Managing Austerity While Seizing Opportunities
March 30, 2003
A report to the NYU community
Last fall, in my opening letter of the academic year, I articulated my sense, palpably felt as I had traveled the NYU community during the transition year, that our University was poised to lead a category change in the nature of a university - that NYU could be one of the first exemplars of the twenty-first century university. Subsequently, in my installation address I called upon our community to create a "common enterprise" university. Now, as we move toward the close of the academic year, I write again to report on our progress, our plans and the challenges that lie ahead.
The Economic Environment and NYU's Situation
Each day's newspaper reveals new evidence that we live in sobering times. The state of the national and international economy and the political climate combine with discouraging figures on growth, joblessness and consumer confidence to create a bleak picture, made only more discouraging by the presence of war. And this picture is manifest in huge national, state and local budget deficits with concomitant large cuts in programs, personnel and services. Across the country, university endowments have suffered severe losses, and even schools known for plentiful financial resources have announced hiring and salary freezes, cuts in personnel, and cessation of capital projects.
We are not immune from the factors that have compelled peer institutions to make such moves. Some of the effects upon our university can be gleaned from the daily paper. Our endowment earnings are suffering (at a cost to us of tens of millions of dollars); and our earnings on cash reserves (in some years as much as $17 million) are down dramatically (to about $7 million). When the federal and state governments cut domestic programs, we lose millions of dollars in funding; the budget proposal announced by Governor Pataki alone could cost NYU millions of dollars. But other effects may not be so obvious. When Mayor Bloomberg announces an 18% property tax increase, escalator clauses in rental agreements covering many of our leased properties automatically raise our rent to cover the cost. When the cost of terrorism insurance skyrockets, we pay it, either directly (on buildings we own) or indirectly (through those same pass-through clauses). And there are many other such blows to sustain.
NYU is in sound financial condition. Still, we face formidable internal challenges as well. NYU does not have a large endowment from which it can withdraw funds to meet demands; compared on a per student basis to Princeton, for example, for every dollar in NYU's endowment, Princeton has over $30. Moreover, several of the moves we might make, and which our University in fact did make to generate resources in the period between 1991 and 2001, are not readily available to us today - and the consequences of some of those earlier moves generate increased financial pressure in our time. Thus, whereas the size of the University was increased substantially from 1991 to 2001 (the student body grew by 5,600), it would be unwise to plan further significant increases. Whereas we borrowed over that period $800 million for capital projects (such as residence halls, faculty housing and the Kimmel Center), we have relatively little additional borrowing available to us (and we must meet debt service requirements with respect to previous borrowing, a cost of $85 million this year). Whereas we could elect to defer maintenance to save resources a decade ago, today we must absorb those deferred costs. And, finally, whereas over the past decade (like all universities around the country) we grew the size of our part-time faculty, our focus on increased attention to our students requires that we shift a greater proportion of our enterprise to full-time faculty.
Even as external and internal factors create a challenging fiscal environment for us as we move forward, this is a moment of high ambition at NYU. Our faculty is already among the most respected in the country and grows stronger with each new addition. Our student body is highly selective, and our applications continue to soar. Our stated goal is to lead a paradigm shift in the understanding of what a great research university can be. Thus, as we face the fiscal challenges of these times, we confront as well the formidable task of generating the resources to continue our progress. We will not compromise our hopes - for it would be unwise to relinquish our hard won momentum or shrink from the advancement available to us as others retrench. Still, maintaining our momentum will require a special spirit: we must be willing to sacrifice and to view it as an investment in our long term stability and collective improvement.
In short, we seek a delicate balance: we must manage austerity, even as we seize opportunities. As difficult as this will be, I am convinced that we have the requisite resolve, that we will manage the equilibrium, and that in doing so we will use these times to generate the very transformation we seek.
During the transition and over this past year, we have set in place a talented team with needed expertise in financial management and the capability to define and implement our academic priorities. We have developed disciplined processes and a culture of accountability. The dedicated efforts undertaken by those who served on transition committees or the standing committees subsequently established (such as the Faculty Academic Priorities Advisory Committee) provide a roadmap to guide our decisions following faculty leadership. Working with these groups, with the individual schools and their remarkably talented deans, with the University Senate, and with each constituency of our community in a host of other ways, we have begun to make concrete the ideal of a common enterprise university. We will need all of these resources - and we will need the disposition implied in the phrase "common enterprise" - if, in these times, we are to maintain our momentum and realize our ambitions. But, we will do it.
Some Guiding Principles
As we move to meet the challenges of combining the need for fiscal discipline with our desire to continue our progress, these principles guide us:
- each decision and choice made should be informed by our academic priorities
- maintaining and advancing the quality of our faculty and student body should be our highest priority
- necessary sacrifices should be made now to produce financial stability and collective advancement
- these sacrifices, as investments in our common future, should be made across our community
- the strategic investments we choose should reflect the priorities we have identified collaboratively, beginning with the transition process and continuing in ongoing conversations
- to support the work and interaction of faculty and students, major additional investments should be made in improving and expanding our academic space
- particular, but not exclusive, emphasis should be given to building strength at the core of the University, the Faculty of Arts and Science
- investments which simultaneously produce advances in more than one school or department should be viewed positively
- increased financial aid should be produced to attract and retain the strongest and most diverse student body available
- programs and services to enhance the quality of student life should be developed and expanded
Managing Austerity While Seizing Opportunities
Before turning to any other source, we conducted a rigorous examination of our current expenditures - one calculated to produce efficiencies and liberate resources. We already have embarked on cost reduction measures that will affect every part of the university, with administrative units absorbing a much larger proportional share than academic ones. Thus, we have reduced the budget of every unit in the university administration, with significant savings (over $15 million) even in the current fiscal year. More will be coming as we work through the fiscal 2004 budget, both at the university and at the school level.
Though the savings we have made and those we will generate in this process are significant, we also have established a group of senior University officials to explore new entrepreneurial opportunities and to ask ourselves whether we are doing enough to develop revenue sources.
Efficiencies and novel revenue generating ideas can take us only so far. At base, we are a tuition dependent institution, and thus, an increase in tuition revenue must be a significant part of our response to the challenge we face.
Our tuition revenue is simply the product of the size of our student body and the level of the tuition charge. Enrollment has grown a good deal over the last decade, and there is widespread agreement that we should undertake as little additional expansion as possible. That being the case, it is inevitable that, no matter what we do, only a substantial increase in tuition will supply the funds needed. Thus, for this coming year the increase in tuition for undergraduates (the graduate and professional schools will set their own tuition figures over the coming weeks) must be high (frankly, much higher than I had hoped when we began planning a year ago for FY 2004): 6.9%. When combined with the relatively modest increase we plan in the cost of student room and board rates, the blended increase in cost to a typical student will be 6.3%.
I regret the necessity of this tuition increase. To help ensure that the cost of an NYU degree does not come between a young person and the education he or she desires, we will direct significant additional funding into loans and grants, both for returning and entering students. We will increase the budgets for pure grants, assistantships and scholarships by 14% over last year.
We all must be part of ensuring our community's stable and promising future. As we ask our students to invest in our University, we also must ask that each member of the faculty and administration do the same, and I can report a widespread willingness to do so. This year neither I, nor the deans, nor any senior administrator of the University will receive a salary increase of any sort. Moreover, I shall donate five percent of my salary to the University.
In recognition of this year's circumstances, both the Administrative Management Council and the Faculty Senators Council urged that investments in compensation be structured in a way that benefited those for whom times would be the most difficult. Thus, for the year beginning in September, we will budget for a supplement of $750 for each faculty and administrator, other than the university leadership team. Such a uniform supplement will mean a proportionately greater percentage for individuals at lower wage levels. As is customary, deans and managers will have the option of awarding a lower amount based on performance evaluations, but not a higher amount. This supplement will not be added to base compensation, thereby enhancing our capacity to withstand the vicissitudes of the general financial environment. Promotions, such as from assistant to associate professor, will be budgeted separately.
The Fruits of Our Investment
The fruits of our common investment will be significant. Building upon the recommendation of the transition committees, the elected councils and the advisory committees established over the past year, much has been accomplished already, and concrete plans are set to continue our progress.
A major priority has been and will be improving the quality of our existing academic space and adding to it. In this regard, the opening this semester of a state-of-the-art classroom building (17 classrooms) on Mercer Street is an important step. Moreover, the addition of over 90,000 square feet of academic space (75,000 square feet in the historic Puck Building on Houston Street for which we expect to complete a lease imminently and another 15,000 square feet on Astor Place) provide needed new capacity.
The Wagner School, which is now spread over seven locations, will move into a part of the Puck Building; and, during the next few months, we will plan both the allocation of the remaining new space and the reallocation of the space vacated by Wagner and the other occupants of the new space. As these moves are completed, virtually every part of the University at Washington Square will benefit.
The opening this month of the Kimmel Center for University Life provides meeting facilities, club space, lounges and dining facilities, additional classrooms, and a magnificent conference center. And, its fifth floor auditorium and splendid theatre will ensure a capacity never before enjoyed at NYU.
The renovation begun in Bobst Library will be continued this summer; and greater shelf space for the library will be created as we complete construction of a remote storage facility capable of storing over 2,000,000 volumes while ensuring 24 hour delivery of those books as needed by our faculty and students. We are nearing completion of the Language and Literature Building at 19 University Place, a renovation which will facilitate interaction among our strong programs in these disciplines.
As we look to this next cycle, we will renovate our undergraduate science labs and provide major new science space to support initiatives in the sciences (genomics, soft condensed matter physics, nanotechnology, and computation). We will also develop new social science space for the departments of economics, politics, and sociology, as well as space to house the departments of philosophy and linguistics. In addition, we have set aside allotments which, when matched by anticipated fundraising, will allow significant capital projects in Gallatin and Tisch, and which will allow us to continue improving the quality of our space in each of our schools.
When these projects are added to the significant existing capital projects in the Business, Law and Medical Schools, we will have addressed a significant portion of the space issues identified as priorities.
Our research and teaching enterprise increasingly relies on information technology. Given the importance of a sound, advanced technological platform to support our academic mission and numerous other aspects of our community's life, it is not surprising that information technology commands larger and larger resources. We have not compromised in this area, and we must invest still more to maintain the advances we have made and to continue our improvement. Thus, we have completed a number of important projects, including: upgrading the platform for NYU's email system, doubling the capacity of NYUHome and www.nyu.edu to handle traffic; expanding the "Blackboard" instructional shell, enabling all faculty to use it for all courses; piloting wireless computer service; developing a new telecommunications spine that will carry traffic 10 times faster; and enhancing NYU ID cards.
These investments in academic space and our technology infrastructure provide support to our academic program and ambitions, but, necessary as they are, they merely are instruments supporting the core of the enterprise, faculty and students. We will not lose sight of this basic truth.
We have continued aggressively to support the work of the outstanding faculty who are here, both by supporting research and program development and by adding to our base of faculty talent. The success of our university in attracting peer reviewed funding and other support is only one indicator of our success; the migration of faculty talent to us is another. We will take care to sustain our momentum in these areas as we move forward. To this end, we are confident that progress will be made on several benefits proposals advanced to us by the Faculty Senators Council.
NYU continues to attract the very best students. This year, for example, we received a record number of applicants (up over 13% from last year) for the freshman class, including a record number of early decision applicants - altogether, more than 33,000. And, not only the quantity but also the quality of our applicant pool is improving: the average GPA and SAT scores are markedly higher than any previous group of candidates.
We have taken and will take several important steps to provide an NYU experience appropriate for such outstanding students. Our new Vice President for Student Affairs, Marc Wais, arrives from Stanford next week. And, in consultation with our community during the year, we have developed other initiatives, all seeking to norm student and residential life to our academic mission. Thus, we have created the successful "learning community" in Weinstein Residence Hall to provide a genuine and significant connection between residential life and NYU's intellectual life. In the coming year, we will expand that model and add new dimensions to it. Finally, we will undertake more aggressive support for a number of student life and career services initiatives proposed by the Student Senators Council.
In sum, the focus of our investments, guided by the principles listed earlier, will be the enhancement and development of our faculty and student body, greater support of student life, increased financial aid, improvement of our academic space, and the upgrading of our technological infrastructure. Taken together, they should ensure our continued progress.
Some Additional Good News
Before closing, let me share with you two pieces of additional - and, truly, very significant - good news: first, the enormous progress we have made at our medical center; second, the spectacular results of our efforts to generate support for our dreams among benefactors and alumni.
One of the most far-reaching and important parts of the enterprise, comprising nearly 60% of our budget, is our medical center. Here, the work of the last two years has borne wonderful fruit. Whereas in 2001 the financial position of the medical center posed a serious risk to the entire University, today that operation is on a solid financial footing that permits real progress. A portion of our hospital's debt has been refinanced (into attractive fixed rates) and steps have been taken that ultimately can lead to a dissolution of our merger with Mt. Sinai Hospital (the result of which would be a further decrease in exposure). We have broken ground for the Smilow Research Building - a facility that will permit us to continue building the faculty research team and, with it, the quality of both the health care provided at the hospital and the education provided at our Medical School. And terrific new faculty have joined us. Additionally, and of great long term significance, bridges have been built between the medical center and other parts of the university, connections that promise academic synergies which will enhance the entire enterprise. Meanwhile, our Dental College, the largest in the world, also has moved forward aggressively. New research and teaching facilities have been opened, and several outstanding senior faculty have joined an already talented team. In all, the picture at our health campus, not so long ago a bleak one, is today quite positive.
On another significant front, despite the difficult economic environment, our fundraising efforts have been very successful. Since the beginning of the academic year, the Development Office has raised over $143 million, a remarkably strong showing in this economic climate. The annual fund is $1 million ahead of last year's total, with an additional 1000 contributors - the result of the major strides taken to reengage our alumni through a series of meetings around the country (with events in 15 cities coast to coast), through an all alumni weekend to be held in April, and through an alumni magazine which will appear next Fall. These numbers - hard won in these times - are remarkable testament to the importance of what is happening at our university. And, still further evidence that we are heading in the right direction is the direct connection between the gifts we have received and our stated priorities. This is illustrated by our recent major (each at least $10 million) gifts: one pending from trustee Charles Kushner for academic space; one from trustee Bill Berkley to support faculty chairs in Stern and FAS; one from the C.V. Starr Foundation for financial aid; one from Leon Charney for the NYU Medical Center, as well as an additional anonymous gift to the medical center.
Looking to a Better Future
The state of the economy is cyclical. The circumstances that require austerity will be temporary. When change comes, we all will be relieved. There are, however, advantages associated with the exercise in review and accountability that is being forced upon us, and we should work to ensure that the habits and practices we develop in response to these difficult times become part of our standard operating practice. Of course, I do not mean by this that the personal economic sacrifices required by the times should continue any longer than necessary. But I do believe we must accept an approach to our University that involves clear-eyed self-evaluation, a commitment to its future, and a recognition that the entire higher education community must find ways to demonstrate its willingness to be accountable, or it will have that accountability imposed upon it by others.
One of the characteristics that distinguishes NYU is its history of surviving difficult times and using such times to become stronger. In fact, the circumstances we face now are significantly less dire than circumstances we have faced in the past. Remember: the caliber of our current professoriate helps draw the very best faculty from around the world to us. Top students are applying to us in record numbers. Donors continue to ratify our progress with generous gifts. All of this news validates what is happening here.
The world at large has confidence in this University and its strengths, and sees the wisdom of the course we are charting. It should be easy for us to have at least as much confidence in ourselves and to believe that we will emerge from these times a better institution.
If, as a community, we can stand together and face the difficulties, the hard truths and the tough decisions, we demonstrate commitment to each other and to our common enterprise. In doing so, we do something exceptional in our lives and for the future - we make our aspirations for our own University real and, thereby, we begin to signal to others the shape of the leadership universities of tomorrow.