Endowment could fall 25 percent

President Tilghman announced Thursday that the endowment has lost at least 11 percent of its value in the four months since the end of the fiscal year on June 30, 2008, in a letter sent to the campus community.

This figure — which does not include the non-marketable securities that comprise half of the endowment — does not capture the full extent of the loss, she said, noting that the University will plan for a 25 percent decrease by the end of the current fiscal year in June. The return on the endowment in the fiscal year ending June 30, 2008 was 5.6 percent, far lower than the double-digit results of the last several years.

Yale announced in December that its marketable securities were down 13.4 percent in that same period, while Harvard announced that its endowment was down 22 percent during that period. Harvard is planning for a 30 percent decrease in its endowment by the end of this fiscal year.

The University plans to “reduce the endowment’s contribution to the University’s general funds operating budget next year by $50 million,” she said, but she added that endowment spending for this year would be above 6 percent, exceeding the target spending band of between 4 percent and 5.75 percent that was set by the University Board of Trustees in 2006.

In the 2010 fiscal year, there will be a 5 percent reduction in the budget for non-personnel related spending, and “departments with restricted endowed funds must plan for an 8 percent decrease in their annual allocations from these funds,” Tilghman said.

Tilghman expressed her regret about having to cut the budget in an interview Thursday afternoon. “It feels very bad to have to do that,” she said, explaining that “not hurting future generations” is one of the University’s “highest priorities.”

A $300 million reduction in the 10-year capital plan was announced late last year.

Tilghman emphasized in her letter that student financial aid will not suffer as a result of the economic downturn and that the University will not be instituting any hiring freezes. New additions to the faculty and staff, however, will be closely screened by the administration.

The Priorities Committee (PriCom), in evaluating salaries for current faculty and staff, moved to direct the largest percentage increases in salary to the lowest-paid University employees, accomplished by capping the maximum salary increase for tenured and the highest-paid faculty at $2,000.

University Provost Christopher Eisgruber ’83, who chairs PriCom, noted that such limited salary increases will not impede the University’s ability to successfully recruit and retain faculty. “Princeton’s faculty salaries remain among the best in the country,” Eisgruber said in an e-mail, “and peer institutions have been equally restrained with regard to their annual increase programs for faculty salaries.”

Dean of the Faculty David Dobkin could not be reached for comment.

Eisgruber also noted that both the dean of the faculty and the vice president for human resources have separately administered funds available for faculty retentions and promotions.

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PriCom also recommended keeping the annual 3 percent increase in graduate student stipends, though it did not recommend the additional 3 percent increase on top of the annual increase sought by Dean of the Graduate College William Russel in his PriCom report last November.

“Given the overall financial situation of the University, I am happy with the 3% increase,” Russel said in an e-mail. “This preserves the normal increase for graduate students, whereas staff and faculty will receive much less than normally.”

“Our stipends have increased significantly beyond the norm in the past several years,” he added.

In an effort to respond to the “financial stress on undergraduates and their families,” Eisgruber said, the committee further recommended “increasing the financial aid budget and reducing the rate of tuition increases.” The proposed 2.9 percent increase in undergraduate tuition would be the lowest percentage increase since 1966.

Tilghman said in the interview Thursday afternoon that she sent the letter Thursday because the Priorities Committee had just met to finalize its recommendations for the budget for the upcoming year. Though her report came later than those of Harvard and Yale, she explained that “coming out and making announcements ahead of [PriCom’s] recommendations would have been disrespectful.”

Tilghman spoke to the University community later rather than sooner because “the farther along we are in this year, the clearer we can be about what the likely situation is going to be by July 1, which is an important date because it determines the size of the endowment upon which we then cast our spend rule policy,” she said.

“I think we were fairly nervous about going out any earlier,” she added.

She said that she anticipates her job will only get harder as cuts are actually implemented. “I think this is going to be the most difficult issue,” she said. “We haven’t really yet felt the impact, to be honest, and that’s because this fiscal year we are still living under relatively good financial circumstances that were the result of previous years’ successes.”

Tilghman said that she has received e-mails from faculty and alumni since her announcement. “The response ... has been extremely positive, very sympathetic, very understanding, remarkably in solidarity with what we had reported in the letter, and I think that’s because this downturn is simply unprecedented,” she said. “I guess there are a few people left who can remember the Great Depression, but not very many. I don’t think there is anyone who questions that the University is in a very [difficult] position.”

- Senior writer Cornelia Hall contributed reporting