Update on Princeton budget woes

In an earlier post, I shared the letter from Princeton University president Shirley Tilghman in which she spoke about the university's response to the current economic conditions. In her letter, president Tilghman noted that provost Chris Eisgruber would send additional details on specific steps the university would take to achieve cost savings. Provost Eisgruber's memo [pdf file] has now been shared with the university community. You're welcome to read the entire message, but the highlights:

• all units will experience cuts in operations budgets starting in FY10 (July 2009);
• cuts may be 5% or 8% depending on whether the funds are general or restricted funds;
• a vacancy management policy has been implemented; all open positions will be reviewed by a university-wide committee before they can be filled; and
  
• the salary increase program for FY10 has been announced (see below).

A rather ingenius salary increase program has been developed that helps to protect the lowest paid employees at the university. For staff not covered by a bargaining unit, the following salary increase tiered structure will apply. Salary increases will be capped at $2,000.

TIER		BASE SALARY LEVEL	PERCENTAGE APPLIED
A		$0-$34,999	3.50%
B		$35,000-$69,999	1.60%
C		$70,000-$99,999	0.717%
D		$100,000 and above	0.00%
Example		If an employee is earning $75,000, the increase will be the sum of percentages applied to each tier of salary for a total of $ 1,820.80 as illustrated below.

PERCENTAGE APPLIED	BASE SALARY RANGE	AMOUNT OF INCREASE
3.5%	$34,999	$1,224.97
1.6%	$69,999-$35,000=$34,999	$559.98
.717%	$75,000-$70,000=$5,000	$35.85
	Total	$1,820.80

Although the university expects to experience some staff cuts, these cuts will not be nearly as severe as some of our peer institutions or as those about which we have been reading in the papers almost every day. After having increased the staff at the university by 1,000 over the past 8 years, we expect to cut about 33 positions in the next fiscal year.

Now for the bad news. As was reported earlier, the university anticipates a 25% decline in the value of its endowment this year. Even with several years of positive returns in the next few years, it will take somewhere between 5 and 10 years for the endowment to return to FY2008 levels. So, while the news is relatively good for FY10, there is no telling - at least now - what the years ahead will bring, but it probably won't be good for a while.

We have reason to be optimistic though because the folks at PRINCO (the university's investment strategists) have done a remarkable job at managing funds in the past and we expect they will do what is necessary to turn the university's financial situation around quickly. We can only hope....

Update on Princeton budget woes