During his annual State of the University address yesterday, President John T. Casteen, III discussed the impact of the current economic turbulence on the University — including the effect of state budget cuts — and strategies to deal with the situation.
The address was focused almost exclusively on the financial state of the University.
“This is not an ordinary year,” Casteen said. “The uncertainties around us are a fundamental part of the University’s life.”
One of these uncertainties is related to state revenue. The state’s revenue shortfalls have greatly exceeded the estimates from the first quarter, Casteen said.
With Governor Tim Kaine’s proposed budget for 2007 through 2010, the University is facing three rounds of cuts, Casteen said. The proposal includes a general fund reduction of 8 percent, or $12.4 million, for the 2009 to 2010 fiscal year, in addition to a 7 percent, or $10.6 million, cut during the current year.
“We have seen a series of cuts and we will see more because the state simply does not have the revenue,” Casteen said.
Kaine’s proposals include eliminating the state match for the Eminent Scholars program, which began in 1964, Casteen said.
“[The] 2.8 million dollars proposed to be removed this time will end the program,” he said. The University is working to build legislative support for the program, which various University schools depend on, Casteen said.
The University will also delay two major capital projects: the renovations of Ruffner Hall and Cabell Hall, Casteen said. Privately funded projects, however, will go ahead as long as money is available.
Despite losses in funding, Casteen said the University is faring better than many national private universities in the Northeast.
“The fundamental reason is that many or most of them are dependent on maybe one revenue source,” Casteen said. Many private universities rely heavily on their endowments, supplemented by their tuition. It is not uncommon for major universities’ endowments to make up approximately 35 percent of their budgets, he said.
The University’s endowment has dropped about 25 percent in the first and third quarters of 2008, from $5.1 billion June 30 to $3.9 billion Dec. 31, Casteen said.
“From what we can tell, the flow of large gifts [which constitute the bulk of donations] will not stop,” he said, though the University also needs “substantial numbers of smaller donors.” The global nature of the recession is also important because many of the larger donors are in international business, Casteen said.
The economy will also impact financial aid, Casteen said, explaining that financial aid will increase as unemployment increases.
“Many of the funds that are required for financial aid come from donors,” he said. The University is working to continue acquiring donations, he said. There have been “fairly dramatic gifts” recently, Casteen said, including the $1.6 million donation so far for AccessUVa from friends of former Admissions Dean John Blackburn.
Though there are some federal financial aid bills passing through the House of Representatives and the Senate, Casteen said there are flaws with the current bills.
“Both bills increase funding for student financial aid, [but] the specifics and the amounts are different,” he said. “Neither addresses the fundamental defects ... in the [federal financial aid] system.”
Casteen said the University has two choices to address the economic situation — one more proactive than the other.
“One is to see the crisis as an excuse for mediocrity,” he said. “The other is to see the downturn as an opportunity for carefully conceived, wise ... and innovative thinking.”
Leonard Sandridge, executive vice president and chief operating officer, said University officials have thought on a “broad basis” to protect the University’s interests and programs. The University will be working to control costs, manage the employment level and find new revenue sources, he said. Furthermore, the University will not be filling vacancies unless absolutely necessary, Casteen said, but will refrain from laying off current employees.
In terms of building new revenue streams, Casteen noted that he wants to see the University expand into untapped regions, such as Asia, via online education.
“Imagine what we can do in places where we have never been but where our name is known,” he said.
Such branching out, however, is very challenging, with very few successes among American universities, he said.
“The demand for this service is huge. It’s everywhere,” he said. “We will meet these challenges and we will succeed.”
Sandridge said he agreed that the University will manage the difficult financial situation.
“Our objective is for those who receive services from the University will not see a decrease in the quality of the education and the patient care they receive, and that we emerge from this as a stronger institution,” Sandridge said.
The economy will recover eventually, Casteen said. Until then, “the challenge is to work together, to work smarter, to work more strategically than ever before,” he said, “and to understand that we will come out of this downturn a stronger and smarter university.”
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