Several Poly letters and articles have addressed the recent financial problems and layoffs at RPI. These pieces have raised questions regarding the administration’s response to, and handling of, the budget difficulties and layoffs. In the context of these questions, I believe that it is useful to consider the April 2006 Report of the Middle States Evaluation Team, chaired by Jared L. Cohon, president of Carnegie Mellon University. The following comments regarding Financial Risk at RPI are excerpted from the report:

“In pursuit of the goals of The Rensselaer Plan, the Institute has undertaken substantial risks in the form of large investments, especially in new faculty and facilities. This has resulted in some stresses and strains on operating budgets, stresses that are acutely felt while waiting for expected increases in revenue streams to begin. The Evaluation Team found that the Administration and the Board of Trustees fully understood the potential impact of these investment decisions. The Team wishes to underscore the need for frequent, ongoing vigilance of the Institute’s financial situation and future obligations.

“The costs of the Plan have recently resulted in financial stresses for the Institute. The Institute has responded by implementing a 5 percent cut in spending across the board during Fiscal Year 2006 and a planned 10 percent budget cut in Fiscal Year 2007. In early 2006, the financial rating agencies downgraded the Institute’s credit profile, primarily because of weak short-term operating performance and a drop in the Institute’s liquidity ratios. This downgrade was anticipated by the Administration and Trustees.

“While the Institute may have anticipated the negative reactions of the financial credit rating agencies to the financial investments needed to achieve the Plan, the Institute should consider improving internal communications to explain more fully why it is willing to accept the levels of risk to the financial stability of the institution and when it is expected that the investments will begin to produce positive returns.”

From the above, it is clear that the Institute has been incurring financial risk for some time. From the manner in which the financial difficulties and layoffs have been handled, it is also clear that the administration and Board have not “improved internal communications to explain more fully why [the Institute] is willing to accept the levels of risk to the financial stability of the institution and when it is expected that the investments will begin to produce positive returns.” In 2006, no one was prepared for the depth of the economic collapse which we all now face. However, in my opinion, the Institute has failed in its obligation to accept and follow through on the Evaluation Team’s warnings and suggestions. Had these warnings and suggestions been taken seriously, the extent of the layoffs could have been diminished and the RPI community’s response to the situation could have been more accepting.

Don Steiner

Professor Emeritus