Remarks by President John J. DeGioia
Faculty Town Hall -- Spring 2005
January 21, 2005
I appreciate this opportunity to meet with the faculty and to exchange ideas about the issues that are on your minds. I'd like to begin by offering a perspective on the university at this moment in time. I'll speak for about 15 or 20 minutes and then I would be delighted to take your questions and have a dialogue.
I have said on other occasions that Georgetown is a truly unique institution in American higher education. Three key facts:
First, we have built and are sustaining one of America's great higher education communities.
Second, we have the aspirations and the assets for an even more distinctive and influential future.
And third, we are executing financial and management strategies that are more complex and challenging than those of our peer institutions.
As a starting point for today's conversation, I'd like to speak briefly about each of these realities - our present excellence, our future promise, and our financial strategies - and then we'll get right into it.
I. Present Excellence
We are one of the few institutions over the past three decades to make a substantial jump in academic quality and prestige. Thirty years ago, beginning in the mid-70's, we began to organize our investment of time and dollars around a new premise, a new logic, which was that Georgetown was positioned to significantly enhance academic excellence.
With no endowment to speak of, we looked to other sources of revenue to finance our investments in excellence. We increased undergraduate enrollment, increased undergraduate tuition to Ivy League levels, issued as much debt as we could handle, and created a fundraising program. We took that revenue and reinvested it in one resource - people, talented people. To attract research faculty, we doubled the size of the Main Campus faculty and invested in areas of emerging intellectual importance, while also reducing teaching loads and emphasizing scholarship and research as a key element of tenure and promotion. This investment in faculty was critical to our ability to recruit a more competitive student body. But other investments were necessary to attract the kind of undergraduate talent we now have educated for 25 years: We funded a need-blind, full-need approach to admissions and financial aid, and we created a truly residential campus by adding eight residence halls, Yates, Leavey, and the ICC.
With those investments in people and emerging academic programs, we moved from being a very good regional institution to what is now an international research university synonymous with excellence in many areas:
- We have never been more selective and successful in the high-stakes arena of undergraduate selectivity.
- We have never had a stronger faculty.
- We have never had a more important portfolio of research and scholarship.
- We have never developed more new facilities in a concentrated period.
- We have never educated our students more successfully.
- We have never had a more distinguished group of alumni.
- We have never had greater satisfaction from our external constituents.
- We have never been better positioned to develop transformative investment opportunities for our donors.
The logic of building excellence has paid off for Georgetown, because of the work this community has done together over the past thirty years.
Ironically, one measure of our success manifests itself in tension and struggle. We now compete against institutions that are no finer or more interesting but are much stronger financially. For example, in 2001, The Atlantic Monthly listed Georgetown as one of the ten most competitive universities in the country for undergraduate admissions, a pool that included Harvard, Princeton, Columbia, Stanford, Yale, and MIT, none of whom have less than six times our endowment.
Georgetown's achievements have moved us into radically different competitive contexts. All of you feel this competitive reality every day, as you compete against colleagues at other universities for extraordinary junior faculty, for deeply accomplished mid-career scholars, for outstanding graduate students and post-docs. Our Student Affairs colleagues feel this reality every day, as they witness the powerful investments peer institutions are making in student centers, residence halls or innovative student support services. Charlie Deacon and Pat McWade feel this reality every day, as other institutions dramatically ramp up their investments in financial aid. I feel this reality every day, in every meeting I have, as colleagues share with me their strategies for competing against wealthier institutions or bring to me ideas about how best to maximize emerging new opportunities.
This competitive pressure we feel is a real measure of our achievement. We have placed ourselves in new leagues.
Sometimes the competition is painful. But fundamentally it is good for us, because Georgetown is not yet as great as we can make it. We have not reached the peak of our potential. We have the promise for still greater distinction, and competing against the best will help us get there.
II. Our Promise
That brings me to my second theme - our promise. I base my deep confidence for our future on a set of assets - many of which cannot be monetized - whose combination makes Georgetown unique on the higher education landscape. They include:
- Our academic distinction - and our enduring aspiration for still greater excellence and impact on society
- Our location in the epicenter of democracy and the capital city of the most powerful country on the planet
- Our international stature in an era of enormous global interdependence
- Our unique religious identity, authentically Jesuit and Catholic with recognized excellence in nurturing multiple religious traditions on campus and interreligious understanding overall
- And, in particular, our partnership with the Society of Jesus, an international religious order whose profound spiritual and educational heritage is becoming even more recognized and valued as the world becomes more interdependent
- Our momentum in philanthropy, combined with an extraordinary donor base that is young, successful, growing in size and wealth, and ambitious for Georgetown.
- And finally, the reservoir of loyalty and good will that defines our entire community - certainly the group gathered here in this room, as well as the faculty at the Law Center and Medical Center, the staff of the University, the Board of Directors, and our many external stakeholders.
This extraordinary combination of assets positions us to continue the upward trajectory of the last thirty years. Georgetown is still a work in progress. After 215 years, I say without any hesitation, our best years are still ahead. These assets give us the promise to become even better, even more important; to attract the next generation of deeply talented faculty, students, and investors into our community; and to be a leader in showing how higher education can confront some of the defining challenges of the 21st century.
III. Financing Our Future
That brings me to the third topic, financing our future. Let me start by saying that the institution's financial future looks very strong indeed, because of the assets I describe above. Three very promising facts:
- First, our student selectivity is extraordinarily strong, and is the single measure most readily identified with our academic quality and demand.
- Second, we have one of the youngest donor bases of major investors in higher education, which means we have depth; those who have invested in Georgetown will still be with us for a good long while. The average age of our major donors is a decade younger than that of our peer institutions.
- Third, we also have growing breadth in our donor base, because coming up behind our current major donors is a much bigger pool of graduates of the 70's and 80's who are poised to enter their financial maturity in the next two decades.
Now, at the same time, the present moment is defined by financial challenges. Four stand out:
- Our $680 million endowment, which was 77th in the country in the latest ranking, does not cover as much of our annual operating expenses as those of our peer institutions.
- We do not have the same amount of financial flexibility to increase undergraduate enrollment, raise tuition, or issue debt as we had in the 80's. However, for reasons I will describe in a moment, we have been engaged in serious work with each of our campuses to increase our flexibility in ways I expect will enable us to respond to our challenges.
- We are bringing to conclusion a costly ten-year process of repositioning our Medical Center to cope with massive changes in the health care economy. Our task is to successfully execute a strategy to achieve financial break-even at the Medical Center by FY 07.
- And, we face the same economic challenges as all universities and businesses in this country, in coping with rising costs of health care and other benefits programs.
As a result of these last two factors - Medical Center losses and growing benefits costs - our institution-wide financial performance in fiscal year 04 was weaker than in fiscal year 03. We knew we needed to improve for 05, 06 and beyond.
So, last year, to respond to this financial downturn in a way that would allow us to continue to support academic investment in key areas, we developed a multiyear financial plan that was approved by our Board of Directors. I would like to acknowledge the leadership of Senior Vice President and Chief Financial Officer Chris Augostini, Provost Jim O'Donnell, and Senior Vice President Spiros Dimolitsas in the development of that plan, as well as the leaders of the law and medical campuses.
The plan covers fiscal years 2005 (which we are in now) through FY 2008. Its goals are to improve the University's financial performance each year, leading to a budget surplus in FY 08, while at the same time allowing for continued investment and growth of our academic mission. Several key choices define this four-year plan, and these then provide a context for understanding Main Campus financial issues. Let me talk about three of these choices.
First, the Medical Center recommitted itself to reaching break-even status by FY 07. I would be happy to respond to questions about the Medical Center in a few moments. To summarize, let me say the following: After the June 2000 sale of the Hospital to MedStar Health, the Medical Center needed to eliminate a deficit in our research and education missions that once had been covered by clinical revenue. The Board approved a six-year Restaging Plan to eliminate the deficit by FY 07. The plan relied upon cost containment and growth in fundraising and research revenues. The plan did not require subsidies from the Main Campus or Law Center to support medical operations.
From FY2000 through FY03, we hit our Medical Center budget targets, but then last year we fell off, primarily because of a shortfall in fundraising at the Medical Center. As a result, we have shifted our focus from revenue growth to cost cutting in order to get the Medical Center back on track to make its FY 07 goal. Thanks to the extraordinary leadership of many colleagues, including Interim EVP Stuart Bondurant, Spiros, Chris, and Medical Center academic leaders and faculty, the Medical Center is in the final stages of developing a strategy to deliver a balanced budget in FY 07, as it committed back in 2001.
Second, in our University financial plan we committed to fund more than $500 million of capital investment in the infrastructure of the institution through FY 2008. Roughly three-quarters was for new construction, and one-quarter for deferred maintenance. Projects included the Law Center completion project, the creation of the new Royden B. Davis, S.J. Performing Arts Center, and the construction of a new facility to house the McDonough School of Business.
For me, this was a critical component of the new financial plan, because it ensured that we would be able to continue to develop much-needed academic space for which we have received considerable outside funding. I think it is worth noting that, with the addition of the Southwest Quadrangle and the academic facilities that I have just mentioned, we are in the midst of the single largest period of facilities growth in our history.
The one critical new facility that is not budgeted in our Financial Plan is the new facility for Main Campus Science. We all know what a vital academic priority this is for us. And we all know that we have not yet been able to develop the integration of academic and philanthropic strategies to bring this to fruition. The third key choice in our Financial Plan may help us get there.
And that is, in our University financial plan, all three campuses and our central University Services departments committed to reaching annual financial targets that, cumulatively, will allow the institution to improve our financial position each year from FY 05 through FY 08. For the Main Campus, in FY 06, which begins this July, the goal is to achieve a $12 million operating surplus, which is consistent with recent Main Campus financial history.
I recognize that this presents a complex financial challenge, because the commitment the Campus made is to generate $12 million in surplus even as we also absorb into the 06, 07, and 08 budgets greater costs associated with fringe benefits, financial aid, and building depreciation, and even as we seek to continue to fund the faculty salary increase plan. I very much appreciate the work that so many of you have done with Provost O'Donnell, the deans, and department chairs to develop an understanding of budget issues and processes.
It is perfectly reasonable to ask why we have to generate a $12 million surplus on the Main Campus, given that doing so may require that we reduce department budgets, we delay some hires, we consolidate some administrative functions, and we take other difficult steps.
The answer is that to create the thriving future all of us envision for Georgetown, we must improve the Main Campus's overall financial performance. Doing so will allow us to work with the Board of Directors to address the challenges involving the one facility that is not in our current financial plan - the science facility. It will allow us to show the Board and others that we have the financial capacity to take on the added expenses of building and operating the new science building. This represents a critical strategy to building the financial framework necessary for us to move forward with the development of a facility that represents our most urgent academic need.
Hitting our Main Campus budget target also will allow us to approach major donor prospects with the credibility of having reached reasonable financial benchmarks. And it will allow us to go back to the bond rating agencies that have lowered our ratings at different times over the past decade and show them that we could improve the financial position of the institution.
A $12 million surplus, on a budget of about $300 million, is both reasonable and doable; it's consistent with our typical historical margin. But still, this year, because of other fiscal issues, the target creates real challenges.
I recognize the tensions we are dealing with here. We have ambitious and high-performing departments. People naturally worry about how best to remain competitive while freezing or reducing expenses. But the discipline the Board has asked us to accept, and that the Campuses committed to in the last year, is for a specific timeframe and I believe it is reasonable. It is difficult but doable. And the benefit will be that we will create the capacity to continue to finance the upward academic trajectory of the place.
One last set of comments--
A crucial element in our framework for moving forward will be our next capital campaign. As I conclude my introductory remarks, I'd like to say a few words about the preparation process that we have embarked upon to ensure the success of our next campaign.
As you know, our Third Century Campaign raised more than $1 billion. In the final year of the campaign we raised more than $145 million in gifts and pledges, an all-time high for Georgetown. At some universities the end of a capital campaign brings a reduction in the institution's fundraising staff and a lowering of its goals. Instead, we have launched a planning process to allow us to start the leadership or "quiet" phase of a major campaign within the next year or so, anticipating a significantly higher overall target.
Campaign priorities are being discussed in many places. On the Main Campus, I am pleased that a variety of discussions are underway at the level of schools and units. Jim O'Donnell is working with the deans and faculty to develop an integrated set of fundraising priorities and opportunities. Similar fundraising planning work is being done at the Law Center and will commence soon at the Medical Center. And for the institution as a whole, with the direction and guidance of the Board, I have brought together faculty and leaders from all three campuses to develop University-wide initiatives in strategic areas of emerging opportunity.
Overall, I have asked deans and campus leaders to develop fundraising priorities consistent with the following goals: In the next campaign, the core of our fundraising will be in support of the enduring priorities, including distinctive core programs, that are illustrative of our identity, strengths, commitments, and competitive challenges. At the same time, our campaign also needs to express our aspiration to develop bold new ideas, reflective of Georgetown's values and commitments, that respond to emerging opportunities to develop the institution in new ways.
In terms of timing, during the coming months I will be working with Board members, academic leaders, and faculty to integrate our campaign strategy efforts. My goal is to present a draft case statement for our next campaign to the Board of Directors in May. That statement needs to articulate the vision and investment opportunities that will inspire and motivate the next generation of supporters. After incorporating Board perspectives, this summer we will take the draft case statement to approximately 200 top donor prospects to see how our fundraising vision and priorities resonate with them. In these 200 individual interviews over the next year, we will test our ideas.
I hope these reflections on our present excellence, our promise, and the financing of our future provide a helpful context in which to place issues of interest to you. I would like to express my gratitude to all of you for your support for Georgetown, for the many ways that you are working to make this the best possible university we can be.