May 1, 2009
BUDGET REVIEW COMMITTEE
2008-09 ANNUAL REPORT
Our committee held eight meetings this year, and is still hoping for a ninth—with Savio Tung, chairman of the Trustees Finance Committee, before the Trustees assemble in June.
There were clear signs of economic uncertainty before the academic year, but no one anticipated the scale of the economic collapse under way by our first meeting, on September 26. These events scrambled the usual schedule of preparations for the university’s budget for next year, but also provided us with an immediate and challenging agenda perfectly suited to our mandate.
Our primary focus has been on the condition and management of the Columbia endowment. The January 30 meeting with Business School professors Andrew Ang, Bruce Greenwald, and Pierre Collin-Dufresne was very informative. Our guests stressed the benefits of improved transparency between the Columbia Investment Management Co. (CIMC) and our committee, including basic quarterly CIMC performance reports, and an annual CIMC report with basic broad asset allocation, forecasts of returns and a statement of investment philosophy. We discussed how major endowments have moved from a world of unconstrained wealth maximization over a long-term horizon, to a world where asset/liability management is performed first, and wealth-maximizing asset allocation subject to liability constraints (including liquidity) comes second. Other key topics were liquidity challenges related to private equity and hedge funds, the pros and cons of investing in private equity moving forward, asset/liability management, risk management (including the need for CIMC to use more quantitative tools), and good governance.
We were able to try out some of these ideas with CIMC President Narv Narvekar a month later, on February 27, when he met with the committee, accompanied by his top aide Peter Holland and Senior Executive Vice President Robert Kasdin. The meeting was candid and informative, and we all agreed at the end to make it an annual custom, probably in November.
We have had to devote perhaps more energy than we should have to learning the condition of the endowment. There has been some confusion about what information is public and what isn’t. We learned from a public Website (from the annual report of the University) how the University allocated its endowment among major (but not well defined) asset categories as of June 30, 2008. At that time, 40 percent of the endowment was in private equity. Without some usable measure of our losses in these categories since the start of the current downturn, we have no reliable estimate of the decline of our endowment. We ask the President to provide an update to our committee of his last January 28 public statement, which said the endowment had lost only 15 percent of its value in the last half of calendar year 2008. Like most endowment valuations, that January estimate relied upon a mark-to-market valuation of our illiquid assets—including all of the private equity investments—that was at least three months old (dating from September 30, 2008), and is now seven months old.
This year the committee tried to maintain and strengthen its oversight of the University’s budget preparation process for the coming year. Toward this end, we met twice with EVP for Finance Anne Sullivan as a full committee (on October 24 and January 30), and once last fall in a subcommittee. The key document, the Provost’s letter to deans stating the main budget parameters—rates of change for common costs, unit budgets, salaries, the endowment spending rate—didn’t reach us until early March this year. This was much later than past distributions, which have occurred late in the fall. But this has been an unusual year, with administrators struggling to read the direction of the economy and our own income and expense streams. This morning, we spoke with Robert Kasdin about ways to expand upon and regularize our regimen of meetings with the university’s financial leaders, as well as our access to key budget documents, including detailed school budget tables and the annual parameters letter.
We learned about the budgetary challenges facing the university’s two largest academic units in meetings with CUMC leader Lee Goldman and his chief financial officer Joanne Quan on April 10, and this morning with Scott Norum, chief administrative officer for the Arts and Sciences. Against the retrenching current tide of the rest of the university, Dean Goldman expressed cautious optimism about the CUMC budget after years of serious deficits, noting its relative lack of reliance on endowment, its growing grant and patient revenues, and its preparations for an influx of “stimulus” funds, as well as some easing of the acute CUMC space shortage, thanks to his new policy requiring units to pay for their space.
By contrast, Vice President Nick Dirks speaks plainly of a “financial crisis” facing the Arts and Sciences in his March 3 letter to faculty. To help close a $31 million gap in the $262 million A&S budget, the letter identifies $9 million in revenue enhancements, mainly from enrollment increases in the College and General Studies, and $14 million in cuts, including reduced faculty raises, curtailed faculty searches, a slightly increased faculty workload, smaller Ph.D. program enrollments, constrained administrative hiring with no raises, and 10 percent reductions in non-salary budgets. And with all of these planned actions, an $8 million gap remained.
Most Columbia schools fall somewhere on a spectrum between CUMC and Arts and Sciences. But most will find the following year—FY 2010-11—significantly more austere than FY 2009-10 if current assumptions of a second year of 8 percent reductions in endowment support to operating budgets are borne out.
On December 5, we focused on student issues, meeting first with EVP for Student and Administrative Services Jeff Scott. He described his complex portfolio of responsibilities and addressed questions from student members focusing on the costs of Columbia housing and dining services. The next guest was Dean of Career Education Kavita Sharma, who addressed committee concerns that Career Services had gotten too focused on Wall Street jobs for Columbia graduates, and needed to diversify its career offerings.
The committee continued its annual custom of meeting with EVP for Development Susan Feagin. At the time of her briefing, last October 24, Columbia fundraising was holding up well, despite the economic collapse, with no sign of the slowdown that has settled in since the turn of the year.
We must report our disappointment in the level of Senate involvement in Trustee deliberations this year. Longstanding agreements provide for regular participation of two Senate representatives—a voice but not a vote—in the deliberations of a handful of Trustee committees, including Finance. But we had to leave the October meeting after only a few minutes when it went into executive session, and we have been excluded altogether from the December and March meetings. We understand the position that the Trustees need to conduct some key deliberations on difficult decisions in a closed room. But the principle underlying Senate attendance at Trustee meetings—as well as the Senate itself—is that sometimes more voices are needed inside the room, above all when the decisions are most difficult. If the committee cannot participate in a useful way in the June Trustee meetings, then an important part of its purpose will have been defeated this year.
For the Committee,
Soulaymane Kachani (NT, SEAS), Chair, and
Michael Adler (Ten., Bus.)
Paul Duby (Ten., SEAS)
Sheena Iyengar (Ten., Bus.)
John Mutter (Ten., A&S/NS)
Sharyn O’Halloran (Ten., SIPA)
Monica Quaintance (Stu., CC)
Rajat Roy (Stu., SEAS)
Daniel Savin (Research Off.)
Steven Spitalnik (Ten., P&S)
Paul Thompson (Alum)
Miguel Urquiola (Nonten., SIPA)