AU is preparing for its next budget cycle in problematic economic times - students and parents are struggling to make ends meet, potential students are rethinking decisions to attend a private university and the stock market has dipped well below where it was a year ago.
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But the university is very transparent about its budget process, according to Don Myers, AU's vice president of Finance and Treasurer. Every student should have received the budget information for fiscal years 2008 and 2009 in Feb. 2007, Myers said.
The administration, including then-Interim President Neil Kerwin, provided that information in students' mailboxes, in a booklet that contained all major budget information for FY2008 and FY2009, as adopted by the university's board of trustees in Feb. 2007. The report included information about tuition increases and a fairly detailed list of revenue and expenditures for those two fiscal years.
It also contained information on how AU's finances compare to members of its peer group - schools such as Boston College, George Washington University, Villanova University and Syracuse University.
AU's finances are broken down into two pie charts for each year - revenues and expenditures.
A committee is now preparing the FY2010-2011 budget information, according to Myers. During the board of trustees' Feb. 26-27 meeting, the board will approve the proposed budget, after it has been reviewed by several members of the campus community, according to a Jan. 21 presentation at a town hall meeting that included Myers and Provost Scott Bass. FY2010 begins May 1, 2009.
As the university plans for the upcoming budget cycle, it must keep in mind the current state of the economy, Myers said in November. Students struggle to pay their tuition bills, let alone break into the feeble job market. With a $428 million operating budget for FY2009, students' tuition dollars have a profound effect on the state of the tuition-dependent university, according to Myers.
In both 2008 and 2009, the university had the same revenue expectations - 81 percent would come from tuition, 7 percent from residence halls, 6 percent from auxiliary services, 3 percent from WAMU 88.5 AM and 3 percent that falls in an "Investment, Gift & Other" category.
Expenditures vary between the two years. In 2009, spending on personnel is to decrease from 47 percent in 2008 to 45 percent. Financial aid increased 1 percent to about 19 percent in 2009, as did money saved for supplies, which increased to 28 percent.
Tuition is set based on competition in the market. The goal is to keep the professors paid well and competitively, as well as to attract quality faculty members from other places, according to Myers.
"We try to track where the university's tuition is in the context of the other institutions that we think we compete with for students," Myers said.
AU is 81 percent tuition dependent, according to the 2008-2009 budget. This is a permanent arrangement and is difficult to foresee otherwise, according to Myers.
"We are a student fee-dependent institution," he said. "We have been for years, we probably will continue to be for years."
The university relies on its tuition because it does not depend on its endowment, according to Myers. AU has an endowment of $435 million, according to Myers, which contributes to the 'Investment, Gift & Other' category in AU's revenue.
The endowment makes up about half a percent of the university's operating budget, which is about $2 million. While AU had often been scrutinized for having such a low endowment compared to other schools, it has since become a kind of blessing in the current economy and job market, Myers said.
"We do not have a large reliance [on endowment] in our operating budget," he said.
Schools across the United States are posting losses on their endowments - including Harvard University in Cambridge, Mass., who reported a 22 percent dip in its endowment. The school predicts that it could see a loss as high as 30 percent, according to The New York Times. Compared with a school that is dependent on an endowment for 35 percent of its operating budget, the one-half percent that AU depends on does not seem so bad, Myers said.
A university's endowments can touch on many aspects of university finances, including facilities' improvement, academics, athletics and arts. When a school receives a large endowment, that is, money given to the university to assist in its growth and future, often this funding can help ease the price of tuition. Endowments typically stem from donors who have some connection to the school (often alumni).
AU's endowment assets are broken down into several types of investments, according to information from the Department of Finance and Treasurer. Thirty percent of the university's endowment is put into Large Cap investments, which are traditionally less risky and are in individual stocks within the DOW 100, according to a chart dated April 30, 2007.
The same chart shows that 20 percent is invested in alternative assets, which are described as half hedge funds (private investment funds open to a limited number and range of investors) and half energy-related funds, according to the Department of Finance.
The rest of the investments are spread between Small Cap equities (which are higher-risk stocks), international equities, fixed income, real estate and emerging market equities, according to the graph.
However, the details of these investments are not currently available as public information.
In order to strengthen the endowment, the university must make better ties with its alumni, according to David Teslicko, the board of trustees' student member. Teslicko estimated that there are approximately 100,000 living alumni. If the university manages to improve its alumni relations, perhaps the endowment would increase. Teslicko, who serves on the board's alumni relations committee, said at a board meeting at the end of November that there was a large focus on how to bring alumni back to AU, especially in hard financial times.
"Given the economy, we think we're actually positioned to do pretty well," he said. "The university, itself, economically, is fine."
The university may attempt to draw alumni by helping those in need, according to Teslicko. Once times get better, then they will start seeking money, but he said they are going to try and focus on just getting AU's alumni involved in the university, whether they are giving money or not.
"Instead of Alumni Affairs sending out letters, which most universities are, saying 'hey, we're suffering, please donate now' - we're actually sending out letters that say 'hey, if you lost your job, we have the Career Center that can help you," Teslicko said.
He said he was also optimistic about enrollment and applications for next fall, since everything seemed to be looking fine, given the economic conditions.
These factors are fairly promising, but the university is being cautious, because the economy is still volatile, Myers said.
"We're not in a mode where we have clear, definitive evidence of how the external forces are going to affect us," he said.
Despite the economy, enrollments, early decision and transfer applications are all currently on track, when compared to better economic times, Myers said. According to the Jan. 21 presentation, regular decision applicants are down by 3.1 percent. Early decision applicants increased by 12.5 percent and admitted ED students increased by 4.7 percent.
"Are people who are here, are they able to pay?" Myers said. "Seems to be on course. Students that are getting ready to register for the next semester of billings? That seems to be on course. And then the application for new students for [next fall], that seems to be on course."
In the event of a drop in enrollment, the university keeps a small percentage of tuition revenue aside for "enrollment contingency," Myers said. According to the university's budget, this is about 1.5 percent of tuition annually. This rainy-day fund should receive about $5.2 million for FY2009, according to information from Finance.
Kerwin showed the same confidence at a town hall meeting in November of last year. When asked about the impact the economy has had on the university, Kerwin said that AU is doing rather well, but would be prepared to handle most problems, should the situation worsen.
"Some institutions are experiencing significant decreases in undergraduate applications, but we are not at the moment," he said. "I don't suggest for a moment that we're not still quite susceptible to a substantial decrease in enrollment because of the recession."
Any changes in the amount of financial aid that students receive, as well as several other factors, will be determined during the FY2010-2011 budget process, which began Nov. 20 with the board, according to Teslicko.
Many things would play into this particular budget, including the strategic plan, he said. This plan includes several goals and ambitions that the university has to improve its recognition locally and nationally. These goals, according to Myers, will need to be considered as part of the budget as the plan is implemented.
You can reach this staff writer at jcalantone@theeagleonline.com.
