BrandeisUniversity
FinancialSituationandOpportunities–Summary
Afterfiveyears(FY10-FY14)ofreporteddeficitsforouroperatingbudget,rangingfrom$1million-$4
million,FY15andFY16sawmodestoperatingbudget“surpluses,”andFY17isprojectedtoendcloseto
balanced.Thisturnaroundinouroperatingbudgetistheresultofcarefulattentiontomitigatingrising
costs,newpurchasingpolicies,andothersavings.Whiletheimprovingfinancialsituationis
encouraging,thereportedsurplusesofrecentyearsmaskalonger-termunderlyingproblemof
structuralimbalanceatBrandeis.Evenasweseeauditedfinancialstatementsthatincludeanoperating
budgetinsurplusorbalance,thisperformancewouldnotbepossibleifwehadnotundertaken
unsustainablepracticestobalancethebottomline.
Example:IfwetaketheFY15reportedoperatingresults($2.6millionsurplus)andusea5percent
averagedrawratefromtheendowmentratherthanthe5.9percentdrawratethatwasdonethatyear,
thereportedoperatingsurpluswouldgofromareported$2.6millionsurplustoa$3.9milliondeficit.In
addition,if40percentofannualgiftsthathadbeenraisedhadbeendirectedtowardsendowment
ratherthantosupporttheannualbudget,whichistypicalinuniversitieslikeBrandeis,theoperating
deficitwouldgrowtojustover$9million.Ifweaddinfundsneededtoaddressgapsinfacultysalaries
andunder-staffing,thedeficitwouldincreasefurthertoalmost$16million.Finally,ifwebeganto
addressthebacklogofdeferredmaintenanceandinvestinlong-overdueITinfrastructure,theoverall
operatingbudgetwouldbecloseto$30millionindeficit.
Theimplicationofthesepracticesisthatwhilewehavebalancedourbudgetintheshortterm,wehave
shortedourselvesofresourcesforthelongerterm.Forexample,bydivertingahighproportionof
annualgiftstowardsoperationsratherthantoendowment,ourendowmenthasnotgrownasmuchas
peerinstitutions.AsyoucanseeinFigure1,in1990Brandeis,Tufts,Northeastern,SyracuseandTulane
hadprettysimilarendowments.By2015,allwerehigherthanourswiththeexceptionofNortheastern.
Endowmentsgrowduetoinvestmentperformanceandcapitalcampaigns.But,asyoucansee,if
Brandeis’hadkept50percentofannualgiftrevenueraisedsince1995inendowmentratherthanusing
itimmediatelyintheoperatingbudget,ourendowmentmightbecloseto$1.8billionratherthanjust
halfthatat$915million.Thatdifferenceinendowmenttranslatestoover$45millionlessendowment
fundsgoingtoourannualbudget.Thisthoughtexercisedoesnottakeintoaccountwhatwouldhave
happenedtoBrandeisifthosefundshadnotbeenusedtocoverannualbudgetcosts.Butthisdoes
highlightthefactthatchoiceswemakeintheshorttermhavelonger-termconsequences.Inaddition,
aswemovetoabetterfinancialsituation,continuingpastpracticesunderminesourabilitytoachievea
moresustainablefinancialequilibrium.
Thestructuralimbalancethatwefacedoesnotmeanthattheuniversityisnotabletoconductits
activities,payitsbillsandcontinuetoprovidetheexcellentresearchandeducationweareallsorightly
proudof.Butitdoeshelpexplainwhy,evenwithanoperatingsurplus,facultyarebeingraidedbyother
universities,ittakeslongertofillmanystaffpositions,andfacultyandstaffreportbeingoverworkedas
theycontributeever-increasing“sweatequity.”Inaddition,inspiteoftheheroiceffortsofourbuildings
andgroundsstaff,andnewinvestmentsininfrastructuresuchassteamtunnelsandwindows,allofus
onthiscampusarefamiliarwithclankingpipes,faultyAC,leakyroofs,anddraftywindowsanddoors.
Figure2providesmoreinformationontheextentofourdeferredmaintenanceissuesoncampus.
Withanimprovedfinancialpicture,thisisthemomenttotacklethechallengesofthisstructural
imbalance.Unfortunately,therearelimitedopportunitiesfornewsourcesofnetrevenue.Theusual
sourcesofnewrevenueforauniversityinclude:
NetTuition–Wemightconsiderincreasingthesizeoftheundergraduatestudentbody;
however,themagnitudeofchangethatwouldberequired—intermsofthenumberof
undergraduatesorthesocioeconomicmix—raisesfundamentalquestionsaboutourculture,
mission,andstrategy.Growthinenrollmentwouldalsorequiresignificantcapitalinvestment
(e.g.,newdorms).Graduatestudentsmaynotrequireon-campushousingbutwouldrequire
investmentsinfacultyandfacilities.
ResearchGrants–Onlyasmallpartofsponsoredresearchrevenueisbudget-relievingand
thereforewillnotaddressourcurrentsituation.
Endowment–Reducingdrawanddirectingmoregiftstotheendowmentwillproduce
enormouslong-termfinancialbenefitsbutrestrictoperatingrevenuesinthenear-term.
Gifts–Improvingfundraisingispartofthesolutionbutcannotbyitselfsolvetheproblem.
Other–Onlinelearningopportunitiesallowustogrowourstudentbodywithoutmanyofthe
costsassociatedwitharesidentialcampus.Butsubstantialgrowthwillrequiretimeand
articulationofitsrolewithintheoverallstrategyoftheuniversity.
Thesenewrevenuesourcesmayprovidesomebudgetreliefandwillbeimportantconsiderationsinour
budgetprocess.Atthesametime,wewillcontinueourvigilancetokeepcostsundercontrol,including
furtherexpensereductionsthatdonotharmourstrategicgoals.Butcuttingourwayoutofstructural
imbalancewouldfundamentallyimpactthequalityoftheeducationweprovideandtheresearchwe
produceinwaysthatwouldbeinconsistentfortheacademicexcellencewehaveachieved.
Brandeisisandcontinuestoaspiretobeatop-rankedresearchuniversitythatsimultaneouslyprovides
adistinctive“smallliberalartscollege”undergraduateexperience.Beingamajorresearchuniversity
requiresattractingandretainingaproductivefacultyactivelypursuingresearchinarangeofareas.
Theirscholarshipandcreativecontributionsaresupportedwithgraduatestudents,includingacritical
massofdoctoralstudents,andnon-facultyresearchstaff.Atthesametime,providingourdistinctive
undergraduateexperiencerequireslowstudent-to-facultyratios,highfacultyengagementwith
students,andundergraduateinvolvementwithworld-classresearch.
Givenallthis,Brandeisisbydefinitionandmissionacomplexorganization.Complexityisvery
expensive,especiallyforsmallerorganizations,asthefixedcostsassociatedwithrunningsucha
universitycannotbewidelydistributed.AsyoucanseeinFigures3and4,otherresearchuniversities
tendtosupportcomplexitybybeinglarge,rich(intermsofendowment),orspecialized.Brandeis
currentlyhasnoneoftheseattributes.
Noneofthisshouldreallybe“news”tothosewhoknowBrandeiswell.Asayounguniversity,wehave
achievedremarkableacademicexcellenceinjust68years.Wewerenotfoundedwithalarge
endowmentasourpeerswere,andasfoundingPresidentAbramSacharsaid,“Brandeiscouldnotafford
togrowslowly.Whateverwasneededhadtobeavailableatonce—facultysupport,student
scholarships,buildings,equipment,administrativeandmaintenanceassurance.”Giventhefinancial
costsofestablishingauniversityofexcellence,Sacharnoted,Brandeiscouldnot,atleastinitially,“plan
andfunctiontimidlywithabookkeeper’smentality.”
Wehavereachedthestageinourgrowthanddevelopment,however,wherewemustpayattentionnot
onlytotheshortrunbuttothemediumandlongerrun.Thechallengesofmaintainingourexcellence
anduniquecharacterasayounguniversityrequireaneffectiveframeworkformanagingourfinances.
Thisframeworkneedstoaligninvestmentsandouroperatingbudgetswithmissionandstrategy.In
addition,itmustensurelong-termfinancialhealth,manageriskwithoutbeingrecklessaboutourfuture,
createclearparameterswithinwhichschoolsanddepartmentscanmakeoperatingdecisionstoachieve
theirrespectivegoals,andestablishaccountabilityfortheoutcomesassociatedwiththefundsallocated.
Asweembarkonthispathtogether,therewillbetwoprinciplesthatwewillstrivetomaintain—
transparencyandinclusiveness.Weallhaveastakeintheoutcome.Assuch,itisimportantthatweall
understandthebaselinefromwhichwebeginthiseffort.Thislevel-settingappropriatelybeganwiththe
boardlastmonthand,withfulltransparency,continuedinthreeopensessionswiththeentire
community—faculty,staff,andstudents—immediatelyafterwards.Thisletterisbeingprovidedto
ensurethatthoseinourcommunitywhocouldnotjointhosesessionscanalsobenefitfromthecontext
anddiscussionthatoccurredduringthosetimes.Aswelookahead,wewillcontinuetobeas
transparentandinclusiveaspossible,especiallyaswemoveintothatpartoftheprocessthatwilllead
todifficulttrade-offdecision-making.
Thepathtolong-termsustainabilitybeginswithupdatingtheuniversity’sfinancialframework.
Specifically,weneedtomoreaccuratelyunderstandourcoststructureandensurethatdecision-making,
incentivesandrisk-managementactivitiesareappropriatelyplacedacrosstheuniversity.Webeginto
achievethisbyexaminingthebudgetmodelthathasbeentraditionallyused.AsKermitDanielnotedin
hispresentation,ourcurrentpracticeisahybridmodelthattreatsonlysomepartsoftheuniversityas
RCMs(ResponsibilityCenterManagement).Wealsodonotattempttoallocatealloftherealcostsof
runningtheuniversitytotheschools,suchasoperationsandmaintenance,andcentralcostssuchasthe
library,student-supportservices,andadministration.Weneedtodevelopaconsistentbudgeting
methodologythatistransparentandpredictable;incentivizesappropriatedecision-making;and,
importantly,allocatestherealindirectcostsofrunningtheuniversitytoitsconstituentparts.Thelatter
isaprecursortobeingabletoweighbothabsoluteandrelativefinancialandmissioncontributionsof
ouractivities.Thisnewbudgetingframeworkwillalsocreatefinancialdisciplinethroughoutandwill
helprealizeoperationalefficiencies—byhighlightingareaswherewehaveduplicationofeffortsorare
simplyinefficient—ultimatelyallowingustoallocateassociatedsavingstofaculty,financialaid,
programs,andsoon.
Thefinanceteamisalreadyhardatworkdevelopinganewbudgetingmodelthatwewillbeginto
considerwiththecommunityinthecomingmonths.Ourgoalistobegintouseelementsofthisnew
financialframeworktodevelopourFY18budget,whichwillbepresentedtothetrusteesforapprovalin
spring2017.
Anewfinancialframeworkisanecessarybutinsufficientconditionforresolvingthestructural
imbalancefacingBrandeiswhilemaintainingtheexcellenceofoureducationandresearch
activities.Ournewfinancialframeworkwillbecomethefoundationuponwhichwebuildmulti-year
budgets.Asnotedearlier,weneedtoalignourfinancialdecision-makingwithmissionandstrategy.In
sodoing,wewillre-examinetheprocessbywhichwedevelopworkplansfornextyearandbeyond.We
wanttoensureintegrateddevelopmentofworkplansacrosstheuniversity,sothattheindividual
strategiesbeingpursuedbytheschoolsandtheadministrationarealigned—inotherwords,“One
Brandeis.”
Note: Figures 1-4 provided by Incandscent