Many of us have been wondering how the economic downturn has affected the university's endowment and budget. President Thomas sent the following yesterday:
All of us are living through a period in which we have witnessed dramatic and unprecedented economic events throughout the nation and around the world. These developments have affected—and will affect—our personal lives both directly and indirectly. We have also been hearing and reading daily reports of colleges and universities facing difficult financial decisions as a result of those circumstances. I write to you today to assure you that, although University of Puget Sound is by no means immune to the financial challenges we have seen and will see ahead, we are navigating these challenging times from a position of strength.
We are fortunate that Puget Sound has a long tradition of careful planning, strong operating performance, and balanced budgets. It is an advantage to enter a tough economic environment like this one with such a record, along with a clear commitment to a shared mission. As always, and with increased intensity, we will continue to make thoughtful decisions about our endowment, debt portfolio, operating expenses, fundraising, financial aid, tuition prices, and budget planning. Unlike many institutions, we have no plans to initiate mid-year changes to our budget—including, and especially, to tuition and financial aid. We plan to stand by our commitments to students and families, and to our entire community.
Puget Sound has strong liquidity to cover operating expenses, and has had uninterrupted access to cash throughout the economic crisis. Puget Sound’s operating cash is largely invested in an AAA-rated money market fund, currently benefiting from the U.S. Treasury’s Temporary Guarantee Program. Due to falling short-term interest rates on high quality investments, earnings on that cash have declined dramatically, however, diminishing one important source of revenue within our operating budget. Should credit be needed, Puget Sound maintains strong long-term credit ratings of A1 and A+ from Moody’s Investors Services and Standard & Poor’s, respectively.
Also in recent months, Puget Sound’s endowment market value has declined because a portion of our portfolio is exposed to public stock markets that have declined significantly. Declines have been less than the U.S. and international stock market indices because the endowment has been broadly diversified and invested with the long-term in mind, including anticipation of bear markets. Endowment distributions are calculated using a 36-month average to smooth budget impacts from volatile markets. Smoothing distributions is important because annual endowment distributions support student financial aid, academic programs, and general operations. Endowment distributions were up 10.4 percent in 2007-08. We know that future distributions will be negatively impacted in the next few years, although we can’t yet know the precise degree.
Looking ahead to next year, Puget Sound’s Budget Task Force has convened several times this fall and is in the midst of preparing a recommendation to me for the 2009-10 budget. This budget will be finalized, after review by the board of trustees, in late February 2009. As is our custom, this information will be shared broadly as soon as it is available.
We are making a special effort to enroll a qualified and diverse freshman class for next year and to retain our current students as well. Anticipating a high demand on financial aid in these challenging times, we remain committed to supporting families and students financially as they make an investment in a Puget Sound education. To ease the pressure on tuition increases, we will also continue our vigorous fundraising efforts, which have seen great success in recent years and will be of increasing importance as we see other revenue streams attenuated.
We will no doubt have difficult decisions to make as we plan for the future. I will ask the entire community to be thoughtful in assessing needs and priorities, and creative in designing solutions. Puget Sound has long been a place that has successfully accomplished more with less, efficiently and effectively deploying resources where they are needed most. Our budget managers are conscientious, innovative and resourceful, with student success and the university’s long-term health always in mind. Working together, we will continue to serve our mission effectively, achieve our strategic goals, and ensure our financial health.
It is important to note that these times underscore the value of our efforts even as they bring into sharp relief the challenges before us. This year we celebrate Puget Sound’s 120th anniversary, and over the course of more than a century we have always emerged out of challenging times stronger and with more clarity about our purpose and mission.
Now is a time to think strategically and for the long term, to act with confidence as we address unprecedented economic conditions. It is a time to keep first things first. Our purpose is to prepare students for the highest tests of democratic citizenship in an often uncertain world. That mission, as the distinctive and distinguished national liberal arts college Puget Sound has become, has never been more clear, and at no time in our history has it been more urgent or the need for it more great.
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Ronald R. Thomas, President
University of Puget Sound
1500 N. Warner St. #1094
Tacoma, WA 98416-1094