Casteen Calls for University to Reinvent Itself in the Face of Economic Challenges

February 04, 2009

February 4, 2009 — Declaring that "self-reinvention has been the characteristic of greatness in this place," University of Virginia President John T. Casteen III today called for a new emphasis on distance education.

"We have to generate new earned revenue," he said during his annual State of the University address in Old Cabell Hall Auditorium.

"Imagine what a sliver of the audience for executive education programs in Asia is worth, a tiny piece of a percentage," he said. "Imagine what we can do in places where we have never been, but where our name is known. It's time to be able to exploit that kind of fame and notoriety in order to build new ventures that will produce revenues that sustain the University."

The call for an expansion of distance learning came near the end of the 65-minute address, during which Casteen laid out in starkly realistic terms the economic challenges the University faces.

The commonwealth of Virginia, facing a budget hole of at least $2.9 billion, is preparing its third round of budget cuts for state colleges and universities. The third and latest proposed cuts to the 2009-10 budget, currently under consideration by the General Assembly, would bring the total amount of state funding chopped from U.Va.'s budget to $32.3 million since the 2007-08 fiscal year.

"We will see more, simply because the state does not have the revenue to carry out what it's been doing," he predicted.

The University's endowment has dropped in value from a high of $5.1 billion last June to roughly $3.9 billion at the end of 2008. Though the University's capital campaign remains on target to reach its $3 billion goal, Casteen acknowledged, "Economic reality will eventually force us to rethink some of what we are doing. But we're not panicking."

The proposed federal stimulus package currently making its way through Congress offers some short-term hope, particularly in boosts to federal research funds, which Casteen urged U.Va.'s researchers to take advantage of.

There may also be funds to invest in infrastructure, he noted, though the intent for those funds remains unclear.

"I believe one can infer that they are attempting to pay the cost of our national underinvestment in science," Casteen said. "That appears to me to have potential benefit for us, because we are a classic case of underinvestment in science over the course of a couple of generations."

Still, "There is no federal stimulus proposal that compensates for the systematic under-funding of Virginia's colleges and universities since 1990," he said.

The University has fared better than many universities because its revenue streams are diverse, he said, in contrast to others– he cited Harvard and Cornell – that depend heavily on their endowments to support their operating budgets. U.Va.'s endowment supplies just 7 percent of its operating budget.

Casteen outlined several measures to manage the downturn.

He has directed deans to implement a new form of budgeting that accounts for all sources of revenue – including the private funds that the schools and their foundations raise themselves

"Using all of our unrestricted funds in a disciplined and accountable way, so that everyone has a way to know where the money is, is I think our best hope of managing through the next year or so without having to damage academic programs, and also to pay for improvement as the chance comes," he said.

He said strict limits will be placed on spending from all sources. Most vacant positions will be left unfilled, but he said he does not foresee layoffs.

"The University is simply not prepared to save money by doing something that in fact costs money," he said. "Laying off personnel in universities is a false economy. Places that have done it have inevitably hurt their programs. It's simply not a strategy that makes sense for a university that intends to be the very best of its kind."

The University will continue to look for ways to combine and centralize services, and to raise private funds to support academic programs and new initiatives. Some new construction – particularly that which uses state or departmental operating funds or reserves – will not proceed, though projects for which ground is already broken will continue, he said.

"We have two real choices in dealing with these budget cuts and the economy around us," Casteen said. "One is to see the crisis as an excuse for mediocrity, for stasis, to say we will back off and we'll see how things are later. The other is to see the downturn as an opportunity for carefully conceived, wise and bold actions or innovative thinking.

"The second option is the one that we've chosen."

He warned that designing and implementing the new distance-learning programs that he envisions will not be easy.

"The challenges involved in doing online education well are substantial," he said. "...  Very few American universities have succeeded at this. The demand for the service is huge; it's everywhere. But our success as a national system of education in meeting that is very, very limited.

"We will meet these challenges, and we will succeed. But we will be once more a new university when we're done."

— By Dan Heuchert