University President John J. DeGioia outlined the financial future of the university in a March 3 letter to faculty and staff, focusing on conservative spending to cope with projected deficit losses, a declining endowment, and the broader effects of the worsening economy.
DeGioia announced that Georgetown’s budget deficit is estimated to be $37.8 million for the 2009 fiscal year, almost $25 million more than in 2008. Almost $20 million of this year’s deficit, DeGioia said, is tied to the university’s efforts to curb the effects of the recession, as well as possible reduction in charitable giving.
Christopher Augostini, university senior vice president, chief financial officer and treasurer, said in a university press release that the outlook for the university’s deficit over the next few years is grim.
“The university was poised to bring in surpluses over the next fiscal years, but the impact of the credit crisis and recession now have the university operating with losses for the next five years,” Augostini said.
DeGioia also discussed the university’s shrinking endowment, which fell 25.5 percent in the 2008 calendar year, standing at $833 million at the end of the year.
Despite the concerns, DeGioia’s letter maintained a positive tone.
“While we have great hopes that the recently passed federal stimulus law will have its desired effect, no one can be sure if the recession has hit its lowest point, when the economic recovery will begin and how quickly it will unfold,” DeGioia said. “In this context, our major priorities are to protect Georgetown’s academic excellence, to respond well to the needs of members of our community and to ensure that we build the durable financial platform necessary for our continued upward trajectory as a world-renowned university.”
DeGioia assured faculty and staff that the university was well-equipped to deal with the crisis, noting a prosperous five-year period in which Georgetown received an “A-” bond rating last fall. He said that the university had adopted a conservative fiscal policy for the upcoming year in order to decrease the deficit and to survive the financial crisis.
The new five-point plan aims to increase the university’s ability to adapt to the changing economic climate through maintaining an affordable education for Georgetown students, supporting faculty and staff, constraining spending, developing fundraising priorities and limiting risk in the university’s debt portfolio, DeGioia said.
Augostini added that flexibility would be critical in facing the recession.
“This crisis is so significant that we want to give ourselves every opportunity to modify and adapt to changing environments in a way that continues to strengthen our financial position. There is a lot more uncertainty now than there ever has been. We just want to give ourselves enough flexibility,” he said.
The first step, according to the letter, will be ensuring that students continue to have the ability to afford a Georgetown education. DeGioia cited the approved plan to raise tuition by 2.9 percent for the 2009-2010 school year. Additionally, beginning next year, Georgetown will become a direct lender, meaning that students will be able to borrow government-guaranteed funds directly from the university at no risk to Georgetown. Finally, DeGioia said that financial aid for the 2009-2010 school year will be increased by 18 percent for undergraduate students, though specifics on financial aid cannot be nailed down until the university knows more about the composition of next year’s student body.
The second part of the plan involves faculty and staff, who, DeGioia said, will have to wait over six months, until Jan. 1, 2010, before their raises come in for the next school year. Base salaries will also be lower than the university had originally expected, DeGioia added. Both of these decisions were approved by the university’s Board of Directors.
“These were not easy decisions,” DeGioia said, “but it is clear that this approach gives us greater flexibility to manage any new impacts of the recession. It enables the university to preserve cash in the short term while still realizing our priority of providing higher base increases for the future.”
The letter further articulates the university’s plan to constrain spending, including implementing a harsher review of expenses, instituting a delay in filling vacant positions and continuing an 18-month freeze on senior executive salaries, including DeGioia’s, which began in January. Plans to limit spending also contain a delay on capital projects, including the planned science center, which, DeGioia said, would remain a priority but had to be pushed back due to the volatile economic situation.
DeGioia also emphasized fundraising, focusing on requesting gifts in areas that immediately affect university operations, particularly institutional financial aid.
The final portion of the fiscal plan focuses on limiting risk in the university’s debt portfolio. According to DeGioia, the university has already taken many steps to minimize interest costs by restructuring the university’s debt, as well as increasing the liquidity of endowment funds.
Despite the economic crisis affecting the nation and persisting concerns over the endowment, DeGioia drew on a spirit of optimism.
“It is characteristic of Georgetown that, in the most difficult times, our community steps forward and provides an extraordinary education to students and extraordinary service to the world beyond our campus gates. . I am confident that Georgetown will continue to respond to the challenges of the day as a community of educators, scholars, problem-solvers and citizens,” he said.
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