July 19, 2007
I am writing today, as we close the books on fiscal year 2007, to provide you with a detailed update on the university's financial situation. As you will read below, we have made significant progress in our financial recovery since my last update on this topic a year ago. Challenges still remain; yet the passage of time has made our situation more predictable and manageable.
Cumulative Total Losses and Recoveries: To date, our cumulative financial losses from Hurricane Katrina are nearing $600 million. This number is considerably higher than I reported last year because the process of tabulating our losses is on-going and will continue into the foreseeable future. The $600 million represents losses from property damage, business interruption, and damaged or destroyed research assets and art collections. To date, we have recovered approximately $300 million against these losses from insurance, FEMA and one-time government and foundation grants. The recovery of remaining losses is our highest financial priority for the next few years and remains our biggest challenge.
Use of Recovery Proceeds: We have used recovery proceeds to reduce debt and to fund on-going operating deficits. This year we successfully restructured all of our outstanding debt (approximately $450 million), paid off the contractors who rebuilt our campuses, and reduced our long and short-term debt. As we look to the future, additional recoveries are needed to retire $100 million of Katrina-related debt and to support projected recurring operating deficits for the next few years, which are a result of the hurricane's on-going impact.
FY 07 Estimated Financial Results: You may remember that we had projected an operating loss (i.e., operating revenues minus operating expenses) of $31 million for this year exclusive of any insurance, FEMA or other one-time recovery dollars. As of today, it appears that the operating loss will be in the $21 to $24 million range. This improvement results from lower than anticipated operating expenses and additional unbudgeted operating revenues. This improved operating result is very encouraging and, hopefully, will be sustainable in the years ahead. Despite this operating loss, the university's financial statements for fiscal year 2007 will reflect a positive amount of approximately $120 million. This results from the partial recovery of our catastrophic losses and, under accounting rules, we must include these one-time loss recoveries in the year we receive them.
FY 08 and Beyond: We begin this fiscal year projecting an operating deficit of $34 million, on a total operating budget of approximately $600 million. Again, we have not assumed any receipt of possible one-time revenues such as insurance or FEMA recoveries.
We continue to project an operating deficit for this and the next few years for several reasons. First, despite the increased size of our entering undergraduate class this fall, overall undergraduate and graduate student enrollment is below the projected stabilized number envisioned in a post-Katrina environment. Mostly likely, it will take another three years to build and stabilize enrollment to an optimal level consistent with the Renewal Plan. This is due to the significantly smaller classes that entered last year combined with the fact that we are graduating larger classes in the next two years while replacing them with smaller ones. Second, we continue to incur significant Katrina-related costs (e.g., mitigation, consulting, legal). Third, even though we have retired some of our Katrina-related debt, we still have long-term debt service costs higher than pre-Katrina levels. Fourth, the city's reduced population is still having an adverse impact on some of our medical-related activities. Finally, many of the university's normal operating costs are increasing at unusually high rates as a result of Katrina (e.g., utilities, contract labor costs and insurance).
Hopefully, the reasons for the projected annual deficits cited above will self correct in the next few years as we recover, eventually bringing our operating budget into balance. In the meantime, we anticipate having the financial flexibility to address any on-going issues without further faculty and staff reductions.
The Renewal Plan has been absolutely essential to our financial recovery. Without it, the university would be in a truly perilous situation today. This plan, combined with the incredible efforts and support of the Tulane community on behalf of the university, will continue to benefit us -- academically and financially -- well into the future.
In addition to the progress of our financial recovery, I also want to mention a few other successes, which are also very encouraging signs of recovery and renewal.
Fund Raising and the Endowment: We raised nearly $85 million against our goal of $75 million this year in private gifts and grants despite having a significantly smaller development staff. This was the second best fund raising year in the university's history and positions us very well in the final year of the Promise and Distinction Campaign. To date, we have raised over $652 million toward the $700 million campaign goal.
Our endowment now exceeds $1 billion, a goal we achieved one year ahead of schedule! We reached this significant and historic milestone because of our successes in fund raising and in the management of the endowment. The income from this endowment is significantly strengthening our academic core and expediting our financial recovery -- all great news for the future.
Research Funding: As a result of the outstanding work of our faculty, funded research levels remain fairly constant with pre-Katrina levels despite the smaller number of faculty. The projected research awards for FY 07 are $135 million (and counting) compared to $135 million in FY 06 and $136 million in FY 05. Our decision to create the Research Enhancement Fund has clearly helped our researchers reestablish their labs and programs with the obvious benefit of sustaining externally funded research awards and indirect cost recoveries.
Beyond the Numbers: Despite the considerable challenges we still face, I am very optimistic about Tulane's future. Thus far, our recovery has exceeded our expectations. We are well on our way to building an institution that is more focused, distinctive and academically superior than before the storm. My optimism is based, among other signs, on the following:
- The faster than expected pace of our financial recovery
- The tremendous interest prospective students have in attending Tulane University as measured by the number of applications received, and the size and academic quality of the incoming student body
- Our success in hiring outstanding new faculty, staff and senior administrators
- The extraordinary accomplishments and dedication of our existing faculty, staff, students and administrators
- The impressive academic and financial recovery of our School of Medicine, the emerging vision and long-term plan for the School of Science and Engineering, the continued evolution of the School of Liberal Arts and the ongoing realization of our goals for a reconfigured undergraduate experience in Newcomb-Tulane College
- Our successes in fund raising and managing the endowment
- The continued passion, commitment and support of Tulane's alumni and friends
- The visibility of and respect for the university around the country for how it has rebounded and the historic role it is playing in the cityýs recovery
- The pace of successful implementation of the Renewal Plan and its positive impact on and receptivity among the vast majority of Tulane's stakeholders as demonstrated by the realization of the successes noted above
What remaining challenges do we have to overcome before we can conclude that our recovery is complete? We have to continue to make significant progress in all the areas cited above, particularly by working hard to eliminate our operating deficits. We have to continue to aggressively pursue recoveries from FEMA and insurance companies for our remaining catastrophic losses. We must be focused and unrelenting in achieving our academic priorities and objectives; determined to make thoughtful, courageous and forward-looking decisions to advance our progress; and dedicated to a future filled with hope and a desire to renew our university and city in a way not possible before Katrina.
Katrina forever changed Tulane, our city and each of us. For me, it has been a truly transformative experience. This is an historic moment for our university and city. I consider myself privileged to be here working with an extraordinary group of people who define themselves as Tulanians and New Orleanians. My commitment and dedication to the Tulane community, New Orleans and the state are unwavering. Together, we will continue to steer a course to a brighter and prouder future.
As always, I welcome your comments and questions about anything covered in this Tulane Talk or any other topic for that matter. I will make the rounds of the key internal and external stakeholder groups this fall to discuss last year's accomplishments as well as this year's priorities and objectives. However, in the meantime, do not hesitate to contact me if you have a question or comment.
218 Gibson Hall, Tulane University, 6823 St. Charles Avenue, New Orleans, LA 70118 504-865-5201 firstname.lastname@example.org