Messages to the Georgetown Community
Proactive Steps Toward Addressing the Financial Crisis
March 4, 2009
Dear Georgetown Alumni and Friends,
I want to share with you a letter I sent yesterday to faculty and staff regarding the university's ongoing efforts to respond to the global financial crisis. Please find it below.
These are indeed challenging times. We recognize that the current climate is affecting everyone in the Georgetown community, and I know my colleagues share my concerns for the well-being of all of our alumni, families, and friends.
The following letter is the latest in a series of communications and conversations I've had with our campus community as the financial crisis has unfolded over the past several months. I began this effort with a letter to the community in November, which outlined our initial responses to the economic situation, and continued to provide updates during the winter. Earlier this week, I discussed the measures the university is taking to respond to the crisis at a town hall meeting with students as well as at the spring faculty convocation. We will continue to provide meaningful updates as the situation evolves.
Please know that Georgetown remains committed to protecting its academic excellence, to supporting our students, faculty, and staff, and to ensuring that we build the durable financial platform necessary to sustain our continued upward trajectory.
Thank you for your ongoing support.
John J. DeGioia
Dear Georgetown University Faculty and Staff:
With this letter, I would like to provide another update on Georgetown 's continuing work to respond to the unfolding global financial crisis. I would like to begin by expressing my gratitude to all faculty and staff who ensure that, during a period of unprecedented economic volatility, we are having another outstanding academic year on all three campuses. It is characteristic of Georgetown that, in the most difficult times, our community steps forward and provides an extraordinary education to students and extraordinary service to the world beyond our campus gates.
This year, on a weekly and sometimes daily basis, we have seen stunning evidence of financial volatility. The index that tracks manufacturing had its weakest reading since June 1980, and it fell below the benchmark that indicates a contraction of the overall economy. Our Gross Domestic Product-the broadest gauge of our economic activity-suffered its worst decline in 26 years. Data released in February indicated that in 2008, our nation lost 2.6 million jobs-more than in any year since the end of World War II. While we have great hopes that the recently-passed federal stimulus law will have its desired effect, no one can be sure if the recession has hit its lowest point, when the economic recovery will begin, and how quickly it will unfold.
In this context, our major priorities are to protect Georgetown 's academic excellence, to respond well to the needs of members of our community, and to ensure that we build the durable financial platform necessary for our continued upward trajectory as a world-renowned university. We have been greatly assisted in pursuing these priorities by members of our strong and engaged Board of Directors, our Senior Vice President and CFO Chris Augostini, Senior Vice President Spiros Dimolitsas, and the senior leaders of our three campuses, Jim O'Donnell, Alex Aleinikoff, and Howard Federoff.
Our work on these issues builds upon very strong efforts in recent years to strengthen Georgetown 's finances. Over the past five years the University's financial performance has improved with better than projected operating results in each of these years. Last fall, our bond rating was upgraded to A- and the University's $13.2 million deficit for FY2008 was lower than predicted. We believe that the financial improvements we have made over the past five years provide a welcome ballast during these turbulent times.
That said, the recession is having adverse impacts on our operating budget and those of most colleges and universities. In the five-year financial plan recently approved by the Board of Directors, early projections for FY 2009 have the University at a $37.8 million deficit due to the effects of the recession. Almost $20 million of this deficit comes from costs associated with restructuring our debt and possible declines in donations.
Our endowment value decreased 25.5% in 2008, ending on December 31st at $833 million. A reduction in the value of Georgetown University Retirement Program (GURP) assets will require higher cash contributions from the University over the next few years. Although our fundraising was extremely strong in 2008, we are budgeting conservatively and thus anticipating a contraction in philanthropy in the current economic climate. We also expect that our students will experience a greater need for financial aid.
Because of these challenges, the need to reduce our operating deficit after 2010, and uncertainty about how long the recession will last, we have been conservative in our financial planning and have focused on creating greater fiscal flexibility for the University. Our strategy entails five key components:
1. Ensuring Access and Affordability for Students. Recognizing the volatility of the student loan industry, last fall we took the opportunity to establish that Georgetown will be able to function as a direct-lending institution. Taking advantage of this federal program means that our students will have access to affordable, government-guaranteed credit options through the University, at no risk to Georgetown.
Our next step was to develop a fiscal 2010 budget that includes the most modest tuition increases in a generation. On the Main Campus, for example, undergraduate tuition will increase by 2.9%. Across the institution, we have aggressively limited tuition growth in recognition of the extraordinary burden faced by our families in financing a college education in a time of such economic uncertainty. Doing so sends a strong signal to students and families that we understand the financial challenges they face. Another way that we are responding to the needs of our families is by increasing spending on financial aid. At this point we do not yet know the full scope of student need across all of our programs, but those details will emerge in the coming months. On the Main Campus, we are planning for a financial aid increase of 18% for undergraduates.
2. Providing Support for Our Faculty and Staff. We have a long commitment to making sure that Georgetown is an excellent place for faculty and staff to work. In recent years, some of our achievements include the establishment of the Just Employment Policy, the opening of the Defined Contribution Retirement Plan to staff, and our success for nine consecutive years in hitting the growth targets of the Main Campus Faculty Salary Plan.
In the last few weeks, as we developed the 2010 budget, we faced difficult decisions about the best way to approach compensation during a time of financial uncertainty. After much discussion, and with the support of our Board of Directors, we have decided to delay next year's faculty and staff increases for six months until January 1, 2010. We also decided that our base salary increases will be lower this year than we would have wished. These were not easy decisions, but it is clear that this approach gives us greater flexibility to manage any new impacts of the recession. It enables the University to preserve cash in the short term while still realizing our priority of providing higher base increases for the future.
In the weeks ahead, your respective campus or unit leader will provide further details about salary increases. I'd like to express my gratitude to all members of the University community for your work and your commitment to Georgetown . It is my sincere hope that this approach allows us to sustain an upward trajectory for compensation beginning in January, 2010.
Just as we recognize the financial pressures faced by the families of our students, we also care deeply about the challenges faced by all who work at Georgetown . I have asked Vice President and Chief Human Resources Officer Mary Anne Mahin to take the lead in developing programming that responds to the recession-specific concerns of faculty and staff. Later this spring, the Office of Faculty and Staff benefits is holding a conference on managing personal finances in uncertain times.
3. Constraining spending . The five-year financial plan we brought to the Board of Directors takes a conservative approach to future spending. Our senior leaders are delaying filling vacant positions. We are asking budget managers to review with extreme care all expenses, including expenditures for equipment and travel. In January I announced that my salary, and those of senior executives, will be frozen for eighteen months. We also have delayed discretionary capital projects that rely on cash resources and outside funding, including the new Main Campus Science Building, which remains our main infrastructure priority but will require a better overall set of financial conditions than are present at this moment.
4. Developing fundraising priorities. Last year was an outstanding year for fundraising at Georgetown . We received the largest gift in our history and experienced particular success in fundraising for faculty positions and financial aid, which was extremely gratifying. While we must be prudent about our expectations for growth in philanthropy during a recession, we will place special emphasis on fundraising for gifts that immediately benefit our operations, including institutional financial aid.
5. Limiting risk in the debt portfolio . During the past months we have begun was accumulated over the decades for crucial priorities such as buildings and information technology-in order to minimize rising interest costs and put in place a stable debt service structure. We also have reallocated our investments to increase the liquidity-or availability-of the funds in our endowment.
This is a trying period for our nation and for the global community. At the same time, with bold new ideas being proposed in Washington , this is also one of the most important times to be in higher education and in Washington , D.C. Georgetown is a great resource to the city and the nation. As a leading American university with a Catholic, Jesuit identity and a global reach, our mission of service and leadership has never been more vital. I am confident that Georgetown will continue to respond to the challenges of the day as a community of educators, scholars, problem-solvers, and citizens. Please accept my gratitude for all you do to help Georgetown live out our great mission. You have my very best wishes.
John J. DeGioia