As we approach the new academic year, the recession and uncertainty about the financial future are concerns for all of us. So far, the University has incurred somewhat less damage from losses in the markets than we would have predicted from prior experience—and indeed, less damage than other large endowments are reporting. Our basic management disciplines seem to be working. On the other hand, secondary shocks from the state’s sudden and growing financial crisis are all around. Virginia’s revenue structure reflects both economic and political realities. Among the political realities, pledges made in good times (for example, no more car tax—a pledge that inadvertently included the state’s assuming much of the cost of local government; no tax-increase pledges; etc.) have become serious, seemingly unmanageable economic liabilities for the state. One may have any number of opinions about those pledges. Regardless, however, elected officials who made the pledges almost certainly did not anticipate the current year’s economy. The recent sudden rise in unemployment in the state and the associated loss of anticipated state income tax revenues have left no one pointing fingers and everyone searching for remedies.
Virginia’s tax collections fell by 21.3 percent in April compared with the previous year. In June, they fell another 8.8 percent. This is the largest drop in state tax collections in recorded history. The Code of Virginia requires our governors to manage shortfalls by reducing allotments from the state’s general (tax) funds to its agencies. Public colleges and universities are state agencies. Because little elasticity for growth currently exists in other University revenue sources, the recession promises now to be the most serious financial setback of modern times, and because the University’s mission and functions are far larger than they were in 1929, perhaps of all times.
We have already dealt since this recession began with several prior state cuts spanning three fiscal years. Governor Kaine has recently required that all agencies provide plans for dealing with additional reductions equal to 5 percent, 10 percent, and 15 percent of their remaining state general fund appropriations for this year. He will announce the sums to be absorbed by each agency in October. The prior reductions were all ordered as permanent cuts in spending. The governor has stipulated that whatever additional reductions come in October may continue through the next biennium (2010-2012)—one of several signs that state leaders recognize the damage done by the seriatim cuts, and want to leave us and others options for an eventual recovery.
We have no special knowledge just now of how large the cut this fall will be. If it is 15 percent, the University will have to give up an additional $19 million. On average, a 15 percent cut will take some 6 percent of a typical department’s budget composed of state tax funds and tuition. Non-general-fund units (those that receive no state support) will lose also because academic departments will have to reduce further their spending for goods and services. We have managed and will continue to manage these reductions by curtailing spending in every way consistent with our fundamental missions and by redoubling efforts to attract non-state revenue to support current activities.
Virginia’s revenue crisis is not unique. California, New York, Florida, North Carolina, and another 20 or so states have reported similar or worse numbers. As a result, colleges and universities in these states are contending with reductions that are as severe as ours, and in some cases, worse. We are better able than most of our peer universities to deal with cuts for at least two reasons. First, despite market losses, our fiscal managers are continuing to generate funds for academic programs and to predict and control the effects of most downturns. Second and perhaps most important, the University is unusual in relying not on a single major source of funds (on the state or on the endowment, for example)—some wealthy private universities reportedly draw more than 40 percent of their expenditures from their endowments—but instead on a complex variety of sources: tuition set at a realistic level; patient fees calculated to cover the real cost of providing care; endowment payouts set at levels that damp the effects of downturns as well as upturns (and this year will fund 5.2 percent of the University’s total operating budget); predictably strong annual and capital giving from alumni, parents, and friends; auxiliary revenues that cover the full cost of non-core functions; ticket sales; and state funding.
State tax support has been our least reliable resource for a long time. Even so, the state contribution to this year’s budget has fallen to a record-low 6.9 percent. So far as anyone knows, this is the lowest level of state support since Mr. Jefferson opened the University, and the earlier state contributions were never overly generous. Diversity in fund streams has let the University sustain core operations even when one or more contributing sources have been diminished.
Students’ need for financial aid grows larger in tough times. AccessUVa has enabled us to cushion the recession’s blow for the families hit hardest by unemployment and other effects of the economic downturn. The Rector and Visitors’ commitment to meet 100 percent of every undergraduate’s demonstrated need allows us to help students from both low- and middle-income families, especially families with more than one student in college at a time.
AccessUVa is expensive to finance. For 2009-10, the University’s unrestricted contribution to this program will be $29.7 million. This cost predictably will continue to rise as the recession goes forward. Alumni and friends of the University are beginning to see AccessUVa as their personal commitment to the next generation. The best example is the $1.8 million raised to support the John A. Blackburn Endowed Fund for AccessUVa, a sum raised by Gordon Burris through phone calls to Jack’s friends and admirers. To those who have already given to AccessUVa through this fund, and to those who will respond to our request for support this fall, I am grateful.
These are tough times. We all know it, and we know also that we can overcome these challenges by relying on one another and by working together toward our shared goals. The success of a small group who want students to know in the future what Jack Blackburn did for students in his time in assembling an endowment that is now approaching $2 million shows as well as anything might that this is true.
Building a stronger University despite this recession is a big job. Some parts of it will be done by way of large gifts. Most, I think, will result from what we will do individually and in little pieces as we define our common ground and work together to gain and hold it.