CatherineMeng.com

Dear Colleagues,

I am writing to update you on the university’s response to the national and
global economic downturn. First, let me express my gratitude to the entire
campus community for your early efforts in helping us reduce our expenses.
Many units have already taken immediate action to cut costs now in
anticipation of future belt-tightening.  These efforts will serve us in good
stead.

The investment climate has worsened since our first message to you in
October, and there remains great uncertainty about how deep and how long the
economic downturn will be. We believe it is prudent to continually reassess
our budget projections and to maintain enough flexibility to adjust plans as
the outlook becomes clearer. Fortunately, final decisions about the 2009-10
budget are made in March, giving us time to approach long-term reductions
with thoughtfulness and care.

Current outlook

So what is the current outlook?  As you recall, our revenues come from three
primary sources–investment income, federal research and tuition–all of
which are under pressure. Revenues are declining in both investment income
and sponsored research, while requests for financial aid from our students’
families are increasing, effectively reducing tuition income.  Our financial
aid commitments remain firm, as they achieve our core mission of providing
opportunity for the best young people to attend [org].

We now anticipate a need for deeper, permanent reductions in the general
funds budget, which funds most of our faculty and staff salaries, central
administrative operations and non-research expenses.  The most prudent
forecast requires us to eliminate as much as $100 million in base expenses
from the $800 million general funds budget over the next two years.  To give
us planning flexibility, we are now asking every school and administrative
unit to submit reduction scenarios to the University Budget Group of 5
percent, 7 percent and 10 percent for 2009-10, in the context of an overall
plan to eliminate 15 percent over the next two years.  The ultimate cuts may
not have to be this deep, but we would be irresponsible not to prepare for
this eventuality.

It is important to note that budget circumstances vary among campus units,
including their dependence on general funds. Many schools and departments
receive a significant portion of their income from dedicated endowment
funds.  Negative investment returns mean lower endowment payout, possibly
worsening the scope of the budget cut required in those areas.

Reduction strategies

We are seeking strategic adjustments that retain our focus on the core
academic and instructional missions of the university and that preserve the
excellence we have achieved as an institution.  This important goal will not
be achieved through across-the-board reductions, so we will provide wide
latitude to individual schools and campus units to find the best way to meet
their budget objectives.   The optimal strategy for one may not be good for
another.

It is important to recognize that reductions of this scale will
unfortunately not be possible without reducing the size of the university
workforce.  Again, we do not plan to mandate an across-the-board approach,
and we will provide options for deans and managers to minimize the scale of
the inevitable reductions.  In some campus units, hiring freezes have
already been implemented in order to preserve existing positions. A
retirement incentive program will be offered in some units, and where
feasible, some offices may allow employees to reduce their work hours on a
permanent basis. Where layoffs are unavoidable, we hope to lessen the impact
on the affected employees with an enhanced severance program.  We will
provide more details on these programs in January.

Many people have asked whether we still intend to have a salary program for
the coming year. We have left room in the 2009-10 budget for very small
salary increases.  But we are also offering units the flexibility to freeze
salaries as a way of meeting their budget objectives.  Given the slowdown we
are experiencing in the cost of living, this is a less painful option than
it might be in other circumstances.

President Hennessy and I have decided that in light of the extraordinary
pressure on the university budget, we both will take an immediate 10 percent
reduction in our salaries. And many members of the University Cabinet, our
senior university leadership, have also volunteered to take salary
reductions, including all of the school deans.

Your help is important

Is there anything that you can do now to help your unit’s budget situation?
Obviously, any immediate reduction in discretionary spending, reduced travel
or a delayed computer purchase will ease this year’s budget.  Less
obviously, if you have an accumulated vacation balance, using up that
balance will directly benefit your department’s budget, since vacation pay
comes out of a separate accrual account, not current funds.  But most
importantly, if you have ideas for significant savings that might be
achieved in your department or office, please share them with your
department chair, office manager or directly with me.  We all can find ways
to get things done more efficiently.

As challenging as these times may be for the university, they will be
temporary. We remain a fundamentally strong, financially healthy
institution. Your contributions to maintaining our standards of excellence,
each and every day, are significant. We will weather these difficult
circumstances.  I will be back in touch with all of you as we have further
developments in the budget circumstance. Thank you for all you do for the
benefit of [org].
Sincerely,