Economic Update from President Gutmann

Dear Members of our University Community:

As 2009 comes to a close, I want to express my thanks and appreciation for how well the Penn community has responded to the challenges posed by these difficult economic times. I am grateful for the contributions and sacrifices made by our faculty, staff, students, alumni, and parents, which have enabled Penn to maintain its momentum. With this in mind, I also write you today to provide an update on the University's financial state, and to explain the steps we intend to take in 2010 to ensure we remain fiscally sound and academically vibrant.

I am especially pleased to report that, in spite of the global economic crisis, our academic and administrative successes over the past year position Penn at the forefront of higher education. Through exemplary teamwork, financial discipline and a shared commitment to Penn's highest priorities, we have been able to withstand the worst of the economic turmoil and to look forward to moving ahead on our core priorities.

In the year since we introduced University-wide cost-containment initiatives, we have achieved (through October) $56.2 million in savings in the following ways:

  • $18 million saved through curtailing reclassifications, salary adjustments, and overtime;
  • $30.3 million saved through the delay or cancellation of capital projects that did not have definitive funding plans in place; and
  • $7.9 million saved in reduction of discretionary expenses such as travel and entertainment.

In addition, we have streamlined our operations and restructured for efficiency by renegotiating contracts, enhancing our procurement processes, reducing our information technology costs and charges, and identifying ways to reduce our energy consumption. Our 12 schools have likewise achieved savings through their own school-based cost containment measures.

By achieving these economies we were able to maintain our commitments to sustaining financial aid, meeting high-priority faculty appointments, and completing strategic capital initiatives.

Because the road to full economic recovery remains long and uncertain, we would be unwise to ease our efforts now. Penn's finances are stable, but challenges in the larger economy are expected to persist for many months to come. Commercial real estate markets continue to struggle, and banks remain skittish about issuing credit. Consumer spending remains sluggish and small businesses are still bearing the brunt of the stagnation. Despite the slight decline in unemployment last month, the number of men and women out of work is still distressingly high, both nationally and in the Philadelphia region.

The higher education sector is directly affected by these pressures in a few key areas: loss of endowment values, declining philanthropy, increasing financial aid needs for students and their families, and declining public appropriations from state legislatures.

Penn's endowment lost the least proportionally of its peers in FY09. The Consortium on Financing Higher Education (COFHE) reported recently that the 31 COFHE institutions collectively experienced an average 25 percent endowment loss, totaling $45 billion.

Like most universities, Penn has seen a marked increase in financial need among our students, due to increased unemployment and reduced earnings of their families. The number of grant-aided undergraduates at Penn has grown by nearly 10 percent over the last year.

Penn's need-based undergraduate grant expenditures are projected to increase from $102 million last year to about $122 million this academic year, an increase of more than 19 percent. I am proud to report that despite the strains of the recession on our aid budget, we continue to meet the full need of every student, and to review aid eligibility whenever there is a change in a family's employment situation.

Our Making History campaign now stands at $2.58 billion, or 73.8 percent of our $3.5 billion goal, which we are on track to meet in 2012. We have said from the outset that this campaign is as much about funding our core priorities and increasing participation as it is about our numerical goal. The rate of giving that we experience over the next few months for our highest priorities therefore will be a critical indicator of how the campaign will fare in FY2010. The Penn community has a stellar reputation for making financial gifts go far, and during difficult times gifts that support our highest priorities - financial aid, faculty support, and key facilities - are more important than ever.

As you know, state and local governments have suffered serious revenue shortfalls, forcing painful budget cuts. The cutbacks have affected our School of Veterinary Medicine most severely, where we are anticipating a 19.7 percent reduction in funding for FY2010 once our Commonwealth of Pennsylvania appropriation is ultimately approved. Looking forward, the outlook for substantial funding from the Commonwealth in FY2011 is uncertain.

These serious economic realities, along with our strategic priorities, will continue to steer our decision-making as we enter 2010. After consultation with our Trustees, Deans, and other senior administrative leadership, we have decided to extend the University-wide cost-containment initiatives another 12 months, through June 2011, with a target of achieving a total of $100 million in savings over the full 30-month period. We also are asking Schools and Centers to continue with their cost-containment plans.

We made this decision based on the effectiveness of the cost-containment initiatives thus far, the threat of continued external economic pressures, and the unique challenges faced by the higher education sector in fundraising, financial aid, and state funding. The areas of cost containment remain the same as I outlined in previous letters to the community: curtailing reclassifications of positions and in-grade salary adjustments (with requests for exceptions requiring senior-level review), eliminating recruitment bonuses and discretionary bonuses that are not part of established compensation plans, filling only essential open staff positions, and reducing the use of temporary employees. In addition, we will maintain our efforts to reduce non-compensation related expenditures such as travel, meals, and professional conference participation and continue our policy of proceeding only with capital projects that have a certain funding strategy.

Additionally, the salary compensation pool for FY2011 is under review and at this time we are anticipating a modest increase in accordance with the general state of the economy.

As we enter 2010, we will work to continue meeting the escalating need of our students who receive financial aid, and to keep the rate of tuition increase as low as possible. These tasks are difficult to accomplish even under the best of conditions, which is why I am particularly proud that our tuition increase for this academic year was the lowest in 41 years.

Thanks to the strong support of our Trustees and other generous donors, along with prudent financial planning, we have been able to make important progress in increasing endowed professorships as well as completing all the capital projects that we have initiated - including our expanded Music Building, Roberts Proton Therapy Center, Weiss Pavilion, Fisher Translational Research Building, our signature 24-acre Penn Park, the new Law School building on Sansom Street, and the Krishna Singh Nanotechnology Center at Walnut and 33rd, which will significantly augment our eastern gateway to campus. Support for these initiatives is among the many essential ways in which our Trustees have enabled Penn to forge ahead.

By facing up to the many challenges of our times with superb teamwork and strategic belt-tightening, Penn continues to make the most of our resources, pursuing the highest levels of excellence in teaching, research, and administration. Our classrooms resound with vibrant teaching. Our studies and labs have never been more innovative and productive. For example, to date, Penn researchers have been awarded $163.4 million for 303 research projects through the American Recovery and Reinvestment Act, with many awards still pending. Four professors from the School of Medicine recently were elected to membership in the Institute of Medicine (IOM), one of the nation's highest honors in biomedicine. Professor Sarah A. Tishkoff, a path-breaking geneticist who holds the David and Lyn Silfen PIK professorship in our School of Medicine and School of Arts and Sciences, received the National Institutes of Health's 2009 Pioneer Award, which provides a total of $2.5 million over five years to investigators whose approaches have the potential to produce a major impact on important problems in biomedical and behavioral research. Sarah-Jane Littleford (C'09), who has been working in our Office of Sustainability since her graduation last May, was recently awarded a Rhodes Scholarship, and Joshua Bennett (C'10) has been awarded a Marshall Scholarship.

Allow me, in closing, to express again how grateful I am to all of you for the exceptional work that you do every day to advance the standing of this eminent institution. Your efforts, both large and small, have allowed us to complete this calendar year in such good fiscal health. Because of your commitment, I know we will usher in 2010 with an unwavering sense of common purpose coupled with hard-earned optimism.

May the New Year bring you and your family health and happiness.


Amy Gutmann