Update on Tufts and the Economy

November 19, 2008

Dear Faculty and Staff Colleagues,

Six weeks ago, I wrote to you about the state of the economy and its impact on Tufts (http://president.tufts.edu/1200564036677/Pres-Page-pres2w_1223298148381.html).  Much has happened since I sent that message.  World financial markets continue to decline.  Since October 8, the S&P500 has dropped by almost 31 percent.  In the month of October, 240,000 people lost their jobs nationwide.  The unemployment rate now stands at 6.5 percent and many believe it may soon top 8 percent.  Nine percent of the nation's mortgages are at least three months in arrears.  And as I write this message, Congress is debating whether it will provide financial assistance to the Big Three auto makers or let them slide into bankruptcy.

Not all of the news is bad.  The credit markets have eased up a bit.  Our short-term borrowing costs have come down and we successfully issued $83M in tax-exempt bonds last week to cover the costs of a number of capital projects already in construction.  Yet in spite of these good signs, these are still tough times for the nation, for individual families, and also for Tufts.

As I have communicated in a series of town meetings over the past two weeks, Tufts is far from immune from this economic storm.  Not surprisingly, our endowment has suffered losses.  For planning purposes, we are currently assuming it will be down 25 percent over the coming year.  This translates into an estimated loss of $24M in distributable income to our schools for next fiscal year.  We anticipate that financial aid costs to the university will increase by at least 10 percent next year because our students are likely to be needier due to the changing economic circumstances of their families.  (We remain committed to meeting the full demonstrated need of each of our undergraduate students for all four years.  If their need goes up, our financial aid budget must go up.)  Support from generous alumni and friends has been a critical ingredient in fueling Tufts' success, but we recognize that our donors may also be subject to the impact of the economy.  We have also suffered a loss of 50 percent of the state appropriation for the Cummings School.  In the aggregate, we believe we must close an annual operating deficit of about $36M in our $600M non-research budget.  While this is a significant challenge, every university is facing similar circumstances.  Peer institutions that depend more heavily on their endowments to fund operations are facing even greater challenges.

In discussing how to bring our budget into balance, I want to be clear about our priorities.  We must put our students first.  We have a moral obligation to help them complete their Tufts education.  For our undergraduates, this means meeting their full demonstrated financial need.  For our graduate and professional students, this means helping to ensure that they have the access to loans and other resources so they can complete their studies.  Also, we cannot address our financial requirements merely through tuition increases, especially in this challenging economic environment.

Second, we must try to protect our most valuable resource – our people.  Tufts is the kind of place that it is because of its dedicated faculty and staff.  I believe we must do everything we can to try to minimize layoffs.  In truth, I cannot guarantee that we will not have layoffs because I do not know how long or how deep this recession will be.  That said, I prefer that we make sacrifices in other areas so that we can avoid sending colleagues into an uncertain job market in these difficult times.

Finally, as an institution we cannot lose sight of our fundamental mission – great teaching and great research.  We must do everything we can so that we preserve our core academic programs.  This will require creativity, hard work, and some sacrifice for each of us.

We are now beginning to work with academic and administrative units on their budgets for next fiscal year.  While the full impact of the economic situation will not hit until then, it is important that we work together to achieve all possible savings this year in order to mitigate the impact of the downturn next year.

We have already put a university-wide hold on all new capital projects.  We have also imposed a flexible freeze on hiring across the university.  It is flexible because there are certain positions that we need to fill because they generate net revenue or because they are mission critical.  I don't believe in across-the-board freezes or budget cuts.  They are an abdication of management responsibility.  We need everyone to be thoughtful about where we can save money in this challenging environment, and we must scrutinize carefully every single expenditure that does not impinge upon our core academic mission.

Salaries and related expenses account for more than 60 percent of our operating budget.  We are unlikely to avoid significant layoffs unless we forego raises in FY2010.  I think most of us would readily give up a small merit increase in order to preserve employment for our colleagues.  If we do decide that we must freeze salaries for next year, we will do our best to provide very modest increases for those earning less than $50,000 per year.

These are difficult times and they could get worse.  Our current economic storm is the financial equivalent of Hurricane Katrina.  While the government was not responsible for Katrina striking New Orleans, it was responsible for the response.  Similarly, although the current economic condition is not of our making, we will be judged by how we respond.  I am confident that our strong sense of community and our collegial traditions will allow us to make hard decisions that would test lesser institutions.

I realize that uncertainty can be paralyzing.  You have my word that I will communicate with you if circumstances change.  We will schedule more town meetings as necessary and I will continue to write to you when there is more news to communicate.

I am deeply grateful for your support and your understanding.  We will get through this, but we must all work together.

Sincerely,

Lawrence S. Bacow
President