Rev. David M. O’Connell Letter to Faculty

September 29, 2008

Dear Faculty and Staff of The Catholic University of America:

Given the current state of the economy, I am sure that you have wondered if there will be any adverse impact upon The Catholic University of America and its financial situation. Since the fiscal health and solvency of the university are among my prime responsibilities as president, I thought I would write to share some thoughts with you in an effort to be both transparent and responsible in providing information to those affected by its contents.

I want to assure you that the administration is actively monitoring and managing financial risks to protect the university and maintain its fiscal health. Even though our endowment has grown significantly during my term as president, recently the value has been impacted negatively by the volatility of the market. It is important for all of us to know that the endowment provides essential revenue to the operating budget. The decline in the value of the endowment is troubling and will lower the university’s financial strength and net assets and, therefore, the rate of spending based upon the endowment.

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. The university is a long-term investor and we do not invest based upon swings in the market. Our financial audit for the past fiscal year was excellent and confirmed the fact that our finances are well managed. In August, Moody’s Investors Services credited the university with an “A2 bond rating with a stable outlook” — a further affirmation of the stability of our finances.

There are, however, things that we can and need to do as a university community to face the current economic situation realistically and its potential adverse impact upon all institutions. Let me suggest some strategies.

First, in difficult times we all need to be patient and cooperative. Some institutional initiatives may be put “on hold” for the time being until we see our way through the economic uncertainty we now confront. In collaboration with you, the administration will make every effort to prioritize the most important institutional ventures.

Second, in difficult times we all need to be especially conscientious and good stewards of university funds. As we are seeing in our own family experience, the university faces unanticipated increases in utilities, food, fuel, general supplies and travel. I am asking everyone to make an especially concerted effort to reduce expenses wherever possible and to be conscientious about our use of university resources including energy: turn out lights when a room is not in use, close windows and external doors to buildings, etc. We may face a possible decline in charitable contributions and other donations. Parents may be more hesitant to enroll their children in private universities and colleges. I will raise tuition as modestly as possible. Again, we will do everything within our power to support essential services provided by the university in a reasonable, although perhaps scaled-down, manner.
Third, the most expensive aspect of the university budget is related to personnel. 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. We may not be able to fill every position presented. Similarly, salary adjustments must be considered and made carefully and reasonably in line with the best and most dependable predictors of the future direction of the economy.
Fourth, the university infrastructure needs some major repairs. Here, again, we need to 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.

Fifth, to the extent possible, we need to create more emergency funds as “set asides” which, if not used, will be applied to our net assets.

Finally, I am reluctant to mandate a reduction in the current operating budget. I may have to revisit that topic in the future if the situation warrants it.

The university community needs to have confidence that the administration, working with all of you, is responding to current economic uncertainties diligently and with the university’s best interests firmly in hand. 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.
My goal in writing is not to give rise to undue worry or panic within the university community. I do believe, however, that it is important for me, as president and chief executive officer, to keep the faculty and staff of the university as fully informed as possible about our financial situation, its future direction and those things that might impact it.

Thank you very much for your great work and support for the university and for one another. May God bless us all.

Sincerely,
Father O’Connell, C.M., president

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