Subject: Impact of the Economy on SAS
To: SAS Faculty and Staff
From: Rebecca W. Bushnell
Date: December 4, 2008
I am writing to communicate with you about the impact of the economy on the School of Arts and Sciences and the steps we intend to take to secure our present and future financial strength. As you have seen from President Gutmann's memo to the University community, Penn is not immune to the effects of the turmoil in the economy, and SAS will be affected by those changes. This economic crisis is both unprecedented and volatile, and it is likely to have an impact on the University and the School for several years. All SAS faculty and staff share in this challenge, and it will require our collective efforts to address it.
Earlier this summer, the School had already begun to budget conservatively for the next few years. We made the very difficult decision to begin a process of reducing the size of the standing faculty, which had grown to a recent high of 499, by 5-8% over the next three to four years. We reevaluated our major facilities initiatives and reduced our financial commitments to these projects by 35%. We also used one-time funds to reduce the School's overall debt for prior facilities projects, which will reduce our annual debt service in future years.
These steps, while significant, are unfortunately not enough to counteract the additional negative effects of the economy that we could not have anticipated last summer. While we are less dependent on endowment income than some of our peers, the downturn in the markets has lowered the value of our endowment, and we will be getting less income than we expected from that source for several years. The friends of the School remain steadfast in their commitment to our strategic initiatives, but we must anticipate the effects of an expected slowdown in philanthropy nationally.
We cannot allow these factors to undermine our support of fundamental priorities. An important example is student financial aid, to which SAS and Penn are deeply committed. Undergraduate aid at Penn is funded by individual schools. As the largest undergraduate school, SAS bears the biggest share of undergraduate financial aid at the University. During these difficult times, we must prepare for undergraduates to need even more aid. Likewise, the School remains fully dedicated to sustaining the recent enhancements to graduate fellowship support.
SAS must now plan with these revised expectations in mind, and prepare the School to withstand unforeseen changes. The School is therefore implementing the following measures:
• Effective immediately, SAS will institute a hiring freeze for all staff positions funded through unrestricted sources. Just as we intend to contract the size of the standing faculty, we will aim to reduce the overall size of the staff by 5-8%, primarily through attrition, over the next several years.
• Effective immediately, we will follow the University mandate to freeze all staff position reclassifications and salary adjustments.
• In planning for FY 2010 every department, program and unit in the School will be instructed to decrease its current expenses (non-compensation operating expenses) by 10% from FY 2009 budgeted amounts. In addition, we will also reduce departmental budgets for temporary employees by 7% from FY 2009 budgeted amounts.
I know these actions will create some hardship for both faculty and staff, but these are burdens that we all must share to ensure a solid financial foundation for the School. In planning for FY 2010, the Dean's office will work closely with departments and programs to help identify the most effective cost-cutting measures, to direct remaining dollars to their highest priorities, and to ensure that essential functions are maintained.
There are key aspects of next year's budget that remain undetermined at this time. SAS is heavily dependent on income from tuition (over 50% of our total revenues are from undergraduate tuition alone), and thus the rate of tuition growth set by the Trustees in the spring will impact us significantly. Once we know more in the spring about the future of our undergraduate tuition revenue, we will communicate with you about the impact of that information. At about the same time, the University will publish its recommendation for salary increases for FY 2010. These are, of course, subject to each school's particular financial capacity.
During such times as these, it is important to remember that, even with all of the costcutting taking place and the many challenges ahead, we continue to have vitality at the core of SAS: we have outstanding faculty, students, and staff and a strong sense of direction for the future. As the chair of the Trustees Budget and Finance Committee put it so well after a presentation I made this fall about the state of the School, "it is heartening to see that SAS is undaunted in reaching its goals."
As always, I thank you for your dedication and commitment to the School. We will weather this storm together and emerge even stronger.
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