University Update

Issue Date: 
January 12, 2009

To:      The University Community

From:     Mark A. Nordenberg

Date:      Dec. 18, 2008

Re:      Our Continuing Economic Challenges

The Compensation Committee of the Board of Trustees customarily meets late in the first term of each academic year to consider and retroactively approve salary increases for the officers of the University. That timing, which delays salary decisions typically made during the summer for all other employees, permits the Committee to review a fully developed record of individual and institutional performance before taking action. As most of you know from earlier reports, the past year was a period of exceptional progress for Pitt on virtually every front —almost certainly one of the strongest years in our long history. Nonetheless, at its meeting earlier this month, the Compensation Committee—acting on my recommendation and with the support of the entire officer team—voted to hold officer salaries for the current year at last year’s levels, without any increases. The basis for my recommendation and the Committee’s action was straightforward: Pitt, like most other organizations, is facing serious financial challenges; even without knowing exactly what form they might take, broadly shared sacrifices almost certainly will be required as we work to deal effectively with still-unfolding fiscal challenges; and it was appropriate for those sacrifices to begin with the officers of the University.

Among the dimensions of this story that received rather widespread attention was the fact that Pitt’s last salary freeze was in effect more than a decade ago, during the 1995-96 academic year. I am all-too-familiar with that freeze, because the budget that I inherited during my first year in the Chancellor’s office was built around it. And even though the personnel actions involved, then and now, might bear the same general label, their differences are more significant than their similarities.

Perhaps most obviously, that earlier freeze was different in the sense that it affected all employees and not just a small group of officers. Even more fundamental, though, were the very different reasons that led to the imposition of that institution-wide salary freeze. In contrast to our present circumstances, many of the challenges we faced in 1995-96 were problems of the University’s own making. Let me focus briefly on a few telling examples.

• Much attention has been focused on the fact that the students enrolling in our programs then were not as academically strong as the Pitt students of today. But there also were not nearly enough of those students, with enrollments well below budget targets.

• After marking our 1987 bicentennial by moving through our first modern capital campaign, the University’s fundraising efforts had regressed. In fact, our own paid consultant cited unfavorable perceptions and a lack of passion for Pitt in concluding that we were not positioned to move forward with successful development initiatives.

• Though our research rankings were relatively strong and on the rise, we were not making the infrastructure investments that would enable us to compete successfully at even higher levels, in research or in education, and we would not typically have been viewed as occupying a top-rank position within the public AAU universities.

Without repeating specifics that are well known to most of you, all of those issues and many others have been collectively and effectively addressed. Both applications for admission and the academic credentials of enrolled students have soared, and enrollment levels have been returned to fiscally appropriate levels. In the last year alone, we broke essentially all of our past fundraising records—for gifts and pledges, individual support, foundation support, cash received, and number of donors—as well as attracting the largest individual gift in our history. We pushed ahead with our second billion-dollar capital projects plan. We rose to the 6th position among all American universities in terms of National lnstitutes of Health support and into the 10th position in terms of total federal science and engineering research and development grants. And we retained our position in the very top cluster of this country’s public universities—along with Berkeley, Illinois, Michigan, North Carolina, UCLA, and Wisconsin—in the annual assessment published by the Center for Measuring University Performance.

With that kind of recent record, we might rightfully claim to be “innocent bystanders” in terms of the fiscal challenges that now are coming our way. lnnocence, unfortunately, provides no shield from the problems that we face. And because the causes of today’s problems are largely beyond our control and affect almost all of our revenue streams, dealing with them is more difficult than dealing with the problems of the mid-1990s had been.

Just last week, the Commonwealth raised our “reserving obligation” from 4.25 percent to 6 percent. In the absence of a sharp upturn in the economy, then, our appropriation for this fiscal year will be reduced by more than $11.3 million. We estimate that our endowment had lost about 22 percent of its value as of November 30—though wild fluctuations in the markets, lagging valuations of non-marketable investments, and long-term approaches to investing make daily calculations of loss a somewhat problematic exercise. Both institutional and individual donors have suffered their own losses, of course, which will affect future levels of support for Pitt. Though both university research and financial aid likely will be priorities within the new administration in Washington, pressures on the federal budget will be substantial. And many students, as well as the families that support them, will be experiencing their own forms of financial stress.

As noted, the causes of these wide-ranging challenges are largely beyond our control, but we still must deal with their effects, and we have been doing so, in a range of ways, since much earlier in the current academic term. More specifically:

• Responsibility for the state’s original 4.25 percent “reserve” first was allocated to the organizational units sometimes labeled the “super responsibility centers”—those led by the Chancellor, the Executive Vice Chancellor, the Provost, the Senior Vice Chancellor for the Health Sciences, and the Vice Chancellor for Budget—and then further allocated within those large units. The additional l.75 percent reserving obligation imposed last week is being dealt with in the same way.

• We have been taking a much closer look at hiring authorizations this year, with the heads of the “super responsibility centers” establishing review mechanisms appropriate for their areas. Though we have neither imposed a hiring freeze nor set hiring limits and expect to move forward with some important appointments, we have implemented those review processes with the expectation that levels of hiring will be significantly reduced during the current year, as we wait for the economy to stabilize.

• We are being deliberately cautious about capital commitments. Though we have brought some projects forward for Board approval this term, each was carefully reviewed and each presented a compelling case for moving forward and avoiding the additional costs or complications that would be triggered by delay.

• We will be joining with national higher education associations to press for the inclusion of university needs in whatever economic stimulus package is moved through Congress during the early weeks of the new year. Among the priorities advanced by groups such as the AAU, ACE, and NASULGC are student aid, research funding, and infrastructure grants, each of which could have a high level of impact here at Pitt.

• We obviously will need to approach the structuring of the University budget for the next fiscal year with the knowledge that significant economic challenges almost certainly will continue to be with us and with the shared understanding that fiscal restraint will be essential.

Having worked as hard as we have to build institutional momentum here at Pitt, it can be disheartening to think that our progress may be slowed by circumstances beyond our control. On the other hand, because we have worked so effectively to build strength on virtually every front over the course of the last several years, we are much better positioned to deal with the challenges coming our way. Pushing beyond that, as I said in my message of October 1, we also have the chance to emerge from the process of meeting these challenges with Pitt in an even stronger position, at least in the comparative sense.

It is unfortunate that there is such sobering news to share at this special time of the year. However, just as we have worked tirelessly and effectively to forge an impressive record of progress here at Pitt, we now will need to work in equally committed ways to protect the products of those efforts by meeting current economic challenges. Though I obviously wish we were moving through an easier time, I take comfort, both from our record of past successes and from the fact that we will be pressing forward together, and I do wish you the very best as we move through the holiday season and into the new year.