As the nation's financial crisis has shaken up Wall Street and hurt Main Street, the downturn is leaving administrators on the Hill with their own issues to confront.
Administrators are predicting a dip in the endowment, and large capital projects will be put on hold, with smaller construction projects possibly following suit.
"We're going to be evaluating virtually everything to make sure we continue to operate the university in a prudent way," University President Lawrence Bacow told the Daily. "We're taking a look at a whole range of expenditures, and at this point it's too early to say what we're going to do, but we're tightening the belt on literally everything."
This means all new capital projects, such as the planned construction of a new biology lab and of the Steve Tisch Sports and Fitness Center, will not be able to move forward.
"Basically, anything that's large is not going to happen until the credit markets loosen up," Bacow said. "That's not a decision which we even make; it's a decision that's being made for us."
Smaller construction projects also face the potential of being put on hold. Summer maintenance performed on buildings fits into this category, according to the president.
But most of the school's costs, such as salaries, are fixed. Salaries make up the majority of the university's operating budget. "We're not expecting there to be any sort of change in our operating budget performance for this fiscal year," said Thomas McGurty, vice president for finance, explaining that the university is prepared to pay for the budget's fixed expenditures.
Among the factors causing projects to be stalled is a decrease in returns on investments. "One area where cost has increased has to do with borrowing costs," McGurty, also the university's treasurer, said.
Each week, the university sells variable-rate demand bonds to tax-exempt mutual funds such as those held by Fidelity and Putnam. The interest rates on these funds are going up because the funds themselves have recently "come under substantial stress," according to McGurty.
The cost of borrowing spiked about a month ago, but it has since declined. The interest rates on the funds are reset each week.
Tufts' endowment has declined with the drop in the national market. "Everything is down; our endowment is down as well," Bacow said.
The university assesses its endowment most precisely at the end of each quarter, but conducts monthly reports as well. "October has been so volatile. It's difficult to say where we are," Bacow said.
Despite the current economic situation, Tufts administrators agreed that it would be unwise to make drastic alterations to investments.
"We make adjustments to our investment strategy only if, as and when the needs of the university change, but not in response to changes in market conditions," Tufts' Chief Investment Officer Sally Dungan said in an e-mail. "We continue to have a well- diversified portfolio and we will be raising some cash so that we can be on our front foot and take advantage of good opportunities as they come along."
Bacow echoed her sentiments. "We invest for the very long term, and we know for the very long term the place to be is with a prudent asset allocation that is divided up between equities, between real assets, between fixed incomes," he said. "You want to be steady and disciplined in your approach to that."
The university skirted a mini crisis in August, when an administrator removed approximately $130 million of working capital from the Commonfund Short Term Cash Fund and put it into Treasuries just weeks before the majority of the fund's assets were frozen. About 60 percent of the money remains frozen.
Although they have not lost any money, over 900 colleges and universities that invest in the fund do not have full access to over $9.3 billion, according to Bacow. He credited Tufts' shrewd move to Associate Treasurer Darleen Karp.
"We had become concerned about the overall liquidity of the markets and the potential impact it could have on the fund, given that the fund held some longer-dated securities," Karp said in an e-mail to the Daily.
The financial crisis has been something that all colleges have had to grapple with. While Boston University also had no money in the Commonfund when it was frozen, the school has taken preventative measures similar to those of Tufts.
"We instituted a hiring freeze, and we will not begin new capital projects until we've seen what the ripple effects are," BU spokesperson Colin Riley told the Daily. "We're not in any financial difficulty ... Right now there haven't been any other effects, other than what we put in place on our own."
Riley said there has been a decline in some of the BU endowment's investments, but he echoed Bacow in noting that short-term losses can give way to long-term gains. "Unless you sell them, you haven't lost anything," Riley said.
Back at Tufts, McGurty explained that while there is no way to know what will happen next in the financial world, "We'll be closely watching the effects of the financial markets on the broader economy."
He is unsure of how Tufts will react to any developments. "The depth and the duration of this situation [are] really not understood at this point," he said. "It's difficult to make plans and forecast."
But Dungan said Tufts will have to think long-term in order to confront the financial crisis.
"The consensus is that the U.S. and global economies will face challenges for some time to come," she said. "The stock markets usually lead the economy out of recession by six to 18 months, but it is impossible to know how soon a turnaround may occur."
Despite Tufts' economic hardships, individual donors to the university have remained active of late. The Annual Fund is performing better this year than it was at the same time last year, according to Christine Sanni, director of advancement communications and donor relations.
Tufts had its best fundraising year in history last year, in large part due to Frank Doble's $136 million gift in April. While it would take another extremely large gift to help the university surpass last year's record, the Advancement Office's Director of Central Development Programs Chris Simoneau said the school is still on track to meet the goal of Beyond Boundaries, the current capital campaign, which aims to earn $1.2 billion by 2011.
"The life of a campaign is longer than any economic turmoil in recent times," Sanni said. "We're in good shape because we've had good success in the early years."
Still, the Advancement Office is not ignoring the marketplace's turmoil. "We're focusing on communicating with our donors," Simoneau said. "We're not backing off, but we're being sensitive."
Part of the communication means reaching out to donors to not necessarily ask for money, but to talk to them about different issues and encourage other sorts of involvement, such as volunteering for an event.
Simoneau also pointed out the diversity of Tufts' donor base, which draws on over 100,000 individuals, businesses and organizations. "Not all of those are affected equally," he said.
