President Scott S. Cowen
July 13, 2006
As we begin a new fiscal year I want to update you on the university's financial position and fiscal year (FY) 2007 priorities. An overview of Tulane's financial situation was reported by the Senate Committee on Budget Review to the University Senate on June 12, and while I won't repeat the entire report here, I will highlight a few key segments.
When we close the books for the fiscal year that ended June 30, we anticipate the university will have an operating loss within the range of what we projected last fall. This range is from $100 to $125 million. However, based on what we know today, we anticipate being on the low end of this range. In addition to this operating loss, we also sustained property damage of at least $160 million, plus an estimated $125 million in lost research assets, library and fine arts collections, and building contents. These estimates are in line with our previous projections.
The university had insurance policies in effect at the time of the storm. To date, we have received $105 million in insurance recovery, which we have used to pay the contractors for the repairs to the property damage. As all of you know, dealing with insurance companies is a slow and painstaking process, and the amount and timing of any additional payments from insurance are uncertain. We have funded the remaining operating and property losses with the proceeds from the $150 million bond issue we arranged last fall as interim financing. Finally, we have received a nominal amount from FEMA to date - $80,000 - and cannot predict the amount and timing of any future FEMA payments. Be assured, however, that we will continue to be extremely aggressive in pursuit of FEMA and insurance recoveries.
The university's endowment, which now stands at $891 million, including charitable funds, has performed well this year, growing at an annualized rate of 13 percent through May. Our fundraising staff, though small in numbers and hampered by losing several months to the storm, met our goal of $75 million. Research funding also looked strong through June 30 with an estimate of $120 million being awarded to Tulane this year in comparison to $137 million last year. All of these successes are already factored in our projected losses for FY 2006.
As we begin the new fiscal year, we are forecasting an operating loss of $31 million (which represents approximately 5 percent of our $580 million annual operating budget). This projection is $11 million higher than we originally forecast last December. The difference primarily results from lower auxiliary revenues due to lower total student enrollment, reduced clinical activities and higher than anticipated costs in areas such as insurance, utilities and contracted services. The $31 million is also $3 million higher than what we reported to the Senate in June, and is attributed to additional reductions in projected clinical revenue. Operating losses could have been as high as $75 million without the development and implementation of the Renewal Plan.
Preparing the budget for this year has been a challenging process because we are working with so many variables that are mostly out of our control, such as the pace of recovery and repopulation of New Orleans, the state of medical care in New Orleans and the effect it has on our clinical operations, and the perception of New Orleans in the eyes of all of our constituencies. The normal rules of thumb we would use in financial forecasting are no longer valid and we are using our best judgment in making our forecasts. As of this writing, we are comfortable that we can cope with the higher budget deficit for this year; therefore, we do not anticipate having to make any more personnel or programmatic reductions.
Moving beyond fiscal matters, we continue to work to ensure that our students, faculty and staff have the best possible conditions in which to spend their time at Tulane University. The turnover of faculty for this academic year is less than anticipated and we have been successful in recruiting full-time faculty in needed areas. As previously announced, we have established a research enhancement fund that should be of great assistance to the faculty in the next few years. In addition to this encouraging news, we also had over 93 percent of our full-time undergraduates return to Tulane in the spring and a high percentage is expected to return in the fall.
Our first-year undergraduate class will number about 1,000 and we will add about 150 transfer students, which means our full-time undergraduate population will be a little over 5,100 students. This represents a 23 percent reduction in the pre-Katrina full-time undergraduate population, which is consistent with the Renewal Plan and in line with our previous projections.
Even though our total full-time undergraduate population is in line with our projections, the incoming undergraduate class is smaller than we expected. The effect of negative press coverage about the recovery of New Orleans is the single largest factor in our reduced numbers. Our Admission Office did a survey of accepted students who chose not to attend Tulane and two-thirds of them expressed concern about the city. The smaller size of the incoming class also reflects our unwillingness to significantly abandon our academic standards for new students. Even though we will be smaller, we anticipate that we will remain one of the most highly selective universities in the U.S. In addition, our undergraduate population will realize significant benefits from our smaller size in terms of the percentage of full-time faculty teaching undergraduates, and the increased number of opportunities for undergraduates to participate in academic and community-based programming. Finally, enrollments in our professional and graduate schools are consistent with our original projections.
In the next few months, we will begin work on the budget for FY 2008 with the expectation that our financial condition will continue to improve. The growth of our endowment and our fundraising results combined with our strong research showing and the higher than anticipated retention of faculty, staff and students all bode well for the future. We will also have a full year to recruit students compared to our experience last year. Even though we are a smaller and more focused institution, we have a sound and differentiated academic platform on which to build for the future. This platform will make it easier and more cost effective for us to fully recover.
I am very optimistic about the future of our teaching, research and community-based programs and a large percentage of our time this year will be devoted to both short- and long-run strategic thinking and planning. The possibilities are endless and we need to use this opportunity borne out of tragedy to further develop an exciting and compelling vision for the decades ahead while we are stabilizing our current situation. This year, I will focus our attention on a number of objectives that will help us achieve these goals. These objectives should come as no surprise to you but I wanted you to see them nonetheless.
Someone said to me recently that it's a measure of how things are in New Orleans today when you say “it's been an unbelievable year” and you are guilty of understatement. I don't need to recount to you what we all have been through, both as individuals and as a university. We have lost some of our valued students and colleagues along the way. I know you all join me in thanking them for their contributions to Tulane and wish them well in their future endeavors.
Meanwhile, those of us who remain at Tulane University share a bond of togetherness as we approach what I think is a very bright future once we get beyond the next few challenging years. I have no doubt things will continue to significantly improve and those remaining will realize the benefits.
Personally, I am very committed to the recovery of New Orleans and the university and to continuing to guide us through this process. I am blessed with an incredibly dedicated and talented senior team, faculty and staff. Together we will fully recover from this disaster and be a stronger, wiser and improved university as a result of Katrina. There is no challenge too difficult to overcome and anything other than success is not an option.
I know I have written a very long message today but these are issues of importance to everyone at Tulane. As always, I welcome your feedback and questions.
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