The 2009-2010 Academic Year Budget
To: The NYU Community
Fr: John Sexton
Re: The 2009-2010 Academic Year Budget
Date: May 6, 2009
I wrote to you in January on the state of the economy and its impact on the University's finances and priorities. I write now to update you on how financial developments in the intervening months are shaping NYU's planning for the next academic year and the years immediately thereafter.
It is no news that the national and global economies are undergoing fundamental change. There is a rebalancing underway that will work its way through all sectors over the next several years, and the higher education sector is not exempt from this process. This rebalancing will set a new base; and even the most financially blessed of universities are adjusting to the new realities that lie ahead. Harvard, for example, just announced that over the next two years it will cut the operating budget of its Faculty of Arts and Sciences by almost 20% ($220 million); and other universities have announced similar cuts. The simple fact is that a tectonic change is occurring, and every major American university must prepare for a time very different from the recent past.
NYU is no exception. Indeed, if we are to maintain both the extraordinary academic momentum of recent years and the financial stability of our University, we will have to be particularly nimble and creative, in significant part because we face challenges unusual for a university that operates at our level of quality. First, we do not have the luxury of a large endowment (especially when measured on a per capita basis) to cushion us; and, second, even as we depend on increased tuition for program improvement and enhanced financial aid for the neediest of our students, we are entering a time in which many families will be less and less able to invest tuition dollars. Moreover, the rebalancing underway in the general economy will have a dramatic impact, not yet felt, on government support for higher education, especially in New York. Thus, for example, once the assistance provided in the stimulus package disappears (two to three years from now), New York's State and City governments will be forced to reckon with the reordering of the financial services and real estate sectors and the consequent changes in their resource base. Already our state has made cuts in institutional aid to higher education, even as there are increased demands put upon the sector (for example, the proposed MTA budget plan would impose on NYU over $2.5 million dollars annually in increased payroll taxes).
While we confront these challenges, and secure the University's short and long term financial stability, it is imperative that we maintain our priorities and momentum. As we seek to do this, our priorities are clear:
- Maintain the University's momentum, building its faculty by attracting additional high quality talent, especially to the leading departments in the core arts and sciences and to those other parts of the University that are the very best in their area.
- Enhance financial aid for our neediest students and improve the quality of student life and wellness.
- Improve our physical plant, especially in areas that are critical for academic programming or necessary to basic infrastructure, with special priority given to projects that incur short term costs for long term gains (such as moving from rental to owned property for student residence halls).
- Build a unique academic capacity by creating a global network University that prepares our students well for our increasingly complex world.
(for a fuller elaboration of NYU's priorities, see Framework 2031)
Restraining Tuition, Even As Other Resources Decline and Priorities Command Additional Resources
Even as pursuing these priorities demands significant resources, in these times we must do all that we can to restrain tuition growth. To this end, the increase in undergraduate tuition for 2009-2010 will be 3.85 percent, the lowest increase in nearly a decade. The increase for room and board will be 2.5 percent in aggregate. The combined rate of increase of tuition, fees, room, and board is the University's lowest in 20 years.
Tuition accounts for some 60 percent of our annual budget. While we will not know the full enrollment picture with certainty until August, we can say that there were hopeful signs: we had a record year for applications, a strong applicant pool, and enthusiastic admitted students at our admissions events.
Limiting the increase in tuition, fees, room, and board to its lowest level in 20 years has an impact on revenues. And, we also believe there will be shortfalls in other revenue. We expect: that our endowment will provide $33 million less than we projected a year ago; that our fundraising will produce some $17 million less than we projected a year ago; and that income on the money we place in our working capital account to be nearly $7 million less in 2009-2010 than we had assumed; and that state institutional aid will decrease by several million dollars in the long term. In all, we expect to have more than $80 million less revenue in 2009-2010 than we projected just a year ago.
This adjustment to revenue for our next fiscal year and the effect it has on subsequent years (as, for example, the decrease in tuition revenue means that subsequent increases occur on a lower base) must be absorbed even as our priorities command additional resources - in some cases, substantial additional resources. Thus, we will increase aggregate (not individual) financial aid for undergraduates at twice the rate of tuition increase (or 7.8%). And we will increase the base stipends in financial aid packages for fully funded graduate students by 2 percent (Ph.D. students will continue to receive a full-tuition scholarship, NYU will fully pay their health care premiums, and the minimum cash stipend will be increased to $22,440). We will continue to add high quality faculty in key areas; we will invest in student life and wellness; and, we will continue to address critical space and infrastructure needs (for example, a new high-efficiency co-generation plant on Mercer Street; a new classroom facility, conference, and multi-faith building on Washington Square South and Thompson Street). In total, addressing just these University priorities will consume about $40 million.
The Scope of the 2009-2010 Academic Year Challenge: Some $120 Million
The decrease in revenue expectations for Academic Year 2009-2010, when combined with expenditures necessary to maintain momentum on our priorities, creates a shortfall in the coming year in excess of $120 million. Fortunately, we already have taken measures to address more than half of this shortfall:
- In Academic Year 2007-2008, well before the financial crisis became palpable, Executive Vice President Michael Alfano began a program of reengineering the University administration (at the general level, not at the School level) to produce savings. These savings (already achieved) provide a buffer that -- while insufficient by itself to address all the impacts of the economic downturn at the University - amounts to a savings of $38 million/year which can be applied to reduce the 2009-2010 Academic Year shortfall (as well as future shortfalls).
- In January, we took the difficult decision that there would be no salary increase for faculty, administrators, and staff (other than those required by contract) for Academic Year 2009 - 2010. Since personnel costs are the University's single greatest cost, this closes the shortfall by $23 million.
But these efforts, as extensive and important as they are, neither fully address the scope of the challenge we face in the Academic Year 2009-2010 budget nor fully address the significant additional challenges ahead. And, as daunting as the challenge of Academic Year 2009-2010 may seem, we can be certain that if we do not take measures to position ourselves well for the years ahead, the subsequent years will see a serious deterioration in our momentum. We will not allow that to happen.
If we are to ensure all we want for our University and a stable future, we must set a goal of achieving savings for each of our schools equal to approximately 6.5% over the next three fiscal years (at the general University level we will have trimmed costs by more than double that percentage in that time). Units and schools will be able to tailor their strategies for reaching this goal; and, of course, to the extent we take actions uniformly across the University to hold the line, savings that materialize within a unit or school will be applied to the unit's or school's goal and will ameliorate the need for reduction in program or personnel accordingly.
Executive Vice President Alfano will follow this memo with a detailed description of a reengineering initiative (Re-engineering II) that both will obtain additional immediate and long term savings at the general University level and, importantly, will extend our efforts to achieve savings to all the schools. Initiatives capable of achieving savings that affect only the shape of the University Administration will be implemented promptly. Beyond these efforts within his immediate purview, however, he will describe a process that will build on the reports (due in May) of the five University-wide Re-engineering Task Forces he created in March, 2008. Over the summer and fall, we will begin implementing some of the recommendations of these Task Forces, as well as other savings initiatives. To advise us in selecting the initiatives to implement and identifying other potential savings opportunities -- including at the schools -- we will create a new University-wide Re-engineering Advisory Committee. One thing already is clear, however: where our previous savings efforts had been achievable through hiring controls and attrition, this new round of savings almost certainly will involve lay-offs, though we will make every effort to minimize this.
We are now in the midst of a great re-balancing in the national and international economy. Circumstances have handed us responsibility for the University at a time when it seems likely that a new basis for the economics of higher education will emerge, one that will make achieving our aspirations more of a challenge. In the years to come, we will need the same spirit of creativity and perseverance that has carried us to this point.
I have been a member of the NYU community for nearly three decades; over the course of those years, I have seen both the University's moments of relative financial ease and relative financial challenge. What was notable was that in both circumstances, NYU still kept innovating, still kept improving itself, and still kept advancing. I know there are steep challenges just ahead, but I have no doubt that we will meet them, best them, and at the end of each day leave the University a little better than when we came through its doors at the beginning of the day.