Responding to an Uncertain Economy
December 16, 2022
As we near the end of the calendar year with many achievements to celebrate, we also have cause for sober reflection: The social and economic impact of the COVID-19 pandemic and the war in Ukraine continues to be felt across the globe. We will enter the new year with inflation continuing to run uncomfortably high and analysts warning of a potential recession.
Institutions of higher education are increasingly feeling the effects of an uncertain economy and gloomy forecasts for the sector. Last week, Fitch Ratings reported a deteriorating outlook for higher education due to rising costs and wages combined with sluggish enrollment. The effects of the demographic cliff — due to declining birth rates following the 2008 recession, which we had been anticipating for 2025 — have arrived sooner, as many during the pandemic chose to enter the workforce, rather than pursue an academic degree. Already we are seeing a growing number of colleges and universities struggling financially, and even the more established and well-endowed institutions have not been spared the impact.
Despite these challenges and market volatility, the University achieved important milestones in 2022. We fully reopened campus and this fall welcomed an undergraduate class of 2,914 students, which exceeded our first-year recruitment goal by 4%.
In fiscal year 2022, the University reinstated its employer match for the defined contribution retirement plan despite having less revenue than originally projected. Careful expense management kept the endowment spend to 4.75% — below the 6% that had been budgeted. Overall, the University achieved a positive $2.7 million operating margin, while also managing the market volatility's impact on the endowment, which ultimately led to a decline in net assets from non-operating activities of $48.9 million, for an overall decrease in net assets of $46.3 million.
The Future Is a Place We Make campaign, which concluded on June 30, exceeded fundraising goals by $56 million, and will help to endow scholarships and faculty positions; provide stipends for unpaid and lower paying co-ops in nonprofit organizations; and enhance interdisciplinary teaching and research, academic advising and student support services, and civic engagement partnerships.
In addition to careful expense management and aggressive fundraising, we continue to secure new sources of revenue. For example, by partnering with Spark Therapeutics and with Gattuso Development Partners, the University is bringing a state-of-the-art gene manufacturing center and the largest life sciences research and incubation facility in Philadelphia to our campus. Through prepaid ground leases from these projects and Schuylkill Yards, we have secured nearly $120 million in revenue that will be allocated directly to the University's endowment.
Unfortunately, we are contending with the lingering impact of COVID-19 and other factors that has led to a decline in total University enrollment of 3.8% including a drop in first year retention of 2.7%. To address the retention issue, the University is allocating significant funding to academic support to bolster the success of our students.
Nonetheless, the decrease in total enrollment due to retention challenges, combined with not attaining our ambitious graduate growth goals, which were based on the significant increases in Fiscal Years '21 and '22, has significantly affected our finances. The impact this fiscal year on net tuition revenue from lower undergraduate enrollment is a decrease of $6.5 million, while enrollment in graduate programs has softened, causing a shortfall of $8 million from our overall graduate net tuition revenue budget goal.
To fulfill our collective fiduciary responsibility and to ensure Drexel's financial health, it is imperative for the University to bring its projected expenditures into alignment with current revenue targets, which will be conservatively projected.
In a previous communication, we announced an internal review of the organization of our academic programs, particularly those poised for further growth and impact. This process will be concluded by the spring. In addition, we will undertake a thorough evaluation of all of our academic and administrative expenditures, both personnel and non-personnel. Updates and more information about next steps will be shared throughout the process.
The measures we will take will further strengthen the University's reputation and financial position, and better position us to weather uncertain economic times ahead. This year will require resilience, patience and commitment from all of us.
We remain proud of our community's determination and ability to unite in common purpose. Together we will work through these challenges and ensure that Drexel fulfills its mission as an inclusive, innovative, and student-centered research university.
Helen Y. Bowman
Executive Vice President, Treasurer and Chief Operating Officer
Paul E. Jensen
Executive Vice President
Nina Henderson Provost