Dear Members of Our University Community:

Earlier this semester, I wrote to you regarding the turmoil in the American capital and credit markets, and how this economic instability was affecting our University. Since the time of that communication, the volatility of the economy has continued unabated. During the month of October alone, the Standard & Poor's index of 500 stocks declined 16.8%. Major U.S. corporations, girding for a sustained economic downturn, undertook the highest number of mass layoffs since the terrorist attacks of September 11, 2001. The U.S. auto industry edged closer to the precipice of bankruptcy.

In my last communication, I indicated that I would keep members of the Penn community informed as this situation evolves. I am writing now to update you on how the University is responding to a more protracted and deeper downturn in the economy.

A SOLID FOUNDATION
Because Penn's financial management stood on a solid foundation at the beginning of this economic downturn, our mission of eminence in teaching, research and service continues without interruption. As a result of the record-breaking success of our first year of the Making History campaign, coupled with the prudent choices we made before the economy worsened, we are well-positioned to weather the economic storm. We will continue to plan for the future just as we always have, by implementing sound budgets, by managing our costs, and by maintaining focus on our highest school and institutional priorities.

A COMMITMENT TO INCREASING ACCESS
Several current and prospective students and their families have asked how the downturn will impact tuition and financial aid. Penn's commitment to need-blind admissions and need-based financial aid remains resolute. Our financial aid packages will continue to meet the full need of every Penn undergraduate. Our no-loan initiative in undergraduate financial aid and our greatly improved graduate student stipends have never been more important. We remain steadfast that increasing access to Penn for students from all economic backgrounds is an intractable core principle of the Penn Compact. Although tuition is a critical source of revenue, we also recognize that in these extraordinary times, when students and families are facing unprecedented financial pressures, increases in tuition must be moderate.

WISELY MANAGING BUDGETS AND COSTS
While we remain confident that the financial markets will eventually rebound, no one can predict when that day will come. So we at Penn must take control of our own fate. As the largest private employer in the City of Philadelphia, and one of the largest in the Commonwealth, Penn has long been a stable and supportive employer. And although we are on solid ground today, we must prepare for an economic downturn of uncertain length and depth. This could result in decreases in enrollment for certain fields of study, reductions in federally-sponsored research, and reduced philanthropy. In the short- to intermediate-term, the economic downturn is certain to reduce support from our endowment. In response to the projected State budget deficit, the Commonwealth of Pennsylvania has already reduced our appropriation for the current fiscal year, and may impose further reductions later in the year.

In the face of these challenges, we must begin to reduce our expenditures now, in advance of significant reductions in revenue. I have met with the Deans and senior leadership, and all have agreed to be strategic and disciplined in reducing their costs. Because compensation - both salaries and benefits - represents the single largest expense in the University's operating budget (more than 52% of our total expenditures), each School and Center will implement these following University-wide actions, effective immediately and continuing for the next 18 months:

• Eliminate reclassifications of positions and in-grade salary adjustments. Any request for an exception (based on compelling circumstances) will require the approval of the Executive Vice President.

• Discontinue recruitment bonuses and discretionary bonuses that are not part of established compensation plans. No new incentive or bonus programs or new acting rates will be created during this time period.

• Fill open staff positions only if essential to the operational needs of the School or Center, or needed to fulfill the requirements of sponsored research. Continuation of existing faculty searches and initiation of new searches will be determined by each Dean.

• Reduce the use of temporary employees, including those on payroll and those employed through agencies.

While we are not implementing broad-scale layoffs, hiring freezes, or across-the-board budget reductions, individual Schools and Centers have the flexibility to implement additional cost-cutting measures as needed to create balanced and sustainable budgets. As we plan our Fiscal Year 2010 budget, we will moderate our salary pool in order to conserve resources and to preserve jobs. The senior leadership of the University - including Deans, Vice Presidents, senior officers, and me - will receive no salary increases next year.

In addition, we have asked each School and Center to:

• Reduce non-compensation related expenditures such as travel, meals, and professional conference participation; and

• Review capital projects, moving forward only with those that are fully funded via gifts and/or grants, or those of the highest priority with a certain funding strategy.

Baseline budgets for core administrative service centers will be held at FY2009 levels.

MOVING FORWARD
Because of the generous and creative spirit of the Penn community, many staff members have asked me how they can help the University in this time of economic crisis. I encourage the same strong stewardship of our resources that has led Charity Navigator - our nation's largest independent evaluator of nonprofits - to rank Penn as one of the top universities in the country for our performance. Penn also has a well-deserved reputation for innovation. While I am asking every School and business unit to develop savings plans, I am also seeking bold ideas for generating new sources of revenue. If you have any specific ideas that we should consider implementing University-wide, I encourage you to contact our Executive Vice President, Craig Carnaroli, at evp@upenn.edu.

Penn's total compensation includes a market competitive benefits package for faculty and staff. If you have any questions regarding your benefits please visit the Human Resources website at http://www.hr.upenn.edu/ We also offer substantial resources to individuals and families who are going through a difficult time via our Employee Assistance Program (EAP). More information is available at: http://www.hr.upenn.edu/quality/wellness/eap.aspx

If you have further questions, please email them to me at president@upenn.edu. I will continue to keep you apprised of the University's fiscal health during these tough economic times.

Sincerely,

Amy Gutmann