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Finance and Administration Report

Michael J. Mandl

Weathering an Unprecedented Storm

In last year’s report, I highlighted that one need only spend a short time with students, faculty, staff, or alumni to know that Emory’s vision is being realized and that the University is making a positive difference in the world. As President Wagner has noted, a visitor spending even a brief time on campus can sense the energy and excitement that abounds. These observations remain true today despite the economic turmoil we confronted collectively during the past year.

Although the 2008–2009 global economic crisis created a new framework for our resource base and associated financial and programmatic planning, Emory’s successes demonstrate the resilience of its people and its mission. The recession and associated deleveraging provided challenges not experienced in more than a generation—challenges that affected Emory and, of course, the broader landscape of higher education. The precipitous market decline diminished all university endowments and placed the nation’s most-respected institutions in the midst of a financial perfect storm. However, our leadership and community response—navigating through the complexities and tough choices while remaining true to Emory’s compelling vision—have been extraordinary.

Amid waves of uncertainty and tides of bad economic news, Emory showed strength—handling each challenge in a disciplined and thoughtful manner, always with the goal of pursing excellence in all we do. The obstacles we face triggered the need to plan for our future under different assumptions, but perhaps even more uniquely focused on assuring excellence in the pursuit of eminence.

Emory did not simply hunker down awaiting clear skies. Instead, we simultaneously invested in our strategic plan initiatives, albeit at lower levels than initially planned, and reduced costs in areas that were deemed less essential to our core mission.

For instance, we renewed our commitment to attracting the best, most talented students from across the world, independent of their socioeconomic background. For our undergraduate programs, we are among a handful of schools (the top tier) that practice the twin policies of need-blind admission and meeting full demonstrated need. This commitment to excellence carries a hefty price, but we met it by reallocating resources from other activities and drawing on reserves that were set aside for such a purpose. We will need a similar commitment from our donors to ensure that this practice is maintained over time.

With virtually every source of revenue constrained, one primary focus was to reduce administrative costs and even programmatic costs that do not measurably enhance our distinction. Even as we position the institution for selective growth and effectively navigate the increasingly complex regulatory environment, we must do so in a way that contains costs.

For example, we reduced our energy consumption (BTU/SF) approximately 10 percent since implementing our goal of reducing building energy consumption per square foot by 25 percent by 2015 (from a fiscal 2005 baseline). We attribute the decline in energy consumption to increased system maintenance, the fact that all new buildings are constructed to LEED standards, and significant behavioral change across campus. These changes will help us reach our energy-reduction goal, but we also will need to continue to invest in energy-saving technologies to reach our final goal by 2015.

More broadly, we launched an administrative-review process requiring units to develop strategies to respond to the new economic environment by reducing operating costs 3, 5, and 10 percent while reassessing their core values and activities. Each administrative unit on campus began this process in FY2009 as part of our effort to take $60 million of ongoing costs out of the budget. Significant results were achieved, for example, in both Campus Services and University Technology Services, which collectively eliminated significant numbers of staff positions by restructuring or ceasing certain work and streamlining operations, with the result of saving more than $4 million annually. All academic and administrative areas are exploring and implementing ways to become more efficient, reduce current costs, and increase revenue streams, including the development of business plans for a variety of new endeavors.

Emory Healthcare posted an operating surplus in line with original budget expectations despite shortfalls in revenue due to a deteriorating payer mix. Healthcare did so by aggressively managing downward its cost structure and completing several revenue-enhancement initiatives that had been previously under way.

We appropriately slowed our capital spending, yet celebrated many accomplishments during the past year as we completed new investments on campus, including a 127-room, 86,000-square- foot expansion to the Emory Conference Center and Hotel. Through it, Emory can continue to host global, corporate, academic, and health care conferences that add to our rich intellectual environment. On the health care side, Emory acquired the former Northlake Hospital in FY2009, which is now operating as the 45-bed Emory University Orthopaedics and Spine Hospital. It includes a small medical inpatient unit for diagnostic services as well as support services required for inpatient care, thus allowing more space for teaching, research, and clinical activities.

Although the pace of Emory’s campus master plan has slowed, it has not stopped. We continue to plan for additional facilities to support growth in research, student life, and health care delivery with a commitment to move forward on any given construction project only after sound financial underpinnings are in place, which necessarily will include philanthropic contributions as part of Campaign Emory. Our master plan remains tied to our strategic plan, and we will continue to ensure that both plans create the necessary synergy for realizing Emory’s vision.

This year we also strengthened liquidity. We made prudent adjustments to our debt portfolio to reduce risk while achieving an effective overall cost of capital. We reassessed investment strategies and positioned the portfolio for recovery. All these actions and many more were completed not in a reactive mode, but rather proactively to operate from a position of relative strength and sure-footedness as we confronted the economic challenges.

The University’s financial strength is reflected in its credit rating, which was maintained throughout the financial turmoil at Aa2 and AA from Moody’s and Standard and Poor’s, respectively. However, enduring strength stems from more than numbers and ratings. It comes from our community of people—a community that strives, in President Wagner’s words, to be both good and great. Among the many tangible measures of the power of this community was being named again, in FY2009, as one of the top-ten institutions in the nation to work for by the Chronicle of Higher Education. Emory was designated a top employer for compensation and benefits, workspace conditions, confidence in senior leadership, respect and appreciation, and as a teaching environment.

Our resources, though significantly less than just a year ago, stabilized by year’s end and continue to provide the means by which Emory can make important contributions both to the lives of those who share in our community and to the world at large.

There is more work to be done. The bright light of the last year was the way the Emory community worked positively and cohesively to respond to a new economy and create a clear path for continued excellence. In the process, we demonstrated—perhaps more than ever before—accountability to the institution as a whole. Having witnessed our community's grace and strength, we should be confident that Emory will not simply survive this crisis, but will thrive in the coming years and be a stronger institution for the challenges faced during FY2009.

I close my letter this year by again expressing my sincere appreciation to all those who worked so hard to ensure that, when faced with so many challenges, Emory remained true to its principles and grew stronger in many ways even as our balance sheet contracted. I cannot think of another community that was better equipped to face 2009. Emory is a special and excellent place.

Michael J. Mandl
Executive Vice President for Finance and Administration

2009 Annual Financial Report Letter >


Emory University Consolidated Financial Statements and Supplementary Information (PDF, 536K)

August 31, 2009 and 2008

(With Independent Auditors' Report Thereon)