Tulane Talk
July 19, 2007
Good Afternoon:
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 cityıs
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.
Scott