The University’s endowment payout is responsible for many day-to-day activities. However, after taking a hit during last year’s recession, Cornell reported losses to its endowment of 27 percent in January. Now, University administrators are taking steps to rebuild such financial infrastructure, and in so doing, rebuild confidence in the University.
“We earned 2 percent on our endowment from January through June 2009,” said Joanne DeStefano, vice president for finance and CFO of the University.
Though 2 percent may seem negligible, it is only part of an enormous portion of the endowment that could take years to regain. Ironically, the losses occurred shortly after the largest endowment growth in University history: a record 25.9 percent growth from 2006 to 2007, under the leadership of Cornell chief investment officer James Walsh. Walsh could not be reached for comment. Currently, the University endowment stands at around $3 billion, according to President David Skorton.
Since the fallout from last year’s market crash, University administration has gone to great lengths to fill the deficit. This includes last year’s 5 percent budget cuts across all colleges and budget payout. Additionally, the base budget was cut by $60 million for the current fiscal year, and there is a planned $50 million cut for the coming fiscal year.
“The ultimate goal of the endowment is to generate sufficient returns to grow the real value of the endowment while meeting annual operating budget pay-out with an annual five percent pay-out growth,” DeStefano said. “This translates to a minimum return target of CPI plus 5 percent.”
In other words, the administration wants to see the endowment continue to grow while still being able to take sufficient funds from it. Among other financial issues the University may have to face, this is likely one of the more realistic goals it has to meet, as the endowment only covers a portion of initiatives and research.
“10 percent of the $1.9 billion fiscal year 2010 Ithaca campus operating budget comes from the endowment pay-out,” DeStefano said. “Of the initial $215 million projected budget deficit over the next five years, approximately $80 million was estimated as a result of reduced pay-out based on the projected endowment returns.”
Though the losses may seem daunting, the University is not alone in its endowment woes. Harvard University made headlines earlier this year with its announced losses of $11 billion, or 27.3 percent of its endowment. The Wharton School seemed to have saved the Philadelphia-based school from a similar precipitous drop, as the University of Pennsylvania lost a relatively meager 15.7 percent of its endowment.
In addition to cuts, the University has also taken steps to increase the budget with the current class of freshmen. The class of 2013 boasts 100 more students than the class of 2012, and charges for tuition, room and board have increased across all classes. With over 200,000 living alumni, Skorton expressed high hopes at yesterday’s open forum that the University’s budget and endowment situation would be fixed through a combination of generosity and frugality.
“If we can’t come up with a way to make this place better, no one can,” Skorton said.
Though the endowment may be rebuilt one day, many of the cuts being made are permanent.
“As the endowment recovers, it’s unlikely that the budget cuts will be reversed,” DeStefano said. “It’s more likely that any additional funds will be used to invest in strategic core academic programs.”