Corporation approves $1.34 billion budget for FY22

The Corporation — the University’s highest governing body — approved a $1.34 billion budget for Fiscal Year 2022 at its May meeting, an 11.9 percent increase from last year’s budget. The Corporation’s trustees also approved $1.369 billion in expenses, making for a projected total deficit of $34.8 million, which includes continued pandemic costs.

Budgeting for a more traditional year

Due to current plans to host a 2021-22 academic year more akin to pre-pandemic years, the University has seen a return to more traditional budget costs for FY22 and has lifted the salary freezes enacted due to last year’s uncertainty about the pandemic’s financial impact on the University.

This year’s budget has largely been created with the continued focus on maintaining the health and safety of the Brown community, as well as considering the financial well-being of students, said Provost Richard Locke P’18.

“Notwithstanding our financial situation not being as strong as we hope it would be, we want to keep on investing in the core strategic priorities of the University,” Locke said.

To support this, the University will continue its commitment to avoiding layoffs implemented at the beginning of the COVID-19 pandemic and increase the financial aid budget for students. The University also plans to work towards targeting hiring and increasing stipends for graduate students, Locke added.

The FY22 budget allocates $371 million to student financial support, a 27 percent portion of the entire budget and an eight percent increase from FY21. $185.2 million in endowment funds will go toward research and teaching, a seven percent increase from last year. The budget also includes $585 million for salaries and benefits.

The University’s research revenue for FY22 will see an additional seven percent growth because of an increase in grants awarded to professors for this year, Locke said. A portion of these research funds go directly to the University in order to support indirect expenses such as building use, electricity use and the Vice President of Research position.

The University’s endowment will provide $185.2 million of the operating budget, a 4.8 percent payout. This is on the lower end of the recommended annual payout of 4.5 to 5.5 percent in order to support the University’s goal of preserving the endowment, according to the news release. The University will eventually aim for an annual payout of only 4.5 percent to maintain more sustainable growth. The operating budget will also be supported by tuition payments, sponsored research and funds from gifts and the University’s Annual Fund.

In February, the Corporation approved a 2.85 percent increase for tuition and fees, which will support 48 percent of FY22 expenses. It also approved salary increase pools of 2.5 percent alongside a bonus pool of $500,000.

The University anticipates a $17.1 million increase in other income sources, including the reinstatement of the undergraduate student Activity Fee, Federal Emergency Management Agency reimbursements for COVID-19 expenses, athletics revenue and application fees from Professional Studies and Pre-College programs, according to the budget.

Continued impacts of COVID-19 pandemic

Despite the return to a more traditional budget plan, the University has projected further expenses and deficits because of the continuing effects of the COVID-19 pandemic.

After more than a year of increased expenses, the University projects the final deficit for FY21 to hit approximately $79 million, according to the news release — a deficit less than the original projection of between $100 and $165 million. The University incurred this deficit largely as a result of the COVID-19 testing program, de-densified student housing and increased financial support for students. A normal year’s deficit is typically around $5 to 10 million, Locke said.

In order to reduce the impacts of the deficit, the University worked to decrease expenses by implementing hiring and salary freezes and a reduction in contributions to employee retirement plans in addition to savings incurred from activities not allowed because of the pandemic, such as travel and events that require catering, Locke said. Several senior administrators also took pay reductions.

The University Resources Committee, which designs the budget before obtaining approval from the Corporation, has projected that the financial impact of the pandemic will decrease to roughly $30 million during FY22, allowing a total FY22 deficit of $34.8 million. This amount may change because of further spending or increased federal relief funding to alleviate some costs.

Some of this projected funding will go towards continued COVID-19 testing on campus, both for the summer and fall semesters, Locke said. As it largely depends on the percentage of Brown community members vaccinated, the University does not yet know how much testing will be needed, but there will likely be some surveillance testing as well as testing for students who cannot be vaccinated.

There will also be continued costs to support online classes for international students who cannot return to campus because of difficulties with international travel, Locke added.

The University will lose $14 million in revenue from the Pre-College Program this summer, as well as $3 million due to reduced summer residents, according to the URC proposed operating budget. While the University generally hosts around 6,000 students for the Pre-College Program, this year’s session will have just above 1,000 participants because of undergraduate students enrolled in the summer semester and continued de-densification of housing on campus, Locke said.

Continued COVID-19 testing will cost the University an additional $6 million, on top of the $1 million allocated for COVID-19 supplies. This year, the University waived the summer earnings requirement for students enrolled in the summer term, which will cost them $2 million. Other expenses include increased financial aid, cleaning expenses, shuttle services, housing and costs associated with hosting safe Convocation, Commencement and Reunion events.

Because there is still a “fair amount” of uncertainty about the circumstances affecting the coming year’s budget, the University put together a “conservative” budget plan, said Chief Financial Officer Michael White. The University does not yet know how much funding will be needed for COVID-19 considerations such as continued student testing, which will change the final numbers.

The deficits incurred by the University will be paid off using unrestricted cash from the University’s bank account, which largely comes from tuition payments, White said. The University also took out $700 million in new debt in May and September 2020 with “incredibly low” interest rates and no impact on the University’s credit rating due to White’s work, Locke added. The debt will be used to handle immediate deficits and will be paid off over the next 30 years.

“We didn't know where the bottom was,” White said. “We just wanted to make sure that we had sufficient liquidity at the University where we could continue operations. We made that commitment to people's employment, so we needed to have a level of comfort that if this dragged on for a year or two years, that we would have sufficient operating capital.”

President Christina Paxson P’19 explained in the news release that pandemic-related financial decisions have taken five primary commitments into consideration: transparency, protecting student and employee health, the financial wellbeing of students and employees, the University’s focus on research and education and the University’s long-term financial health. These commitments have allowed the University to avoid layoffs and end the hiring and salary freezes earlier than anticipated.

“The thoughtful, strategic approach of Brown’s financial leaders and each of the URC’s faculty, staff and student representatives in recent years proved instrumental in positioning us to meet the unique challenges of a truly extraordinary moment, while continuing to invest in Brown’s commitment to academic excellence,” Paxson said in the news release.

This is the second year in which the University used a new zero-based budgeting process, which is a budgeting system that relies less on tuition and fees and does not solely build on the previous year’s budget. This system focuses on budgeting to support strategic objectives for University departments instead of line-item spending.

An ad hoc committee chaired by Locke is currently working on recommendations for the long-term financial health of the University. Many of the committee’s recommendations will likely be rolled during FY22, which might also decrease the University’s deficit.

“The cost savings or revenue generation from those are not included in this budget,” White said. “There's opportunity for us to do better than the budget.”

The University also does not yet know what the endowment returns will look like for FY22, though White predicts they will not necessarily be as successful as last year’s 12 percent growth.

“The endowment has been really outstanding in helping the University grow,” White said. “Since we can't count on that (same growth every year), we really need to take steps to really make sure our base budget is right and could be supported on single digit endowment returns in the future.”