A Letter from Lee Bollinger
Posted on January 30th, 2009 in Uncategorized | 2 Comments »
The Columbia president circulated this letter on the university’s finances yesterday [emphasis added]:
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%. [Blogger: Huh? What period?] 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%. [Blogger: Wow-far less than Yale and Harvard.] 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
2 Responses
1/31/2009 10:06 am
I feel asleep after the first two paragraphs — someone want to summarize for me?
1/31/2009 12:28 pm
One of President Bollinger’s statements is misleading at best. It makes me skeptical about another statement.
He says that “the University as a whole counts on endowment for only 13% of operating budget.” That is correct. However, a simple look at Columbia’s annual report shows that 23% of total revenues come from Patient Care Revenue (from the consolidated hospitals). Strip out that and endowment accounts for 17%.
Another look shows that last year’s p&l includes 62 million in net assets counted as revenue. Nothing wrong with that; it is the correct accounting treatment. However, without that 62 million, the operating budget would have showed a loss for fiscal 2008.
Two other things worth noting. 80% of the investment portfolio is in private equity and hedge funds. Very difficult to see how the investment portfolio was down only 15% for the first six months of fiscal 2009. Assume that the 11.8% number mentioned was for the first four months. I’m doubly skeptical that the investment portfolio declined by only 3 percentage points more in the last two months.
More problematical is what all universities seem to be doing (and I’ve mentioned this several times with regard to Harvard’s budget). The universities seem to have forgotten a fiscal year. That is, fiscal year 2009, is going to show an increase in costs. If Columbia budgets for an 8% decline for fiscal 2010, the budget, including the increase in 2009 and the inflation in 2010, will merely be back to the budget of 2008… with a lot less in endowment. Where is Columbia going to get the money to continue to operate at the level it has been?
Where is any university going to get it unless markets improve substantially.
That is why I argued almost two years ago, that the proposals of some, that payouts be increased substantially at Harvard, was not a good policy. That is why I argued that The Corporation, during the last years of President Rudenstine’s tenure, made a huge mistake by stepping up the payout by greater than 20 percent in each of two years.
Richard B. I want to comment on your note of last week re Epstein’s comment in Slate that you put up. In December, Epstein said that Harvard was, according to a source close to HMC, down perhaps 50% in THE FIRST FOUR MONTHS. Then this month he says that for THE FIRST SIX MONTHS Harvard was down perhaps 50%. So, he is saying that Harvard was flat for the final two months of the calendar year. That’s improbable considering that the markets deteriorated sharply in the last two months.
As I wrote about Epstein’s first piece, just looking at the numbers, it was impossible that he was correct for the first four months. As to the first six, there are no published numbers.