Yesterday the president of my university, Shirley M. Tilghman, sent a message to the community acknowledging that, well-endowed as we are, Princeton is “not immune from the effects of the turmoil gripping the world economy.” Our endowment has lost 11 percent of its value since July 1, 2008, but Tilghman warned that this figure “understates the actual economic loss,” and speculated that the endowment will be down 25 percent by the end of the current fiscal year. The operational consequences, even for an institution that had nearly $16-billion in endowment six months ago, are substantial. Princeton supports 45 percent of its budget from the endowment, and President Tilghman announced that we would attempt to reduce the endowment’s contribution to the budget by $50-million next year. That is actually a fairly modest number in relation to a $1-billion annual operating budget, but, let’s face it, the money has to come from somewhere, and some activities will have to be cut.

The university is proposing to fully fund its incredibly generous undergraduate financial aid plan (largely because of the great success of our annual giving program). It will also support the currently authorized searches for new faculty members — especially in “high priority areas such as neuroscience, the creative and performing arts, African-American studies, and international relations” — but other searches will be reviewed. President Tilghman also announced that salary increments at the top of the scale would be capped in order to give the largest increases to the lowest paid employees. The general rule will be that nonpersonnel budgets will be reduced by 5 percent next year, and that activities supported by restricted funds will be reduced by 8 percent. The University had earlier announced that some $300-million in capital construction projects would be deferred. The general theory of the cuts is that academic units should “ensure that all the funds they manage are being directed to core priorities rather than more discretionary ones.” President Tilghman concluded her message with the idea that “this year’s downturn [love that word!] will require creative planning [love that phrase!] for not only the upcoming budget year but later ones.”

As one of my most knowledgeable friends commented, “This is all very minor compared to what virtually all other institutions are facing, but it is also an admirably transparent report.” I think it is indeed an admirable honest and straightforward statement, striking like the earlier public letters by the presidents of Harvard and Yale. The “hit” on Princeton will be much less severe than that at Harvard, for even though Harvard’s endowment is substantially greater, its operating budget is substantially larger than Princeton’s. Yale’s situation seems to be closer to that of Harvard. But of course the Big Three have three of the largest endowments in the country, and they are in a far better financial situation than almost all other institutions of higher education.

President Tilghman has remarked that we will continue our current capital fund campaign, “Aspire” [love that word!], which is proceeding as planned, and I have no doubt that this incredibly well-managed institution will continue to grow and thrive. But I am not at all confident about the larger higher-education project. The “downturn” is a recession heading toward a depression, and it is going to take some educational institutions (and even more schools and programs) down with it. I think that we have a real educational crisis on our hands, and I think we had better begin to plan for it. This is not a “market correction,” but a challenge to our community to redefine who we are and what we do in the light of the new economic realities.