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Report to the Faculty Senate

REPORT TO THE FACULTY SENATE

JOEL SELIGMAN

April 23, 2013

COVER SLIDE 
The state of the University continues to be strong.  Since I wrote to the University community in January of this year, several quite positive developments have occurred at our University:

SLIDE 1 
Groundbreaking for College Town is now set for May 2, 2013 with Senator Chuck Schumer, Mayor Tom Richards, and other dignitaries scheduled to attend.  College Town  will open late in 2014 as a 500,000 square-foot, mixed-use development, combining street-level retail stores, restaurants with outdoor patios, a grocery store, spacious sidewalks, and boutiques accompanied by office space and residences in upper floors.  College Town will include a Barnes & Noble Bookstore, a 150-room Hilton Garden Inn and Conference Center, and a new parking garage with 1,560 parking spaces, including 948 reserved for University employees.

SLIDE 2 
The College of Arts, Sciences and Engineering has now set a new record with more than 16,119 applications received, more than 1,300 applications above last year’s record number.  

SLIDE 3 
In January, Gail Norris began her new role as Vice President and General Counsel for the University.  Since joining the University in 2005, Gail has served as senior legal counsel for all aspects of operations, including litigation management, risk management, business and tax matters, and conflicts of interest.

SLIDE 4 
On January 25th, Kathy Rideout, was formally invested as the fifth Dean of the University of Rochester School of Nursing.  During her 30-year career at the School, Kathy has been instrumental in helping develop and implement programs such as the Accelerated Programs for Non-Nurses, the Doctor of Nursing Practice and, more recently, the School of Nursing’s robust hybrid curriculum that combines in-class and online teaching.

SLIDE 5 
In February Rob Clark announced the appointment of Eric Fredericksen as our full-time Associate Vice President of Online Learning and the launch of a pilot program with Coursera that will “export” courses to students from all over the world.  Eric, a national leader in online education, joined the University in 2005 as an Associate Vice Provost for University Information Technology. 

SLIDE 6 
Our first Coursera courses will include John Covach’s History of Rock, Adam Frank’s Highlights of Modern Astronomy, and the Fundamentals of Audio and Music Engineering co-taught by Rob Clark and Mark Bocko.  To date, more than 45,000 students have signed up for these courses.

SLIDE 7 
On February 20th, I announced that the Board of Trustees had voted approval of my appointment of Rob Clark as Senior Vice President for Research and his reappointment as Dean of the Hajim School of Engineering and Applied Sciences.  Beginning in July 2012, Rob had served on an interim basis both as Senior Vice President for Research while continuing as Dean of the Hajim School.  Rob’s service in both roles was exemplary.  Among other highlights of his work as Senior Vice President, Rob orchestrated a review of Information Technology, supervised efforts to initiate pilot online programs, and worked with the Finger Lakes Regional Economic Development Council in support of the University’s successful application for additional funding for the Health Sciences Center for Computational Innovation.

SLIDE 8 
In March Brad Berk announced the appointment of Jonathan W. Friedberg as the Director of the James P. Wilmot Cancer Center, explaining, “Jonathan is respected across the institution as an academic and clinical leader of exceptional vision and talent.  I have no doubt that Wilmot’s broad vision – to deliver the most advanced cancer care, to expand the reach of our services regionally, and to be a leader in cancer research – will thrive under Jonathan’s leadership.”

SLIDE 9 
The Medical Center also announced the selection of Michael Rotondo, previously Surgery Chair of the University Health Systems of Eastern Carolina, to begin on July 1 as Chief Executive Officer of our Medical Center’s 1,000 doctor Medical Faculty Group.

SLIDE 10 
Our Meliora Challenge Capital Campaign has now exceeded $925 million in cash and commitments, 77 percent of our $1.2 billion goal.  This has meant among many other things that:

SLIDE 11 
We have been able to create 63 new endowed professorships toward our goal of 80.

SLIDE 12 
Annual Fund support during the campaign has more than doubled, led by 2,578 George Eastman Circle memberships. We have received commitments for more than $154 million in new student scholarship and other support.

SLIDE 13 
Notable recent gifts include those of Georgia Gosnell, who committed $5 million to name the Neonatal Intensive Care Unit in the new Golisano’s Children’s Hospital.  In addition, Georgia Gosnell has created two new professorships in the School of Medicine and Dentistry. 

SLIDE 14 
Robert Panzer will be the first Gosnell Professor in Quality and Safety; Timothy Quill, the inaugural Gosnell Professor in Palliative Care. 

Indeed, in the last six months, we have created 12 new endowed professorships.

SLIDE 15 
The Alan F. Hilfiker Distinguished Professorship in English was created by longtime Trustee and alumni leader Alan Hilfiker.  He has also committed additional funds to the existing Alan F. Hilfiker Endowed Graduate Scholarship Fund, to help students pursue academic careers of distinction in English, and the Alan F. Hilfiker Endowed Undergraduate Scholarship Fund, for students who are the first in their families to attend college and plan to study English or humanities.  

SLIDE 16 
The Jay S. Benet and Jeanne P. Benet Professorship of Finance was funded by Jay and Jeanne Benet.  Jay received his MBA from Simon in 1976.    

SLIDE 17 
The Joseph N. Lambert and Harold B. Schleifer Director of Rare Books, Special Collections and Preservation at the River Campus Libraries will play a key role in our efforts to preserve, digitize, and share historic collections.  Lambert is a 1959 graduate of the College, and Schleifer serves on the advisory council of the River Campus Libraries.

In the last six months, we also have celebrated the installations of seven professors in endowed professorships:

SLIDE 18 
Richard E. Kreipe was installed as The Dr. Elizabeth R. McAnarney Professor in Pediatrics Funded by Roger and Carolyn Friedlander on October 2, 2012.

SLIDE 19 
David A. Bushinsky became the John J. Kuiper Distinguished Professor on October 24, 2012.

SLIDE 20 
Ronald Goettler assumed the James N. Doyle Senior Professorship in Entrepreneurship on November 1, 2012.

SLIDE 21 
David M. Primo was installed as the Ani and Mark Gabrellian Professor on November 16, 2012.

SLIDE 22 
Charles A. Thornton started as the Saunders Family Distinguished Professor in Neuromuscular Research on February 7, 2013.

SLIDE 23 
Edward M. Schwarz is now the Richard and Margaret Burton Distinguished Professor in Orthopaedics as of March 7, 2013.

SLIDE 24 
Michael P. Eaton was installed as the Denham S. Ward Professor in Anesthesiology on April 1, 2013.

SLIDE 25 
Tomorrow, April 24th, we will celebrate the installation of History Professor Ted Brown in the Charles E. and Dale L. Phelps Professorship in Public Health and Policy. 

SLIDE 26 
Separately Professor James R. Fienup was honored with the Emmett N. Leith Medal of the Optical Society for his influential contributions to the field of optical information processing, integrating optics and digital systems as demonstrated through his groundbreaking contributions to phase retrieval, image restoration, wavefront sensing, and computational imaging.

SLIDE 27 
In February, two Eastman School of Music graduates received Grammy Awards:  Renée Fleming was awarded her fourth Grammy for Best Classical Vocal Solo award for Poèmes, her album of  French orchestral song cycles.  Bob Ludwig, earlier the recipient of a Latin Grammy as well as two Grammy awards, was the mastering engineer for Babel, the Album of the Year, by Mumford & Sons.  In all, Eastman alumni received seven Grammy nominations this year.

SLIDE 28 
In March, the Medical Center’s Department of Orthopaedics and Rehabilitation was ranked No. 1 in the nation in NIH funding for orthopaedic research.  Among individual funding recipients, Regis J. O’Keefe, Chair of the Department of Orthopaedics and Rehabilitation, ranked third in the nation, and Edward M. Schwarz, Director of the Center for Musculoskeletal Research, ranked fourth.

SLIDE 29 
Later in March, the Medical Center’s Neuromedicine Pain Management Center was named a Center of Excellence by the American Pain Society for its outcomes and multidisciplinary care research.

SLIDE 30 
Also in March, Women in Science, Technology, Engineering, and Entrepreneurship held its inaugural event, which brought together 36 women from 20 academic units across campus.  WiSTEE chair and founder, University scientist Jie Qiao, launched the event by sharing her vision for the group—to promote women in leadership in science, technology, engineering, and entrepreneurship, and to increase connectivity and mentorship among colleagues.

SLIDE 31 
There were many highlights for our student athletic programs this year.  Senior guard John DiBartolomeo, among many honors, was named a consensus First Team All-American by four organizations and the Division III National Player of the year by two of them.  DiBartolomeo led the Yellowjackets in points with 22.6 per game, rebounds, assists, and steals. 

SLIDE 32 
In women’s basketball, sophomore guard Ally Zywicki was named an Honorable Mention All-American, First Team All-UAA and All-Region.

SLIDE 33 
The men’s squash team captured its sixth straight Liberty League title.  Rochester finished fifth at the College Squash Association championships in late February.  Four players were named All-Americans – the most we have ever had in squash. 

SLIDE 34 
This spring a record number of our students – 11 so far – have been chosen to receive highly selective Fulbright Scholarships to study, teach, and conduct research abroad.

SLIDE 35 
Earlier this month, Lani Guinier, prominent civil rights attorney and the first tenured African-American woman professor at Harvard Law School, delivered the keynote address at our Fourth Annual Diversity Conference, which focused on “Our Differences, Our Strength.”

SLIDE 36 
This will be a momentous 100th year for the Memorial Art Gallery.  On May 22, there will be a ribbon cutting for the new Centennial Sculpture Park, which features commissioned works by Wendell Castle, Jackie Ferrara, Tom Otterness, and Albert Paley.  On October 8, 2013 the original Memorial Art Gallery building will be rededicated, 100 years to the day after its opening.

SLIDE 37 
On May 9th, The Simon School of Business will host its annual New York City Conference, “Reform at a Crossroad:  Economic Transformation in the Year Ahead,” featuring Forbes Media chairman and CEO Steve Forbes, former IBM chairman and CEO Lou Gerstner, Diker Management President and University of Rochester Board of Trustees Chairman Ed Hajim, Federal Reserve Bank of Philadelphia President and CEO Charles I. Plosser,  CEO of Elliott Associates Paul Singer, and Simon School Dean Mark Zupan. 

SLIDE 38 
And on May 19th, former Secretary of Energy and alumnus Steven Chu will deliver the commencement address at the College’s ceremony.

SLIDE 39 
Let me focus most of the balance of my remarks on our next generation of strategic plans. The core question for our 2013-2018 strategic planning is:  How can we optimize further progress of the University during a period of more constrained and uncertain resources than we faced in the 2006-2008 planning period?

 

I.  MACRO CHANGES SINCE 2006-2008

SLIDE 40 
We face a more challenging external environment today than we faced in the 2006-2008 planning period.  Let me highlight four significant areas in the new environment: 

  • Academic Health Care
  • Sponsored Research
  • Tuition and Technology
  • Our Competitive Set

A.  ACADEMIC HEALTH CARE

SLIDE 41 
In 2012, 81.3 percent of the consolidated University $2.8 billion budget originated in the Medical Center; 66 percent of the overall University budget involved patient care. 

SLIDE 42 
At our University, it is also insightful to frame the operating revenues and faculty for each academic division.

The high magnitudes for health care and particularly patient care in the University budget are not new.  As of 2005, 79.6 percent of the University budget was in health care.

What is new is the increased pressure on academic health care finances after the 2008-2009 recession and the enactment of the Affordable Care Act.  With provider reductions in that Act, probable future reductions in third-party payor support for our hospitals, and a systematic effort to “bend the cost curve” in Medicare and Medicaid, our Medical Center faces substantial financial challenges to its clinical enterprise.  The Medical Center also is facing uncertainties with respect to federal support for Graduate Medical Education.  Currently Strong Memorial and Highland hospitals receive combined federal and state Graduate Medical Education funding of $101.7 million for 732 trainees.

SLIDE 43 
To be sure, in the last two fiscal years, the Medical Center generated healthy margins.  We anticipate the operating margin this fiscal year to be on a par with the past two years. Our challenge will occur in later years.  Our operating margins are vital to our ability to provide health care for our region.  The Medical Center margin not only provides pivotal support to the School of Medicine and Dentistry, but also helps support our primary care network, clinical faculty practice recruitment and retention, and capital projects at the Medical Center.

Academic health care finance is the greatest area of risk to the University and the greatest area of uncertainty during the next five years.  As we always have, we will manage this risk.  But in preparing for a new generation of strategic plans, it is essential that we be conscious of the substantial challenges of academic health care finance.

B.  SPONSORED RESEARCH

SLIDE 44 
In 2012, 14 percent of the University’s overall budget or $348 million originated in federal, state, and corporate and foundation sponsored research.  The majority of this total came from federal sponsored research programs, most significantly the National Institutes of Health, National Science Foundation, and the Department of Energy.

SLIDE 45 
As federal sponsored research in recent years has declined in inflation-adjusted or real dollar terms, the cost to the Medical Center of institutional support for sponsored research has increased.  The extent to which School of Medicine and Dentistry researchers require Medical Center support has grown from 25 to 30 percent of each sponsored research dollar received a few years ago to approximately 50 percent today.  Institutional support at many of our peers is largely addressed through endowment.  At our Medical Center, institutional support in part comes from our endowment, which is smaller than many of our Association of American Universities peers with medical centers, as well as support from margin transfers, and, for a considerable period, reserves. 

There is little likelihood that federal sponsored research will significantly increase in inflation-adjusted dollars during this Congressional session. This is markedly in contrast with the period immediately following the 2008 election, when the American Recovery and Reinvestment Act for two years increased federal sponsored research and the open question before the 2010 Congressional elections was whether this level of increased funding would be continued.

 

C.  TUITION AND TECHNOLOGY

SLIDE 46 
In recent years an increasing number of outstanding domestic and international students have sought admission to the most academically successful United States universities and  colleges in what has been called a “flight to quality.”  At the University of Rochester, the higher levels of applicants coincident with higher costs is consistent with a widespread belief on the part of students that higher education is a fundamentally important investment in their future and that education from a leading institution is the best type of educational investment.  The accompanying chart illustrates the greater economic value of a bachelor’s, master’s, professional, or doctoral degree in terms of average compensation and lower unemployment rates. 

Monetary value or lower unemployment far understates the value of University undergraduate and graduate education.  We are proud of our commitment to liberal arts education.  We are justifiably proud of our ability to teach critical thinking, to expose our students to areas of learning that are difficult to effectively comprehend though self-learning, to offer our students access to the extraordinary talents of our faculty, to provide classmates whose intellects, diversity, and energy often inspire the best in our students as well as providing lifelong friends, relationships, or colleagues. 

SLIDE 47 
We remain particularly sensitive to the impact of tuition increases at the University of Rochester, both because of the potential burden on our students and their parents and because of the practical significance of tuition to the budgets of several of our schools. 

SLIDE 48 
We will continue to be unrelenting in our efforts to be as cost efficient as is reasonable and to moderate the rate of tuition increases at our University.  To illustrate how these efforts have proceeded, in the five years from 2004 to 2008, when rates of tuition increases were adjusted for inflation, they averaged 4.4 percent; in the last five years, they have averaged 1.1 percent. 

SLIDE 49 
We are not alone in this.  In recent years, the cost of higher education has been a focus of intense public discourse.  In the 2012 national elections, for example, both parties emphasized reducing the rate of increase of the costs of higher education. 

SLIDE 50 
One fundamental question with respect to tuition is whether tuition costs in the future can be reduced because of online  technology.  The evidence at this time is mixed.  An increasing number of programs at research universities, including those at our School of Nursing, have had success offering hybrid courses combining online and in-class teaching.  In 2012, 32 percent of all courses at the School of Nursing and 28 percent of its tuition revenue came from online courses.  Several of our schools as part of their strategic plans will implement or analyze ways to increase use of online technology. Online education already has made notable advances in increasing access to higher education, and online educators are now experimenting with new forms of instant feedback to students that may improve learning outcomes. 

There are little data so far, however, that suggest that online education has led or will lead to reductions in cost increases at leading research universities.  To be precise, none of the nation’s leading research universities has committed to a shift in the residential undergraduate teaching model.  More likely, new teaching technology will coexist with the residential undergraduate teaching model.   University education in our country is distinguished for its ability to assimilate change.  In recent decades we have been particularly successful in using computer technology to amplify research and to provide information resources.  These and kindred efforts will continue and likely will accelerate in the next five years. 

D.  COMPETITIVE SET

 

For several decades, three macro factors have been most significant for leading research and liberal arts colleges.

SLIDE 51 
In recent years, the segmentation of higher education has accelerated.  As Moody’s Investors Service stated in U.S. Higher Education Outlook for 2012:  “We anticipate an ongoing bifurcation of student demand favoring the highest quality and most affordable higher education options.”

SLIDE 52 
Second, there is a widening difference in endowment resources between the best endowed and the less well endowed universities in what I call “red shift” because of the way returns on endowment accelerate this differential.  For example, if Harvard University with a $30.4 billion endowment in 2012 experiences a 10 percent annual growth in endowment values, this would increase its endowment by $3 billion; at the University of Rochester with a $1.6 billion endowment that year, a 10 percent annual growth would equal a $160 million increase.

SLIDE 53 
Third, there has been a progressive weakening of the leading public research universities as a result of systematically reduced state support as well as limits on tuition revenue and flexibility with respect to student matriculation.  It is striking that during the past three years when our undergraduate College of Arts, Sciences and Engineering has increased from 37th to 35th to 33rd in U.S. News rankings, there are now only five public universities ranked higher than we are, beginning with the University of California at Berkeley, which is ranked 21st.  In 2001, when the University of Rochester was ranked 36th, there were nine public universities ranked with or ahead of us.  This is large part is a consequence of resources.  By 2013, the gap between public and private average tenure and tenure track compensation had grown to 24 percent. 

I anticipate that these dynamics will continue for the next five years.

There are three other dimensions to the competitive set that I anticipate during the next five years will have less impact:

(1)  I do not believe that in the foreseeable future online programs will have a major impact on the competitive position of the University of Rochester or other leading research universities.  More likely is that the leading research universities will assimilate online resources and may in fact generate additional income or prestige by “exporting” online courses to other institutions.  

(2)  I am highly skeptical that for-profit institutions will prove to be a competitive threat to our segment of the higher education market, although I do not doubt that they pose a threat to less successful public or private two- or four-year institutions. 

(3)  SLIDE 54 
Several nations, most notably China, have made substantial investments in their universities and are engaged in determined efforts to create leading research universities.  Within the next five years, this will have some impact on faculty recruitment and retention and create some opportunities for partnership.  But the competitive threat here will be played out over a much longer period.  China, India, South America, and countries in the Mideast have so many more qualified students than these nations can absorb at institutions comparable to those in the United States that for a sustained period it is likely the United States, Europe and Australia will remain a significant importer of international students.  That has been the trend line in recent years.

 

 

II. THE UNIVERSITY OF ROCHESTER SINCE 2008

 

A.  THE STATE OF THE UNIVERSITY 2005-2008

Let me now focus on our University.  Preceding the adoption of our 2008 strategic plans, I highlighted:

First, our University was relatively smaller than virtually all of our peers in terms of faculty and student body size.  In 2004, when the University of Rochester was compared to the 19 private AAU members with medical centers, our enrollment of 8,329 students was 58 percent of their average enrollment of 17,282 students.  During the 1990 to 2004 period, where the average growth in enrollment of the peer set was 17.5 percent, the University of Rochester declined in enrollment by 10.4 percent.  During the 1989 to 2004 period, University of Rochester nonmedical faculty grew 7.1 percent from 519 to 556 tenured and tenure track faculty.  During that same period, AAU private universities grew by an average of 48.9 percent.  This meant that the University of Rochester in 1989 had a faculty equal to 77 percent of the average AAU peer school.  By 2004, this percentage had declined to 57 percent.

Second, our endowment had significantly declined in relative terms.  Before 1971 our endowment was at various times ranked fourth among private university endowments.  In 1990 it was ranked 18th among 367 public and private leading universities.  In 2004 we were 35th.

Third, our endowment draw consistently far exceeded our 5.5 percent University target.  For the years 2000 to 2004, the endowment draw ranged between 6.5 and 6.9 percent.

 Fourth, nonetheless, we were “punching way above our weight class” in terms of sponsored research and technology transfer.  In 2005, University of Rochester sponsored research programs received $357 million in award funding, which placed us among the top 38 programs in the country in absolute dollars for sponsored research.  If this had been normalized by faculty size, we then would have ranked considerably higher.  Similarly, during each year between FY 2002 and FY 2006, we ranked among the top ten in the country in patent royalty and licensing income. 

Fifth, we had notable best in class or near best in class programs, including the Eastman School of Music and our Institute of Optics as well as specific programs in the College of Arts, Science and Engineering, Medicine, Nursing, Warner, and Simon.

 

B.  PROGRESS SINCE THE 2008

UNIVERSITY STRATEGIC PLAN WAS ADOPTED

  SLIDE 55 
We have made substantial progress since 2008, largely achieving the objectives of our 2008 strategic plans:

 

  • SLIDE 56 
    When normalized for faculty size using the most recent year for which we have data, we rank 15th in federal research funding among the 126 leading research universities, with more than $400 million in total sponsored research during the prior two years and $348 million in 2012.
  • SLIDE 57 
    Undergraduate student quality and diversity simultaneously have been strengthened.  At the College we have seen increases of high school GPAs from 3.56 to 3.81 and the two-score SAT from 1304 to an anticipated 1369 for next year’s class, while the percentage of our underrepresented minority and international students has increased.
  • SLIDE 58 
    Faculty and instructional staff have grown from 2,009 in 2004 to 2,557 in 2012. 
  • SLIDE 59 
    We have seen corresponding growth in our student body from 8,300 total students in 2004 to 10,510 this past year, effectively achieving the goal of our 2008 strategic plans. 
  • SLIDE 60 
    New programs have been developed throughout the University, including the Health Sciences Center for Computational Innovation, our partnership with IBM and New York State, and 14 new majors in the College of Arts, Sciences and Engineering, such as those in international relations, public health, and the Barry Florescue Undergraduate Business Program.
  • SLIDE 61 
    Twenty new major facilities projects have been completed or initiated since 2005 with an aggregate budget of $663 million, including Goergen Hall, Eastman Theatre Renovation and Expansion, SLIDE 62 
    LeChase Hall, Rettner Hall, and SLIDE 63 
    O’Brien Hall.  In addition, we helped facilitate the separately financed development of Brooks Landing and College Town.
  • SLIDE 64 
    The Medical Center has been particularly active with new facilities projects, including the James P. Wilmot Cancer Center, the Saunders Research Building, and the Golisano Children’s Hospital.  The Medical Center starting in June 2012 implemented a comprehensive inpatient and ambulatory Electronic Medical Records system.  A regional affiliation was completed with Thompson Health System in Canandaigua, New York.
  • SLIDE 65 
    Since 2004 we have grown to be the region’s largest employer with 21,881 full time equivalent jobs, the seventh largest private employer in New York State, with an increasing role in the community as the provider of approximately 47,000 direct and indirect jobs, $2.4 billion in direct and indirect wages, approximately $70 million in uncompensated health care, and, since 1996, 53 start-up companies using University-licensed technology.
  • SLIDE 66 
    Simultaneously we have reduced our endowment payout rate from 6.9 percent in 2000 to 5.9 percent in this year’s budget.  Our reduced payout rate has been achieved in part by maintaining the lowest administrative costs allocable to research in major research universities; cost efficiencies in the Medical Center that have reduced the budgets for the six URMC divisions and Highland Hospital by $99.7 million; and a reduction in endowment payout achieved between 2009 and  2010 in Arts, Sciences and Engineering from $32 to $22 million, a reset level that has been maintained with modest annual adjustments since then.

 

C.  LIMITS ON OUR DEBT CAPACITY

 

SLIDE 67 
Since the adoption of the 2008 strategic plans, we have also seen an increase in our debt.  While our finances are sound at this time, our aggregate borrowing has increased from $683 million in 2008 to $928 million today. 

SLIDE 68 
There is no question that we have sufficient debt capacity to finance major ongoing initiatives such as the Golisano Children’s Hospital and to pursue our 2013 debt program; however, our borrowing may be constrained in subsequent years.

Despite the increase in debt, our credit position has improved.  Last year when only one percent of universities followed by Moody’s received an upgrade, we were upgraded by Standard and Poor’s and maintained our credit ratings at Moody’s and Fitch’s.  Standard and Poor’s recognized the university’s growing student demand, history of solid operating surpluses, the reduction in endowment spending, and successful philanthropy.

SLIDE 69 
The national picture is less rosy.  In January 2013, Moody’s Investors Service issued an industry outlook entitled, “US Higher Education Outlook Negative in 2013,” which began:  “For 2013, Moody’s revises its outlook for the entire US higher education sector to negative, marking a shift to negative from stable for even the sector’s market leading diversified colleges and universities.” 

SLIDE 70 
Subsequently, in March 2013, Moody’s took a less negative view in a “Special Comment, The Sequester Series:  Limited Impact on US Universities and Related Not-for-Profit Organizations,” when Moody’s wrote:

Despite …challenging business conditions, the long term demand for higher education and research discoveries remains strong and we anticipate the large majority of rated organizations will continue to have a stable outlook for their individual ratings, for the following reasons:
  • Long-term demand for higher education and research services remains high
  • Balance sheets remain comparatively strong in this sector, allowing borrowers to absorb modest revenue disruptions
  • Universities affected by sequestration costs have high revenue diversity and expense flexibility
  • Most research universities have improving leadership and management teams able to constrain costs and seek revenue opportunities to offset federal funding cuts.

III. FRAMING THE 2013-2018 STRATEGIC PLANS

Against this background, we are developing our next generation of University, Medical Center, and School strategic plans. 

During our March Board retreat, our Trustees heard progress reports concerning strategic planning from the Medical Center, Arts, Sciences and Engineering, Simon, Eastman and Warner. 

At our May Board meeting, Provost Peter Lennie and I will present a draft of a University strategic plan for Board consideration.  SLIDE 71 
Three themes, among others, are likely to be emphasized in this draft:

 

A.  CONTINUITY

While we have made considerable progress in implementing our 2008 strategic plans, there is more to achieve to fully complete these plans:

  • We have raised 77 percent of our Campaign goal, ahead of schedule.  We will seek to raise the remaining $275 million by the June 2016 goal and will meet in the spring of 2015 to evaluate the progress of our Campaign.
  • SLIDE 72 
    There are several capital projects to complete as part of our 2008 Campaign, most notably the Golisano Children’s Hospital, and several key goals that can be more fully achieved, such as the expansion of the Arts, Sciences and Engineering faculty beyond its current 350 full time equivalent tenure and tenure track faculty to a higher revised goal for faculty.

 

B.  RESPONDING TO A CHANGED ENVIRONMENT

While we face many new or increased challenges, the combination of efforts in federal and state governmental programs “to bend the cost curve” of clinical health care and the seemingly permanent federal budgetary crisis dwarfs all other challenges for our planning.  

  • The most significant strategic consequences of the new external environment will be reflected in the Medical Center strategic plan.  Unlike the last strategic plan which focused on transformative change in healthcare, the new plan will simultaneously address three converging themes.  The Accountable Care Act will require development of a health population management approach to health care delivery with likely decreases in reimbursement and increases in clinical institutional risk.  The federal budget deficit may lead to reduction in funding for Graduate Medical Education and portend changes in residency and fellowship programs.  And the decline in real dollar support from the NIH likely will lead to changes in Medical Center research.
  • For all academic divisions, there will be a need to plan with the assumption that budgets will have to be disciplined during the next five years, with an overarching need to balance pursuit of existing or new strategic objectives with fiscal discipline.  I anticipate proposing to the Board a new objective for our 2013-2018 strategic plans:  By the end of this period, I would like for each school to have a fully sustainable business model.  This may mean that some schools change their curricular offerings; some schools emphasize growth in the size of their endowment; some schools adopt new revenue enhancement or cost-cutting approaches.  My purpose in pursuing this new objective will be to create resources within each school that will provide sustainable support for our faculty, students, and staff. 

 

C.  BUILDING ON STRENGTH

Among the most important objectives of our next cycle of strategic planning is to continue to focus on our University objectives.  Our overarching objective is to be one of the 20 leading research universities in the United States.  In the next generation of strategic plans, this needs to be more aptly phrased with the proviso, “when normalized for faculty size.”

There are significant opportunities now available to us because of our institutional strengths and momentum that are likely to be a particular focus for the next generation of strategic plans:

  • An emphasis in the balance of the Campaign will be on strengthening our faculty and our student body and developing or enhancing ennobling programs such as “big data” or the Hajim School-School of Medicine and Dentistry Center for Medical Technology Innovation.
  • SLIDE 73 
    The College of Arts, Sciences and Engineering likely will build on its successful momentum in its residential teaching model to sharpen the distinction or communication of its programs by adding new majors or degrees, making greater use of technology to improve teaching, seeking higher levels of student retention, and identifying greater opportunities for student research.  Peter Lennie and his colleagues in AS&E believe that the faculty can grow during a period of minimal further growth in the size of the undergraduate student body.
  • SLIDE 74 
    The Simon School has begun steps toward implementation of a new branch campus in New York City in conjunction with the School of Nursing and the Warner School.  This is still in a pilot phase, with a second Simon School program to be introduced later this year.   
  • SLIDE 75 
    The Medical Center regional clinical strategy is anchored by formation of an Accountable Care Network termed Accountable Health Partners, LLC, that will align physicians and hospitals throughout the 19-county primary and secondary care service area.
  • SLIDE 76 
    Eastman is contemplating new programs that may extend its undergraduate and master’s programs, for example, potentially to new programs that involve music management or new technology.
  • SLIDE 77 
    Warner is contemplating development of plans to add new hybrid or other online education programs.

In May, the Board will again address draft strategic plans or strategic plan frameworks.  I anticipate that we will present the Medical Center’s regional clinical strategy and likely will include materials or presentations from the School of Nursing and the Eastman Institute for Oral Health.  We will continue discussion of some of the specific School strategic plans or strategic plan frameworks that were introduced at the March Board retreat. In addition in May, we also likely will present materials or presentations concerning University research, University branding, the Laboratory for Laser Energetics, and the River Campus Libraries.

Our goal is to present University, Medical Center, and School strategic plans for adoption in October.  I am confident that we can achieve this goal.  This is our second strategic planning cycle together, and we have demonstrated that we can implement ambitious but realistic plans when we are sufficiently rigorous about prioritization and the insoluble link between strategy and finances.

 

CONCLUSION

SLIDE 78 
Like all universities and colleges today, we face challenges.  And yet more than any other social institution in our country today, universities like ours combine freedom, creativity, incredibly bright faculty, students, and staff, loyal alumni, and friends who share a vision that we are moving toward a better world.    

At the heart of our University is our faculty.  You are valued by our students for your willingness not only to teach, but to mentor and to encourage our students’ growth.  My pride in being a faculty member is as strong today as when I first began teaching.  I know of no better way in which one can perform work about which one has such pride and do so with colleagues of such extraordinary talent.

I view our leading research universities as capable of a type of perpetual existence.  Faculty at research universities will continue to assimilate ideas, methodologies, technologies that are new, while teaching the very finest students and preserving the most important elements of our ever-evolving culture.  We will continue to do this well because we have consistently shown the judgment to effectively balance what is enduring in what we study and teach with the challenges of the future.

Our next generation of strategic plans gives us a new opportunity to articulate who we are and where we are going.  We build on tremendous momentum and with the knowledge that we have successfully executed much of our previous generation of strategic plans.  We will not be daunted by our challenges.  We will continue to “dream no little dreams.”  Our work is never done.  I am thrilled to work with a faculty of your talents, dedication, energy and enthusiasm.  We will continue to make our University “ever better.”