Revised projections that the University endowment will lose 30 percent of its value by the end of this fiscal year have forced administrators to cut next year’s budget by $88 million, President Tilghman announced in an e-mail to the campus community Monday morning.
The value of the endowment is now expected to decline from $16.3 billion on June 30, 2008, to roughly $11.4 billion by June 30, 2009. The decline will force the University to cut 6.8 percent of this year’s $1.3 billion operating budget for the fiscal year beginning July 1.
The announcement comes a month after administrators said they would only need to cut $82 million from next fiscal year's budget.
The University also plans to spend 6.7 percent of its endowment next year, up from the 6.25 percent that administrators projected a month ago. That increase takes the University even further above its target endowment spending range of between 4 and 5.75 percent, Tilghman said in an interview with The Daily Princetonian on Monday afternoon.
The administration will also eliminate raises for staff and tenured faculty earning more than $75,000 in a move the University predicts will save $4 million. Most staff earning less than $75,000 will still receive planned salary increases, Tilghman said.
She added that the additional $2 million will be saved as departmental and administrative managers make small, already-identified budget cuts.
Departments should prepare for an 8 percent decrease in restricted endowment incomes and a 5 percent cut in their non-personnel administrative budgets during each of the next two fiscal years, Tilghman said in her e-mail.
The University’s collective budget cutting will result in $88 million in savings during the 2010 fiscal year and another $82 million during the 2011 fiscal year.
“There is no question that this overall two-year target of $170 million in savings will be difficult to achieve, as the first round of cuts eliminated the majority of things that were relatively easy to forego,” Tilghman said in the e-mail.
Still, departments will be forced to lay off employees to meet the financial constraints, Tilghman said.
“I think the letter makes it very clear that the University is going to contract in size,” Tilghman said. “We’re hoping to achieve a lot of that in vacancy savings, but it’s very likely that we won’t be able to do it all.” Tilghman added that she could not predict the scope of the layoffs.
In a faculty meeting Monday afternoon, Tilghman explained to professors that the University chose to announced its long-term budget plans this week to provide ample time for the necessary adjustments.
“We all go to bed at night praying for some miraculous boom … but we can’t plan for it,” she said. “What all of you who are chairs are going to have to be thinking about is that the savings that we are hoping to achieve by a year and three months from now, you have to begin making them in this current upcoming academic year, which is why we felt it was extremely important to give you two-year targets.”
The University also joins a slew of peer institutions in implementing a construction freeze. Though construction will continue on projects nearing completion — like the renovated Butler College and the chemistry building — the University will not break ground on any new buildings.
The largest of these projects are the Arts and Transit Neighborhood, the Andlinger Center for Energy and the Environment and the neuroscience and psychology building. The total cost of these is estimated at $695 million, Tilghman said.
“No new construction or new major renovation project is going to be released from the hold unless we have a very specific plan about how we are going to pay for not just construction, but how we are going to operate the building financially,” Tilghman said.
The University is still planning to finish designing the buildings and securing necessary approvals, so the construction for these buildings can start immediately when the University’s finances are more secure, Tilghman said, adding that she could not estimate when that might be.
A number of smaller projects will also be postponed, including improving the daycare capacity of the University and revamping housing for graduate students, faculty and staff.
Peer institutions with comparable endowments are facing similar shortfalls as their portfolios plummet.
Administrators at Harvard, whose endowment was valued at $36.9 billion last June, are also preparing for a 30 percent fall in value — a loss of $11 billion — by end of the fiscal year. Similarly, Yale saw its endowment fall 25 percent from $22.9 billion last June to roughly $17 billion in December.
Like Princeton, Yale has halted major construction projects, tightened departmental budgets and restrained salary increases.
Stanford, which had an endowment of $17.2 billion at the end of the last fiscal year, has also seen the value of its endowment fall between 20 and 30 percent since then. Yale and Stanford have both reported budget shortfalls of more than $100 million for the upcoming fiscal year.
“We are simply at the mercy of what is happening in the market,” Tilghman said.
An earlier version of this article stated the value of the endowment on June 30, 2008, was $16.4 billion. That figure was later revised by the University to $16.3 billion after one of the figures contributing to the total was misread.