and the Dean of Medicine and Biological Sciences may need to require some departments to defer searches to replace faculty who retire or resign in order to pursue targets of opportunity or meet extraordinary teaching needs in other areas.
  • Essentially no growth in the number of doctoral students matriculating each year.

 

This is a sobering picture, to be sure, but I remind you that the reason for undertaking these difficult actions is to position the University for long-term health and ongoing improvement as we await a recovery. A realistic financial plan and a sustainable base budget are essential elements of that effort. It is also essential that we adhere to the Plan and the priorities established by the planning process. As I suggested in my November 4 letter, our highest priorities throughout this process have been to protect the most essential elements of the University’s academic excellence and positive momentum; meet the increased need for financial aid; continue to take advantage of strategic opportunities; improve the capacity of the University to act quickly to reduce expenditures further if the need arises; and, to the extent possible, work hard to maintain the University as a stable and supportive work environment. Those priorities have guided us throughout this crisis and will continue to do so as we work through the spring to make further adjustments that are necessary to re-establish the University’s financial equilibrium.

I am pleased to report that, despite the extent of the damage done to our economic position by the events of the last several months, we have – in my judgment – been able to preserve the hard-won gains of the Plan for Academic Enrichment. The challenge now is to build on those accomplishments in order to ensure that Brown maintains and enhances its position among the world’s leading universities.

There is no question that, in order to achieve those goals, we will have to not only pare expenditures and eliminate some amenities and services but also think about doing some things differently. There will surely be some discomfort arising from these circumstances, and I ask that you be prepared for this eventuality. We should all keep in mind throughout this process that committees are recommending such changes in order to preserve our ability to prevent the loss of even more essential services and even greater disruption to our community.

I remain grateful for your continued cooperation and efforts to find solutions for these challenges. Throughout this process, we have been able to count on the hard work and advice of alumni and parents, the generosity of donors, and the steadfast support of members of the extended Brown community throughout the world. The Corporation and our many advisory councils have provided guidance, offering expertise badly needed in the face of enormous financial complexity. Our students and their parents have been helpful in advising us of areas in need of attention. I am especially grateful to a parent who contacted me to make me aware of the hardship that our payment deadlines posed in the current circumstances. We were able to adjust the policy on short notice and I am told that this made a great difference to many. It is just this kind of communication, care, concern and cooperation that makes this community one that we treasure.

Surveying the landscape of higher education, I am persuaded that we are greatly strengthened in these difficult times by the fact that our rigorous intellectual life and unique curricular approach prepare students well for the complex global challenges that will continue to emerge. The opportunities we offer for far-ranging interdisciplinary research, rigorous and innovative problem-solving, and demanding team work are essential for the kinds of problems that are likely to arise today. We take considerable pride and comfort from the fact that we are preparing our students well for the future.

Further information about the specific changes in our plans will be announced later in the semester.

 

Sincerely,

Ruth J. Simmons
January 27, 2009