Shirley Ann Jackson, Ph.D.
Piloting Through the Economic Storm
Investing in core strengths, Rensselaer benefits from a “flight to quality”
The final months of 2008 will be remembered as a time of escalating economic crisis. In the United States, the stock market dropped 40 percent (investors in Europe and Asia suffered even greater losses). Real Gross Domestic Product (GDP) decreased 3.8 percent during the fourth quarter, the worst decline since 1982.
The impact on college and university resources has been similarly profound and equally swift. Two articles, written by the same journalist, for the same publication exactly one year apart, tell the story. The first, which appeared in USA Today on Jan. 24, 2008, under the banner “College Wealth Soaring,” announced that college endowments had averaged a 17.2 percent rate of return that year. The second article, “Colleges Adjust as Endowment Returns Plunge,” ran on Jan. 27, 2009.
Academic institutions across the country have reported losses ranging up to 35 percent of the value of their endowments. Rensselaer has experienced losses as well, but through sound policy and excellent management, we have held our endowment decline to just over 20 percent, through December 31, 2008.
The critical question going forward will be, “How are we going to managepersonally, nationally, and institutionallyin this volatile financial environment?”
Personally, we may be saving more, delaying major purchases, choosing to live more simply. Nationally, the new president and Congress are working to reverse the downturn with new programs and massive infusions of money.
Institutionally, Rensselaer has taken action to protect its core strengthsits educational and research missionsand to manage risk. We anticipate that all of our major revenue sources (tuition, gifts, research, endowment income) will be affected over the next several years. We must minimize tuition increases, and be ready to address the additional financial need of students adversely impacted by the economic crisis.
In times of challenge, there is a “flight to quality.” Students and their parents are focused more than ever on getting the best value for their moneyand they are turning to Rensselaer in record numbers. This year, freshman applications have exceeded 12,200 for the first time, a growth of 120 percent since 2005.
This autumn we took proactive steps to reduce our budget by restricting travel and procurement, delaying construction, and instituting a hiring freeze. As the economy worsened and after exploring several scenarios, we determined that a staffing reduction was necessary. Thus, with great regret, we laid off 80 staff members.
We worked to implement the reductions as compassionately as possible by extending pay and medical coverage, by pre-staging unemployment benefits, and by providing outplacement services. We have been heartened by the many expressions of support and understanding from students, staff, faculty, alumni, and trustees.
You may wonder why we would have to take these steps, considering the fact that we have surpassed the $1.4 billion Renaissance at Rensselaer campaign goal. As in any campaign, many pledges will be paid over the course of years, or as part of estates. Additionally, many gifts are restricted for specific purposes and cannot be used to support the general operating budget. For example, new buildings on campus, including the Curtis R. Priem Experimental Media and Performing Arts Center (EMPAC), were paid for with funds outside of the general operating budget.
In fact, we are in a better position than many institutions to manage through the downturn precisely because of investments in world-class campus facilities, student support initiatives, and vigorous faculty recruitment. Our investments have led to new academic offerings, improved retention rates, a doubling of sponsored research, higher rankings, and stronger global presence and visibility.
In times of challenge, there is a “flight to quality.” Students and their parents are focused more than ever on getting the best value for their moneyand they are turning to Rensselaer in record numbers. This year, freshman applications have exceeded 12,200 for the first time, a growth of 120 percent since 2005. SAT scores continue to climb, there are more early decision applications, more gender balance, and greater geographic diversity.
In his Inaugural Address, President Barack Obama warned against allowing the economic crisis to sap the nation’s confidence and lower its expectations, promising to “restore science to its rightful place, and to wield technology’s wonders” to “lay a new foundation for growth.”
By continuing to invest prudently in our research, education, and student life enterprises, by strengthening community within and among our campus constituencies, and by reaching out to our accomplished, loyal, and supportive alumni base, we will ensure that Rensselaer is fully ready to lead with the scientific discoveries and technological innovations that will help revive our economy and preserve our global leadership.