The Rockefeller University's finances

This is a reproduction of a memo sent to campus from President Paul Nurse on Monday, March 8.

A year ago, during a period of worldwide economic turmoil, I wrote to you about the university’s finances. In July we held our last “town hall” meeting when I updated the community on developments. I am writing now to inform you of the decisions we have taken concerning our future expenditure, set against the background of a still fragile economic climate.

The last year has seen some stabilization in the global economic scene. Returns from the university’s endowment have improved somewhat. However, the losses that occurred in 2008–09 at the peak of the economic crisis have seriously damaged our finances and, as I indicated last July, we will need to make significant budget cuts in the fiscal year beginning July 1, 2010.

As a reminder, the university has three main sources of revenue:

1. sponsored program income (external grants)

2. fundraising, or gifts from private individuals, trusts and foundations, and

3. endowment spending

At the end of 2009 sponsored program income, including “stimulus” funding, was $62.5 million, which is stronger than during the same period a year ago. The increase is accounted for by new awards and by significant levels of “stimulus” funding. Private grant income is also ahead of budget, and stronger than that of last year because of new awards.

Fundraising for the year to July 2009 amounted to $63 million in commitments, an increase of 10 percent over 2008. Since July, fundraising has remained steady despite donors’ understandable caution about making commitments. Gifts to Rockefeller are above the amount we budgeted for, although less than the amount received during the same period a year ago.

However, the very significant drop in our endowment market value has had a serious impact on our day-to-day operations. In fiscal year 2010, endowment spending is expected to contribute over one-third of our total funding. In 2008 and 2009 we saw unprecedented declines in the global capital markets. While Rockefeller’s endowment decline was smaller in percentage terms than that of many other universities, we still experienced an investment return of -18.2 percent for the year ending June 30, 2009. Fiscal year 2009 endowment spending of approximately $100 million on top of this investment decline resulted in a change in endowment market value equal to approximately -24 percent between June 30, 2008 and June 30, 2009. This should be compared with an actual annualized endowment return of +11.2 percent for the 15 years ending June 30, 2009.

The months since July have seen some improvement. Between July and December Rockefeller’s endowment benefited from strengthening in the markets, reporting a preliminary return for these six months of +9.6 percent. Of course, we hope that this trend will continue.

The formula we use for calculating the spending from the endowment incorporates a time lag of three years. Because of this, the decline in endowment market value that we suffered in 2008–09 will be felt in the financial years from July 2011 to June 2015. For this period we are currently forecasting several years of budget deficit, with inadequate income overall to meet our expenses.

In July 2009 we were forecasting deficits of between $20 million and $25 million each year from 2012 to 2014 and around $15 million for 2011 and 2015, bringing the total deficit close to $100 million. Clearly, this situation was not sustainable.

The current year

To begin addressing these deficits we put in place cost containment measures for the current year that included a 2 percent salary increase instead of the usual 4 percent, a freeze in departmental budgets and a number of other cost reductions throughout the nonscience departments of the university. We made other savings in expenditure in various areas of the campus, for example, eliminating this year events such as the holiday party and cutting back on refreshments at seminars and other meetings.

Budget for the year July 1, 2010 to June 30, 2011

Over the past year the Executive Officers Group has given considerable attention to next year’s budget to reduce deficits in the coming years. We have also engaged various other groups to explore ways of containing costs and to decide how best to reduce spending on science with the least impediment to research activity. During the summer we established a faculty budget advisory committee chaired by Mary Jeanne Kreek, tasked with identifying major savings in research spending. We have also benefited from the advice of trustees, in response to our regular reports to the Board on progress. The Board’s investment committee and finance and operations committee have worked closely with the administration in monitoring the situation and developing plans for addressing our financial difficulties.

In January the Board’s finance and operations committee approved the administration’s budget for the fiscal year starting on July 1, 2010. This budget relies on reductions across the board, in both nonscientific expenses and the research program, totaling $14 million. These reductions will stabilize the budget and mitigate future deficits. The reductions include the following:

1. A reduction to the nonscience expense budget (i.e., all expenses except those directly attributable to laboratory research) of $10.3 million.

2. A reduction to the research expense budget of $3.7 million.

Nonscience savings

Nonscience departmental savings, amounting to $10.3 million, include:

1. Zero percent salary increase for all staff.

2. A reduction of expenditure in many departments, generally in the region of 10 to 25 percent.

3. A reduction in the nonscientific staff of the university by approximately 50 positions.

Over half of the position reductions have already been achieved through a combination of early retirements, turnover (positions not then filled when staff left the university), and transferring people from the jobs being cut to fill vacancies elsewhere. Human Resources are working hard to reduce to a minimum the number of involuntary separations, or layoffs. Approximately 20 positions, which represent two percent of the nonscientific staff, still have to be reduced. Separation payments will take effect from July 1 and salaries will be paid up to this date, no matter when individuals are informed of the termination of their position. Payments to employees losing their jobs are generally based on years of service, and Human Resources conducts interviews with those affected to discuss their individual circumstances. Rockefeller has a long-standing tradition of treating employees fairly in these circumstances.

Science savings

The reductions to the research program, which will generate $3.7 million in savings, include these four elements:

1. Zero percent salary increase for all faculty and research personnel.

2. Reductions in the graduate student program totaling six percent of the current year’s budget.

3. Reductions in the resource center subsidy amounting to 11.8 percent of the current year’s budget, and a decrease in the hospital budget of seven percent.

4. A modification to the laboratory funding formula that will generate savings of about 8.5 percent of the current year’s budget.

Taking all these reductions into account, our latest forecast is of significantly lower deficits than previously forecast. We are anticipating deficits totaling approximately $26 million over the years 2012 to 2015. We still, of course, need to address these deficits. We have a plan for this, outlined in the next section.

Future years

The construction budgets for the north campus renovation included contingency funds that were designed to be accessed in the event of unanticipated expenses. We have now completed the Comparative Bioscience Center Annex building project and are within sight of the completion of the Collaborative Research Center, with the new building that joins Smith and Flexner due to be handed over by the construction company in June of this year. We have made significant savings in the course of these two projects and hope that by the time of completion of the CRC there will be a surplus of unspent funds that we can then apply to our future operating deficits, reducing these to some extent. If we are able to make this reallocation of funds — a decision that requires the approval of the Board of Trustees — we hope that this action, together with the cost reductions we have planned for the fiscal year beginning July 1, will be sufficient to address our future financial problems over the period 2012 to 2015. Our hope is that we will not need to make any further cuts in operations or positions after 2011.

Despite our present financial difficulties we should remember that this is a strong institution and that its outstanding record in scientific achievement will stand it in good stead for fundraising and success with grant applications. Many people are working hard to contain expenditure in ways that will limit the damage inflicted by the financial downturn; I am grateful to them, and I am optimistic that we will come through this difficult period.

I encourage you to check this newsletter regularly for further updates.