NYU Pres. Sexton Proclaims Fiscal Stability: What Isn't He Disclosing?

The letter sent out by President John Sexton, via email, to the NYU community is a classic move on the part of the man who'll be remembered for his rough disregard for the greater Greenwich Village community, and for his equally abominable disregard for historic preservation. But if you read between the lines of this letter, it suggests -- to me, anyway -- that everything isn't as rosy along Washington Square as Sexton and his chieftains might prefer people to believe. I've reprinted the text of the letter below; you can also read a more detailed version on line.

There's one thing I'd point out that particularly makes me think Sexton knows more about the real financial state of NYU than he's letting on. It's this graph:

On a separate matter relating to the NYU endowment, you may have read about our losses resulting from the Bernard Madoff fraud. In the mid-1990's, a portion of the NYU endowment was invested in a fund managed by Ezra Merkin. Recently, Merkin requested - and was denied - the University's permission to entrust part of our invested assets with Madoff, and he failed to inform us that he had already done so. The University has sued Merkin to recover our losses. According to a letter we received from Merkin in December, the loss is estimated at approximately $24 million, representing slightly less than one percent of our endowment.

So, if the university didn't know that 1% of the endowment was invested in the Madoff scam, what else didn't the university know -- what else isn't Sexton saying? To be sure, he'll send his henchwoman, Alicia Hurley, who lies better than anyone I've ever met, to tamp down concerns should further information come to light. For now, here's Sexton's letter:

Dear NYU Alumni, Parents, and Friends:

The impact of the global economic crisis has been widespread, and each institution of higher learning has had to chart its own course in confronting it. It is now almost conventional wisdom that over the next year or two universities will have to make cuts in staffing, halt faculty searches, and wring as much as possible out of their administrative expenses. NYU will not be immune from these measures and sacrifices. However, it is in a better position than many institutions.

In 2007, well before the contours of the economic crisis became clear, we began an effort to achieve substantial administrative savings and redirect the funds to our academic mission, an effort we called re-engineering. This effort saved a net of $5 million in 2007, and recurring annual savings of over $25 million in 2008. We have also created a contingency reserve fund that now totals about $26 million. And in the next year we hope to expand annual administrative savings by another $10 million. This separate fund will continue to grow, ultimately reaching 10% of NYU's operating budget and creating a substantial pool of funds to help sustain the University in truly exigent circumstances.

Our early initiative has allowed us the ability to move ahead, and thanks to the measures that were taken before the economic crisis struck, NYU's budget is sound. Unlike many other schools, the crisis has not caused us to cancel faculty searches or capital projects. However, we cannot be complacent, and as a university that means we will need to become even more disciplined and focused.

Far and away our largest source of revenue is tuition; it accounts for some 60 percent of the University's annual revenues. Thankfully, NYU's strong academic reputation ensures a deep pool of applicants with exceptional qualifications even in the face of this economic crisis. Indeed, this is a record year, with more than 37,000 applications for freshman admission. Roughly nine students apply for each spot in our freshman class. We are thus in the enviable position of not having to choose between financial stability and student quality. However, the economic downturn gives us cause to worry about the increased financial stress being experienced by some NYU families.

We recognize that university endowments have been the subject of much interest in recent months. The NYU endowment currently stands at just over $2 billion, absorbing a decline between June 30 and December 31 of 19.6 percent. NYU experienced less of a decline than many peer schools, and considerably less than the market as a whole. Also, investment earnings make up a much smaller portion of our annual revenues (approximately five percent) than other major private research universities (some of which are as high as 50 or 55 percent). Thus, in a downturn, the impact on our budget is less great.

Nevertheless, there is a related issue that presents a potentially significant problem for NYU: current New York State law prohibits non-profits from allocating funds for spending from any individual endowment account whose market value has fallen below its original gift value. For NYU, in the current market, this prohibition could reduce the permitted spending from our endowment return by tens of millions of dollars compared to previous years. We are working with other non-profits to update this law in the current session of the New York State legislature, as many other states have done in recent years. Passage, though, is by no means assured.

On a separate matter relating to the NYU endowment, you may have read about our losses resulting from the Bernard Madoff fraud. In the mid-1990's, a portion of the NYU endowment was invested in a fund managed by Ezra Merkin. Recently, Merkin requested - and was denied - the University's permission to entrust part of our invested assets with Madoff, and he failed to inform us that he had already done so. The University has sued Merkin to recover our losses. According to a letter we received from Merkin in December, the loss is estimated at approximately $24 million, representing slightly less than one percent of our endowment.

In August 2008, NYU successfully concluded the largest fundraising campaign in the history of higher education at that time (over $3 billion). Since our campaign was completed, we fully expected that our fundraising this year would be down from last year's record totals. Now, the nation's financial crisis means we will experience an even steeper decline. Still, our donors to the campaign continue to honor pledges; the University has raised over $100 million since August 31; and Annual Fund donations are holding steady (both in dollars and in the number of donors). That said, we cannot expect fundraising to be as robust as in recent years.

Because of all the risks to the University's sources of revenue and the possibility of additional shocks we do not now foresee, NYU has undertaken contingency planning to address the challenges that would result from additional budgetary shortfalls.

Still, we intend to pursue our priorities. For example, we will continue with our plans to hire faculty across all schools, and to expand our Arts and Science faculty. Likewise, we will press forward with capital projects for academic programs and other important capital needs, as well as our long range space planning process for the Washington Square campus. And we will maintain the quality of the student body.

As I stated earlier, NYU is dependent on tuition revenue. Yet in this economic climate - when many are losing their jobs or seeing significant income reductions - one of our key priorities must be to hold down tuition growth in an attempt to ease the burden on students and families. For that reason we hope to hold the tuition increase for 2009-10 to the lowest in recent years.

Beyond that, we need to be able to target tuition assistance for those who have the greatest need. The percentage increase in our undergraduate financial aid budget this past year was more than double the rate of tuition increase; we hope to follow this same formula next year, even though the economic climate is less favorable and endowment is less able to support that increase.

For this reason, we will be looking to our faculty, alumni, parents and friends to help us meet our students' growing needs. At this moment of crisis, scholarship support is of pivotal importance, and our fundraising efforts will be redeployed to focus in this direction.

We cannot know for certain what the coming years will bring in the economy or for our University. However, NYU will use every tool at its disposal to sustain our academic momentum and protect our academic mission; and will do all that is possible to aid our students and their families, to preserve our sense of community and our collective morale, and maintain our robust academic momentum.

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