Boston University Fiscal 2024 Budget Process

October 3, 2022

Dear Colleagues:

It is time to begin the official Fiscal Year 2024 Stage I budget development process. This letter launches the process and will set the general context for the budget submissions by all academic and administrative units of the University. All areas reporting to the University Provost have already received a memorandum about specific strategic budget planning principles. This letter is intended to provide additional context and guidance.

My fall letter to faculty and staff will be distributed shortly, so I will not repeat the detail you will find in that letter. I am pleased, however, to report that we continue to see a rebound in the operations of the University toward what was typical pre-pandemic and that we are making significant progress toward achieving many of our strategic objectives.

We launch this budgeting process following an unexpectedly successful fiscal year. The Fiscal Year 2022 budget was developed during a time of unprecedented uncertainty and disruption caused by COVID-19. It was approved in April 2021 with a deficit of $32 million compared to what was required to fund all designated reserves. As the academic year started with a highly vaccinated community, many of the restrictions were lifted and we began trending toward more normal operations. Despite the upset caused by the omicron variant of the disease, we ended the academic year very well. Working together with disciplined expense control, strategic deployment of resources, and increased enrollments, we were able to generate reserves that allow us to invest in our strategic priorities, as guided by the 2030 Strategic Plan.

I am very aware of how hard all our staff and faculty worked to generate these reserves, as a significant fraction was a result of one-time savings due to an abnormally high number of vacant staff positions caused by the aftereffects of the hiring freeze from April 2020 to May 2021 and the very tight labor market. These savings will not be repeated going forward. We also expect that other savings due to reduced travel and meeting expenses will not recur.

While the University had a great year in Fiscal Year 2022, we begin this academic year and prepare for the Fiscal Year 2024 budget during a time of uncertainty about the US and global economies, and the concomitant impacts of rising inflation and increasing interest rates set by the Federal Reserve. Recessionary clouds are forming, and, with them, the continued need to moderate increases in undergraduate tuition and limit student debt.

We must be prudent and disciplined in preparing the Fiscal Year 2024 budget.

In Fiscal Year 2024, finding ways to manage expenses and create operational efficiencies will be important. We need to continue to work together to develop realistic budgets looking at all sources of funding without losing sight of our strategic goals. I am confident that by working together—focusing on our priorities and planning carefully—we will continue to succeed.

Let me briefly recap the Fiscal Year 2022 final operating results before

I discuss Fiscal Year 2023 and outline some guiding principles for the Fiscal Year 2024 budget development submissions.

Fiscal Year 2022

The Fiscal Year 2022 year-end financial operating results were much better than forecast despite our having started the year in deficit. The University’s Fiscal Year 2022 ended with funds of $90.9 million of undesignated reserves. These funds were reinvested in academic and campus initiatives, including building renovations and upgrades, funding for faculty hiring on both campuses, and new academic initiatives. Items included in this category are funding of academic centers and for BU Virtual, our online-at-scale initiative. Funding of the project to replace the Student Information System is continuing.

I would like to remind you about how these end-of-year funds are generated.

First, when we develop our annual operating budgets, we include in our budget “operating reserves” for areas where funds may be needed as a hedge against unexpected expenses or decreases in revenues. At the end of the budget year, unused operating reserves can then be deployed to support academic priorities. In Fiscal Year 2022, all our operating reserves were available for redeployment.

Second, a portion of these end-of-year balances are funds that were generated as part of revenue-sharing agreements with schools and colleges that are designed to incentivize academic programs to develop high-quality, revenue-generating master’s programs. These funds, totaling $98.6 million, were distributed from the end-of-year balances back to the academic units for reinvestment in the academic enterprise.

Finally, our end-of-year balances include unspent funds. Where we have specific agreements that unspent funds may be retained to be used in the following fiscal years, these funds are returned to units for reinvestment.

In Fiscal Year 2022 the designated reserves included approximately $121.4 million of funding designated to support academic initiatives and renovations and expansions in schools and colleges. Major capital projects include the continued funding for construction of the Center for Computing & Data Sciences and special funding for laboratory renovations in the sciences and in engineering to boost faculty hiring on the Charles River Campus. We also were able to restart much-needed building renovation projects. These include:

• Classroom renovations,
• Modernization of the HVAC system for Metcalf Science Center,
• Replacement of the Mugar Memorial Library roof, and
• Renovations for housing and dining, including the renovation of the exterior and interior improvements to Kilachand

In total, over $30 million of one-time funding went to academic initiatives including start-up costs for faculty hiring and research initiatives, all undertaken by the University Provost.

Our strong Fiscal Year 2022 performance could not have been achieved without the support, dedication, and initiative of faculty and staff.

Other Fiscal Year 2022 highlights include:

• Total University enrollment for fall 2021 was 29,594 FTE, of which 17,060 FTE were undergraduates. Fall 2020 to fall 2021 freshman-to-sophomore retention rates were 93.9 percent and we anticipate the fall 2022 year-over- year to be closer to 93.7 percent. Our six-year graduation rate slightly decreased from 89.3 percent in Fiscal Year 2021 to 89 percent in Fiscal Year 2022.
• The University exceeded entering and continuing undergraduate student enrollment and budget targets for both fall 2021 and spring 2022. Transfer enrollment and budget targets were exceeded in spring 2022, but were strategically not reached in fall 2021 to partially offset the larger entering undergraduate student enrollments.
• Overall, graduate professional programs exceeded Fiscal Year 2022 enrollment and net revenue targets. We understand that moving forward certain programs are reaching their enrollment limits while others continue to have unused capacity. The University Provost and Associate Provost for Graduate Affairs will be working with the Deans to identify those growth opportunities moving
• New awards of research contracts and grants grew by 5.7 percent to $531.2 million.
• In Fiscal Year 2022, for budget purposes, 4.4 percent of our revenue ($122.5 million) was from endowment income and gifts. As of June 30, 2022, the total pooled endowment stood at $2.93 billion, which includes an investment loss of 11.9 percent.
• Total University salaries and wages charged to all sources increased by $64.1 million, or 6.7 percent from Fiscal Year 2021 to Fiscal Year 2022. Fringe benefit expenses grew by 10.7 percent. Salaries and benefits make up over 50 percent of the University’s operating budget.

Fiscal Year 2023 Update

The Fiscal Year 2023 budget was approved in April 2022 and was developed with cautious optimism as the University returns to pre-pandemic operating levels. Continued conservatism is essential due to the uncertainty of inflation, the rising costs for salaries and benefits, and the possibility of a major recession. This budget was approved with a positive $18 million margin as compared to what is required to fund all designated reserves.

Overall tuition, fees, room and board rates increased 4.05 percent, and the financial aid rate was budgeted at 39 percent. It is our third year of meeting the full financial need of first-time domestic undergraduates, so our undergraduate financial aid budget is still growing much faster than our tuition increase.

Fiscal Year 2024 Budget Framework and Guiding Principles

As we begin the Fiscal Year 2024 budget process, our assumptions about the University’s five main revenue streams are similar to last year:

• Undergraduate Tuition—Net revenue growth from undergraduate tuition will only be achieved through modest increases in tuition and careful management of financial aid, not from increasing the class size. We are modeling based on a freshman class size of 3,100, and we must make our very best effort to hit this target.
• Auxiliaries—The absence of growth in the total size of our student body means that our housing and dining program revenue is likely to remain flat, although we expect to be stretched to our limits by the size of our current student
• Research—We are planning for moderate growth in our sponsored research expenditures because of the increase in awards last
• Fundraising—Fiscal Year 2022 was a record-breaking year with $242 million in cash received. We also had 74 new permanent endowment funds established, with over $74 million added to the endowment through gifts and other additions. Accelerating momentum from philanthropic commitments from alumni and friends for University strategic priorities including Century Challenge undergraduate scholarships, the Center for Computing & Data Sciences, and endowed
• Graduate Professional Tuition—Growth will be targeted only within specific programs.

Fiscal Year 2024 Budgeting Guidelines

 As always, Fiscal Year 2024 planning begins with the goal of continuing to raise Boston University’s stature as a major private residential research university. To do this, we must focus any new resources in areas of critical academic importance and work to minimize other expense increases across the University. The budget objectives and guidelines for Fiscal Year 2024 are as follows:

1. New funding will only be considered for initiatives clearly aligned with the University’s 2030 Strategic Plan.
2. Continuing to attract and retain excellent faculty members across our programs will be our highest priority.
3. We will continue to support our growing Diversity, Equity & Inclusion initiatives, as well as the related work on workforce culture.
4. A very high priority is completion of the Student Information System Renewal and Replacement Project, including the retirement of all applications on our aged mainframe computer.
5. Renovation and new construction, as well as other projects in the University should continue our commitment to the University’s Climate Action Plan and our goal of being carbon neutral by 2040.
6. We must continue to build the infrastructure needed to launch the University’s second comprehensive fundraising campaign. An announcement about this planning will be issued shortly.
7. Finally, we need to continue to review investment, debt, and cash management strategies to ensure the University is prudent in assessing and setting risk levels.

As I mentioned, the University Provost has already provided detailed guidance about the narrative justifications required with submissions to the academic and administrative units reporting to her; these will address specific issues affecting the Fiscal Year 2024 budget and the correlation of budget requests with enrollment targets and the Strategic Plan.

The University Provost & Chief Academic Officer, Senior Vice Presidents, and I will hold budget meetings with each of our direct reports. The Vice President for Budget, Planning & Business Affairs will also attend these meetings.

All other areas should submit a budget narrative, not to exceed 10 pages (inclusive of exhibits), that explains the strategic use and/or necessary reallocation of resources to meet your critical functions. The narrative should address any challenges or areas of concern you see this fiscal year or next, and how you are managing your resources to achieve your key strategic objectives. It should also prioritize requests for Fiscal Year 2024.

The Budget & Planning Office has separately provided additional information and instructions regarding the submission process.

We look forward to the discussions with you as we begin to develop the Fiscal Year 2024 budget. With a spirit of cooperation, we will be successful and will keep Boston University moving forward.

Sincerely,

Robert A. Brown President