To the Washington University community:
I write to follow up on my last communication regarding the University’s finances dated April 14, 2009.
First, a brief update on our new academic year. We have recruited outstanding entering students, and we have welcomed a very talented group of new faculty. Brauer Hall for engineering on the Danforth Campus will be complete before the end of this academic year, and the new BJC Institute of Health on the Medical Campus will be finished by the end of this calendar year.
Programmatic initiatives developed through the Plan for Excellence effort are being implemented as resources become available. With new support from major corporations, we have launched an international research program to address environmental concerns from use of coal.
Also, the first master of public health degree candidates are now enrolled in the George Warren Brown School of Social Work. Thus, the University remains committed to many important initiatives that build on our strength as one of the world’s leading universities. Unfortunately, the financial challenges as set out in my earlier communication persist, and financial and programmatic planning has been initiated over the summer to address an annual shortfall of about $30 million per year for central administrative functions and Danforth Campus schools for Fiscal Year (FY) 2011 and beyond.
While a $30 million annual shortfall is significant, other research universities — public and private — are coping with even larger financial problems. One source of our financial problems is the loss of the value of our endowment. As of June 30, 2009, the market value of our endowment, about $4.2 billion, is down by 30 percent from its peak value of two years ago.
This downturn is very significant and has resulted in a decrease in endowment payout of $9 million. We anticipate additional years of lowered payout and are planning for another $9 million decrease in FY11. The result is that in FY11, payout will be down by $18 million compared with FY09.
The Danforth Campus schools and the Central Fiscal Unit, with total operating revenue last year of about $600 million, are more adversely affected by the endowment downturn than the School of Medicine. The endowment in the last fiscal year provided about 20 percent of the revenue for the Danforth Campus vs. about 5 percent for the School of Medicine.
While the School of Medicine does not face acute financial challenges at this time, uncertainty in clinical and research revenue causes us to be conservative and to prepare for a potential downturn.
Federal “stimulus” funding, in response to a large number of outstanding proposals, for this year and next already totals at least $34 million, and we anticipate additional research support from this program. Our success in this arena stems from the excellence of our faculty and research staff. The clinical faculty also has excelled, and clinical revenue is strong.
Our teaching hospitals, Barnes Jewish Hospital and St. Louis Children’s Hospital, have done well, too, bringing additional financial resources to the School of Medicine according to the partnership agreement we have with them. But the “stimulus” is only a two-year program. Further, continuing high unemployment and the associated loss of health insurance benefits likely will erode clinical revenue. Therefore, we must plan for a more financially constrained environment in medicine, too.
Despite our financial challenges, we remain committed to supporting our core mission. We have set a priority to meet the financial aid needs of continuing students to enable them to complete their degree programs at WUSTL.
In the past few years, we have added 20 percent to our financial aid budget for undergraduates. Further, we responded to new financial aid requests from students returning this fall with an additional $2.3 million for the financial aid budget.
To address the critical and growing need for financial aid resources, the Board of Trustees approved a special effort to secure additional scholarship support: “Opening Doors to the Future: The Scholarship Initiative for Washington University.” The goal is to secure additional commitments of at least $150 million by June 30, 2014.
What has been done so far, and what lies ahead in connection with reducing expenses and planning for an era of slower revenue growth?
As most are aware, salaries were constrained very substantially for the fiscal year that started July 1. This constraint has avoided annual expenditures of at least $20 million. We have also lowered non-compensation administrative expenses for this year in the Central Fiscal Unit, saving another $3 million annually.
Even with these avoided annual expenditures, we must reduce spending by another $30 million annually beginning July 1, 2010. Plans that reduce recurring and capital costs will involve administrative and academic functions as well as building projects.
We already have slowed faculty recruiting, and hiring of administrative staff, generally, has been tightly controlled. Danforth Campus libraries in mathematics and biology have been closed, with holdings consolidated in the Olin Library. In the face of increased health insurance costs, health-care benefits have been altered to avoid University expenses of about $4.5 million annually, but the University will still support about 80 percent of the total health-care insurance premiums of its employees.
A third phase of the renewal of residential facilities on the South 40, as well as the renovation of Mallinckrodt Center, has been postponed. We are striving to reduce energy consumption and continue to seek suggestions regarding how to become more efficient in our work. I am appreciative of the more than 100 individual suggestions for cost savings measures that have been sent to me since April, and many of these are being considered for implementation. Please continue to provide input and suggestions, as your help will be valued.
Looking ahead to the next several months, our financial and program planning will be intense, but thorough, as we close the $30 million annual gap for the Danforth Campus.
Central administrative areas and the six schools on the Danforth Campus all will be affected in closing this gap. There will be some opportunities to secure additional revenue through growth in degree programs and through philanthropic support. However, the sobering fact is that we must reset our spending to a lower level in the schools and in central administrative areas, and we also need to prepare for an era of slower growth in revenue.
We will review the overall scope and scale of all that we are doing. Decisions from our review will be made before the end of the calendar year and will be announced early in 2010 to prepare a final program and financial plan for FY11 and beyond.
The review and planning is being led by Edward S. Macias, Ph.D., provost, executive vice chancellor for academic affairs and the Barbara and David Thomas Distinguished Professor in Arts & Sciences, and Henry S. Webber, executive vice chancellor for administration. They will be working closely with David T. Blasingame, executive vice chancellor for alumni & development programs; Michael R. Cannon, J.D., executive vice chancellor and general counsel; Larry J. Shapiro, M.D., executive vice chancellor for medical affairs and dean of the School of Medicine; and with Barbara A. Feiner, vice chancellor for finance and chief financial officer; and Ann B. Prenatt, vice chancellor for human resources.
School deans will be working with their faculty and with the provost to plan for the individual schools. All of our schools will be affected because most of the payout from the endowment directly supports the schools and their programs. Accordingly, I have asked the school deans to work with their faculty to plan for less revenue and for slower growth in the years ahead.
Changes in scope, scale and expenditures will not be uniform across all areas. However, in every area, we will be tightly managing expenses while working to achieve our goals for the University.
While we face an era of constraint in the short term and slower growth in the future, Washington University has underlying financial strength and talented, creative and dedicated faculty, students and staff. We have exciting aspirations for the future, and I remain confident about the continuing progress of the University as we strive to strengthen our quality and impact.
Thank you in advance for your support and understanding as we move through this era.
Sincerely yours,
Mark S. Wrighton