Endowment losses force $82 million in budget cuts

University administrators detailed a plan to cut $82 million from the operating budget beginning on the July 1 start of the new fiscal year at a finance-focused town hall meeting Wednesday afternoon.

The University has also pledged to increase its financial aid budget by roughly $8 million for fiscal year 2010, leaving a net cut of $74 million — or roughly 8 percent — from the amount the endowment contributes to the budget, Provost Chris Eisgruber ’83 told a McCosh 10 audience.

Eisgruber announced the $82 million figure at a Council of the Princeton University Committee meeting in February.Even as the University sees its resources shrink, the $8 million increase represents a 13 percent rise in the financial aid budget, bringing it to more than $100 million for the next fiscal year.

Roughly 59 percent of the student body is projected to receive financial aid next year, Eisgruber said.Eisgruber warned that these preliminary reductions will not be the only ones.

"All of us up here are confident that we're going to have to make a second round of budget cuts," he said. "The second round of cuts is going to be tougher. If there are things to do in the budget, we've done them."

Vice President for Finance Carolyn Ainslie called the current situation a "perfect storm of a number of economic conditions that are anxiety-producing for all of us."In addition to relying on investment returns, "[Princeton is] very dependent on philanthropy. Those are dimensions that get severely impacted in times of recession," Ainslie explained.One of the actions the University has taken, Ainslie said, is to borrow $1 billion for operations so the money did not have to come out of the endowment.

Given the tumultuous economy, Ainslie said, the University can no longer rely on returns on the endowment that averaged 15 percent over recent years.After the endowment posted a 5.6 percent return this past year, Ainslie said that her office is projecting a "25 percent decrease" in the endowment for the next year."We're running a lot of scenarios," Ainslie said. "For planning purposes, we're assuming it will be really slow.

"Roughly 48 percent of the University's $1.3 billion budget for the current fiscal year came from investment income, while 29 percent came from student fees, 16 percent from sponsored research and 9 percent from gifts.As the endowment has declined in value, the University has been forced to spend a larger share of it. Officials try to keep the level of spending between 4 and 5.75 percent of the endowment.

Without budget cuts, Eisgruber said, the spending rate would soar to about 6.75 percent. Even after the $74 million spending reduction, the spending rate will be 6.25 percent next year."It gives you a sense of why we're not in the same good old days," Ainslie said, adding that she expects the endowment to have fallen from $16.4 billion to $12 billion by the end of the current fiscal year.

Eisgruber described the current budget-cutting process as a step in a "multi-year effort" and said that "these sorts of conditions will stay with us for a long time."While non-personnel budgets across the University are being cut 5 percent, Eisgruber said there will be no reduction in salaries."

One of the things we work very hard to do and continue to work hard to do is to minimize the impact of these cuts on our human capital," he said.Unlike many of its peer institutions, Princeton will be able to provide salary increases for staff members, Vice President for Human Resources Lianne Sullivan-Crowley said.

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Rather than base salary increases on merit, the University will determine such raises according to current employees' salaries: Those with lower salaries will receive a higher percent increase in pay, Sullivan-Crowley said, adding that this move may save as much as $6 million.Though Princeton is not instituting a hiring freeze, Sullivan-Crowley said that the administration is encouraging department managers to distribute among existing employees the work that would otherwise be given to a new hire.

Still, she explained, if a manager deemed a vacant position "mission-critical," then senior administration officials would determine whether to approve hiring someone for the job.Sullivan-Crowley confirmed that the University is considering the possibility of offering early retirement packages. While layoffs have been avoided so far, she said they might become a reality in the future."We know now that we have a long-term, multiple-year recession," she said. "Given what is going on, we can't guarantee that there aren't going to be people's jobs affected.The truth is, though, that we don't know what that means yet."As has been frequently reported by The Daily Princetonian, the University has scaled back on several initiatives in the capital and campus plan.

Executive Vice President Mark Burstein added that the University has also begun reviewing its benefits plan to ensure that everyone it covers is eligible and is examining other ways of saving money on campus operations.