January 5, 2009
Happy New Year. As we return from the holiday break, I thought I would share some perspective on our finances—in the year just past and the new year ahead.
It’s fair to say that 2008 was a challenging year for the economy, most businesses, and many individuals. The stock market declined significantly, housing prices fell, and unemployment grew. Thus far, the University has fared relatively well through the tumult. We have been affected but not devastated like many organizations.
Our endowment and other investments have declined sharply. Each year, the University withdraws about 5 percent of the average investment balance of the past three years and uses that money to cover some of our expenses. A smaller investment balance results in a smaller withdrawal, but since our endowment is modest, relative to our size, we are not impacted as much as many of our sister institutions.
Philanthropy, donations made to the University from individuals and foundations, has also declined. That’s not surprising. With stock markets down about 40 percent, most people have less money than they had previously, hence less to give away. Donations to the University have increased markedly in recent years as University supporters recognized the value of investing in the rapidly improving University of Miami. That positive trend is likely to continue once markets begin to recover.
Investments in the expansion of our clinical care and research enterprises were built upon ambitious revenue assumptions that we failed to fully achieve. As a result, we are slowing the pace of investment throughout the University, particularly at the Miller School of Medicine.
We are also concerned about funding from state and federal governments and other smaller revenue streams. It’s just a very uncertain time. That’s the bad news.
The good news is that tuition revenue remains strong as does clinical care revenue (just not as strong as we had hoped). Grants and contracts are up. The University of Miami Hospital is doing well, with revenue running 30 percent above the prior year and growing.
The University Board of Trustees and I have agreed that our management efforts should focus primarily on two objectives:
Protecting the quality of the institution—the teaching, research, clinical care, and community service that we provide. And protecting our employees, particularly those in full-time permanent positions.
To do that, we intend to be particularly aggressive at avoiding new costs. So as jobs become vacant, we must look for creative ways to avoid or delay filling the positions. We must aggressively seek to reduce overtime, which exceeded $5 million for the first six months of the year. Capital projects and renovations will be delayed, whenever possible. For example, construction of the Student Activities Center, the Miguel B. Fernandez Family Entrepreneurial Center, and a number of expansion projects at the Miller School have been temporarily deferred.
To ensure maximum control over new expenses, I have appointed a three-person Management Committee composed of Executive Vice President and Provost Thomas J. LeBlanc; Senior Vice President for Medical Affairs and Dean, Miller School of Medicine, and Chief Executive Officer, University of Miami Health System Pascal J. Goldschmidt; and Senior Vice President of Business and Finance Joe Natoli to consider all requests for exceptions to the new cost-containment policies. Exceptions will not be made without the approval of the Management Committee, and we anticipate that few exceptions will be made.
In preparing budgets for fiscal 2010, we will use conservative assumptions and develop contingency plans in case circumstances beyond our control worsen.
I am confident in our ability to manage through the situation while achieving our two top objectives and staying true to our mission. Please help by carefully considering the necessity of any expenditure you make. And, of course, your suggestions and comments are welcome.
Thanks for all you do for the University.