Budget and Finances of Boston University
First, let me thank you for your patience and hard work throughout the fall. The semester went off splendidly because of your efforts, and we are looking forward to the return of our students this week and the start of what looks to be a great spring semester, in most regards.
On September 30th I wrote to you to communicate the first reaction of the University to the worldwide financial crisis that was beginning to emerge. While we did not freeze faculty hiring at Boston University, you will recall that we froze all but the most essential staff hiring and delayed all capital projects that we had not yet started. Our concerns have proved to be well-justified, as the United States and much of the world has entered into a recession of as yet unknown depth and length. Many higher education institutions have since followed our lead and have announced similar hiring freezes, many including faculty positions, as well as the elimination of salary increases for staff and faculty.
I am writing to you today to update you on our current financial situation, our projections for the future, and implications for the coming year. I also want to let you know about a Town Meeting we plan to hold later this month, open to all staff and faculty, at which we can discuss these matters and any questions you might have about them.
Even with all our efforts and the financial health of the University coming into this academic year, we are not immune from the impacts of the recession. Just as other universities have reported, our endowment has been negatively affected. As of November 30, 2008, our total endowment stood at $897 million, based on preliminary figures, down 24.1 percent from its June 30, 2008 value. We must consider the possibility that the endowment will continue to decline for the remainder of the academic year; we are basing our financial planning on a potential decrease of at least 30 percent for the fiscal year ending June 30, 2009.
Although the loss of endowment funds is significant, it is not our largest concern, as the income from the endowment accounts for less than 3 percent of the University’s annual operating budget. A much larger concern is the ability of our students and their families to continue to afford a Boston University education in the face of the recessionary pressures that they undoubtedly are experiencing.
The need for additional financial aid for our undergraduate students has clearly become apparent with an increase in the number of financial aid appeals already submitted by our students for this spring. Our Office of Financial Assistance has done a marvelous job meeting this need, helping us to retain students who might otherwise not be able to continue at Boston University. We also expect the financial need of our students to continue to rise next year, and we are preparing for it by substantially increasing our financial aid reserve.
Boston University’s budget for the fiscal year 2010 (July 1, 2009 through June 30, 2010) must prudently recognize the potential need for additional financial aid support for our students. We have been working with the deans and vice presidents to develop such a budget that accounts for our best projections of revenues and which incorporates conservative assumptions about our expenses next year. In our budget planning we have included:
- Modest salary increases for the exempt administrative staff effective January 1, 2009, with the largest increases going to employees with annual salaries under $60,000 per year and no increases for employees who earn over $150,000; the salaries of the senior administration (vice presidents, deans and above) are frozen until July 1, 2010.
- Modest salary increases will be budgeted for faculty and staff in FY 2010. We believe the below-market position for faculty salaries justifies our continuing effort to address this issue. Also, administrative and support staff represent a vital resource, and we will do our very best to support and retain our people. It must be recognized, however, that salary freezes going forward remain an option if economic conditions worsen.
- Reassessment of all capital expenditures for the remainder of FY 2009 and for FY 2010 will continue in order to conserve cash for our core operations and to avoid increased debt.
- Administrative expenses will be frozen except for the reductions described below and for inflationary cost increases for critical services and supplies.
- Costs associated with outstanding debt and other financing expenses for the University will rise in FY 2010 because of the impact of the recession and the upheaval in the financial markets.
When all these changes are taken together our FY 2010 our budget is not yet in balance; we have a gap of approximately $10 million that must be closed. Although $10 million is not a large sum compared to the total budget of the University, generally our programs and services are neither over-staffed nor over-funded, so achieving the necessary reductions will be difficult.
One of the major purposes of this communication is to describe the actions we are taking to reduce expenses and to bring next year’s budget into balance. Our goal must be to make these reductions in ways that satisfy four criteria:
- Maintain the quality of a Boston University education through the excellence of our faculty and the classroom environment and the breadth of our offerings;
- Deliver sustainable efficiencies in our operations and permanent cost reductions;
- Minimize the impact of these reductions on the quality of our services; and
- Continue our momentum for the future, to the extent possible.
Our Strategic Plan and the shared commitments and strategic goals described therein form the backbone of our strategy for managing the University through this economic downturn. We will maintain the positive direction of the University toward these goals, even if achieving them may take a bit longer than we had hoped.
Our expense reduction efforts are focused initially on two specific objectives: first, reducing subsidies for activities and services that are not essential to our core mission and our Strategic Plan; second, reorganizing key administrative services across both academic and administrative units in order to increase efficiency and remove redundancy. With regard to the first objective, we are examining subsidies to external organizations, to academic centers and institutes, and to units that were designed to be financially self-funding, but for which the business models have not delivered the required results.
Most importantly, we are examining many services that have been organized traditionally unit-by-unit, but for which there are significant synergies from having more centralized organizations. Such services include publication and web-based production support, alumni and event functions, research administration, general financial administration, and information technology and desktop computer support. As our plans for reorganizing service delivery in these areas develop over the coming months, there is no doubt that the changes will result in some positions being eliminated. Our freeze on staff hiring that began last October, and which is still in effect, has created a resource of open staff positions that, if at all possible, will be used to manage the decrease in positions created by the reorganizations so as to minimize the need for layoffs of current employees. Nonetheless, it is likely that some layoffs will be required to meet these objectives.
We are planning a Town Meeting as an open forum for staff and faculty to ask questions about the University’s operating plans and the steps outlined in this memorandum:
PLACE
George Sherman Union, Metcalf Ballroom
Medical Campus two-way video feed, Hiebert Lounge
TIME
10:00 – 11: 00 a.m.
DATE
Thursday, January 22, 2009
This meeting is open to all staff and faculty who are interested in these issues. I urge staff and supervisors to be flexible in making arrangements to attend, while remaining cognizant of the need to cover essential work functions. In order to ensure we have adequate space for all who want to be there, we ask you to sign up by using our online registration system by January 20 if you plan to attend.
As I know you appreciate, the University is moving forward into an uncertain economic landscape, and we must take responsible and prudent steps to position ourselves to maintain the quality of our student body, faculty and programs, and to maintain the progress we have begun toward what is a very promising future. I very much appreciate the strong support the University community has shown as we work together through this difficult period.
Sincerely,
Robert A. Brown
President