February 10, 2009

To the University of Miami Community:
 
I promised to keep you updated on the actions the University is taking in response to the economic crisis—and since I reported to you last month, conditions have significantly worsened. We have already implemented a wide range of measures and are now taking an even more comprehensive look at how it will impact short- and long-term University operations. We do not know how long this downturn will last, but it would be prudent to define short-term as at least the next two years.

In recent years, the University has been in a strong investment mode, and while the strategic investments we have made will more than pay off in the long run, for now our growth will be slower and our focus must be narrower. These investments, coupled with the decline in the markets, have negatively impacted our cash position at a time when there is limited access to credit markets. So we need to make do with cash on hand—which means taking a hard look at how we spend our money and considering all options to substantially curtail spending throughout the University.
 
Throughout the downturn, we have told you that the University will do its best to protect the quality of its core programs—teaching, research, and clinical care—and to protect the jobs of our permanent, full-time employees. At this time, we don’t contemplate across-the-board layoffs. Some jobs, however, will be eliminated as a result of the ongoing evaluation of programs that is part of any well-managed organization. In the current environment, the frequency and intensity of those evaluations will be increased. In those instances where jobs are eliminated, we will make every effort to place qualified employees in needed positions elsewhere in the University.
 
As you know, a hiring freeze has been in effect for all permanent and temporary faculty and staff. Only positions meeting crucial University needs are being filled, and these exceptions must be approved by the Management Committee of Executive Vice President Thomas J. LeBlanc and senior vice presidents Joe Natoli and Pascal J. Goldschmidt. There is no appeal to me.
 
We are evaluating other options that would affect compensation and benefits—which, together, represent a majority of University expenses. In all probability, we will forego salary increases for both faculty and staff during fiscal 2010. We are also considering temporary changes to our benefit plans that would improve our cash position. There are no painless decisions that involve jobs, salary, or benefits. Our commitment is to be as thoughtful as possible in our consideration of the options and to minimize the negative impact on our faculty and staff.
 
All schools and divisions are submitting 5 and 10 percent expense reduction and revenue enhancement plans for the next fiscal year. The Miller School, in particular, is taking many steps to reduce current spending while boosting efforts to increase productivity, revenue, and quality. We have already put in place programs to reduce spending on travel, maintenance, office supplies, printing, mailing, equipment upgrades, entertainment, and special events.
 
Capital budgets have been frozen. While we are delaying some major projects—such as the Student Activities Center, the Miguel B. Fernandez Family Entrepreneurial Center, the Wellness Center expansion, the ambulatory care facility at the Miller School, and the Sylvester Comprehensive Cancer Center expansion—we are moving forward on projects that are well under way, including the Robert and Judi Prokop Newman Alumni Center. I am heartened by the overwhelming response from our talented faculty and staff to efforts to tighten our belts and make do with less. You are putting forth the extra effort and creativity that is crucial in these times and demonstrating your belief in our institution and its mission. This spirit will endure well after the current crisis subsides.
 
That’s the spending side of our financial situation. On the revenue side, none of our primary sources of revenue is immune to the economic downturn, and declines in several areas in the current fiscal year are expected to carry over into next year.
 
While some metrics are holding stable, we don’t know how things will unfold over the coming months. Admissions numbers look good so far and overall freshman applications for the Fall are even with last year, but we have an abiding concern about the crisis affecting students’ ability to pay tuition.
 
Sponsored research at the University faces major challenges from federal, state, and private funding sources. For example, the National Institutes of Health has funded the current year at 90 percent of the awarded amount due to the absence of a new federal budget, and state budget woes have caused cuts in existing research grants from the Florida Department of Health.

While patient care and hospital revenues are up, they have fallen short of budget projections. As we look to the future, we anticipate growth in clinical volume and revenue, but any additional shortfall in anticipated revenues will require a commensurate decrease in spending.
 
Like most major universities, our endowment has taken a significant hit, having lost more than a quarter of its value due to market declines and spending distributions. Fortunately, endowment income represents only 2 percent of our operating budget—far less than many of our peer institutions.  As a result, the impact to next year’s budget will be a relatively modest $3 to $4 million. On the other hand, the stock market decline has significantly impacted the funding status of our Employees Retirement Plan (ERP), resulting in the need for very large cash contributions during each of the next several years.
 
As might be expected, fundraising has declined—down 6 percent so far this year. Alumni Annual Fund giving is slightly up from last year, but the number of alumni donors to our annual fund is down. Given the success of the Momentum campaign—which set a high bar for fundraising and received strong support from alumni, parents, and friends—we remain optimistic that in the long term the University will continue to enjoy broad-based support.
 
The truth is no one knows how the economic crisis is going to play out, but we must be prepared for additional spending reductions throughout the institution. As we proceed through these difficult times, we will have to be flexible and realistic, expecting that there will be setbacks. We will be creative to find more efficient and less costly ways to deliver services, to find new partners, and to break new ground. But I am confident that we will weather this storm and emerge as a stronger and more focused institution. The University is very much a team—and we will pull together and help one another as we manage through these serious challenges.
 
As always, please send me your suggestions and comments at dshalala@miami.edu. Thank you for all you do for our University.