Economy Crisis Causes Drop in Endowment

Asking for confidence in his leadership, University President Rev. David M. O’Connell sent a letter to faculty and staff discussing the impact of the ongoing economic turmoil and the effect it is having on the institution’s finances. Showing transparency, he was announced that the endowment’s value has already declined by $733,000 due to investments suffering from market volatility.

“On the positive side, the endowment is well-diversified in multiple asset classes which is an acknowledged approach for long-term investors to reduce risk, said O’Connell in the letter. “The university is a long-term investor and we do not invest based upon swings in the market.”

He also expressed concern that parents may be hesitant to send their children to a private university because of the economy’s effect on households across the nation. The cost of tuition may not be feasible for families facing layoffs, bank failures and loss of invested savings.

“I will raise tuition as modestly as possible,” said O’Connell.

The endowment is a source of critical revenue for the operating budget. Therefore, the University’s fiscal strength and net assets will be damaged regardless of whether or not enrollment decreases. The “troubling” decline in value will result in a necessary cut in spending.

The declining economy and current status of the University’s finances was a primary issue discussed by the Board of Trustees as they met earlier this week (see page 1).

“What we were discussing at the meeting is that we have been very conservative in our investments,” said Andrea Roane, a trustee and news anchor for the local CBS affiliate. “That would help minimize the risk. If you’ve got a dollar in this fight though, you’re worried about it though.”

University Trustee Frederick Favo agreed, but said, “In the short-run, it will affect the amount of money coming into the operational budget, so it is a concern.”

“I think all institutions are in the same boat,” said Sister Margaret Mary Fitzpatrick, a trustee for the University and president of St. Thomas Aquinas College in Sparkhill, New York. “If you believe in a long-term view of finances and economics, then we should be fine.”

Facing certain campus infrastructure that is in dire need of repair, O’Connell said he will “prioritize in our decision-making. Non-essential capital spending will be deferred until the start of the new calendar year so that, in the meantime, we can assess economic realities.”

Renovating Cardinal Hall is a priority for Favo, but that project may not be initiated anytime soon due to economy.

The largest project that the University community is currently working on, the redevelopment of the south neighborhood (see page 1), will likely not be affected because construction isn’t schedule to begin until mid-2010 and will require five to seven years for completion.

“I think everybody on the board is very excited about the south campus potential,” said Favo. “We hope that the current economic times and troubles won’t cause a problem with that.”

Personnel costs are the most expensive part of the University’s budget, according to O’Connell’s letter.
“While I am reluctant to ‘freeze hiring’ as some other institutions have done, I need to carefully scrutinize every new position with the supervisors requesting them,” said O’Connell. “We may not be able to fill every position presented.”

University investments were recently audited and rated to have a stable outlook, hailed as “further affirmation of the stability of our finances,” he said.

In addition, he plans to set aside more emergency funds to ensure that the University can face whatever future turbulence the economy may bring.

O’Connell will be traveling across the country for most of the month, visiting alumni and working on fundraising, what he calls one of his “prime responsibilities as president.”

Cardinal Seán O’Malley, another trustee for the University, applauded O’Connell’s efforts in working with alumni and building a strong donor base.

“The kind of relationship with the alumni, which is very important for development, often depends on the figure of the president,” said O’Malley.

The endowment has grown more than 450 percent since O’Connell became president ten years ago.

Last November, it stood at $220 million. At the time, Provost James Brennan had said “the University is in solid shape financially: the endowment is doing well, it’s growing.”

Concerning financial outlook, O’Connell said, “While we have made good, and in some cases generous, improvements in many areas of university life and activities in the past decade, looking forward, our approach to the University’s budget must take into account: the best predictors and indicators of both short and long term financial health; the prioritization of initiatives, needs and essential services; deferred maintenance; and maximizing human and fiscal resources in service of our University mission.”

-Tower Staff member Ryan J. Reilly contributed to this story.

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