Report from President Kerwin

The AU Board of Trustees recently approved the university budget for fiscal years 2010 and 2011. The budget reflects alignment with the objectives and action steps of the first two-year phase of the University Strategic Plan. All budget proposals were structured in accordance with the plan, and the strategic goals guided the work of the University Budget Committee in concert with the Strategic Planning Steering Committee and the Cabinet. Input and suggestions were solicited from the university community in a variety of ways, including town hall meetings.

The budget now exceeds $450 million in annual revenue and expenditures, reflecting steady growth in the size, complexity, and quality of our institution despite troublesome external economic conditions. Our emphasis on effective enrollment management, rigorous internal controls, and the continuation of financial safeguard policies has proven to be critical to the university’s positive financial standing in the current economic context. This budget reflects both confidence in our prospects and the intent to make a strong statement about the seriousness of our commitment to the University Strategic Plan. A new section has been added to this budget presentation to summarize over $40 million in funding for strategic objectives and action steps for two years. A divisional budget for the provost and each vice president is also presented to further increase transparency. I am confident we will advance this institution to a higher level in coming years through the sound investment of our resources.

Evidence indicates that the university’s current financial condition will remain strong for the foreseeable future. Although the value of our endowment has declined significantly, less than one percent of the operating budget is dependent on endowment income – unlike many of our competitors with endowment income reliance from 10-40% of their operating budgets. Over the past year we have restructured $220 million, or 100%, of our tax-exempt debt, which has provided significant savings and additional stability in the continuing credit crisis. Major indicators for fall 2009 enrollment remain strong. Nevertheless, we are mindful that given the uncertainty and volatility in the economy, dramatic changes could occur rapidly. Therefore, as we developed the budget proposal for fiscal years 2010 and 2011, we also performed a stress test to ensure that adequate financial safeguards exist and that actions could be taken to mitigate sudden enrollment shortfalls in fiscal years 2010 or 2011. We developed multiple levels of contingency options that are available to deal with unanticipated shortfalls. Even in more stable years, we have built our operating budgets with contingencies and safeguards to provide a cushion should unexpected events surprise us. This discipline has served us well, and continues to be fundamental in the new approved budget. We are confident that unexpected enrollment shortfalls or other unforeseen funding needs can be accommodated through operations, budget contingencies, and designated reserves. In their approval of this two-year budget, the Board of Trustees was both mindful and confident that such contingency plans were in place.

The university is also monitoring potential sources of funding including enhanced financial aid for students such as increased Pell Grants through the American Recovery and Reinvestment Act, as well as grants awarded by the District of Columbia to higher education institutions for energy initiatives and infrastructure. The operating budget covers two fiscal years; specific items for fiscal year 2011 may need to be adjusted to reflect conditions at that time. The Board of Trustees will review the budget at mid-point in the cycle in case adjustments need to be made.

Freshmen and transfer enrollments are budgeted at 1,500 and 275, respectively, while continuing to emphasize student quality, diversity, and selectivity. Graduate, law, Washington Semester, and non-degree enrollment categories are budgeted conservatively. As in previous years, particular attention has been paid to the pricing structure for summer graduate and MBA programs to remain competitive. The budget includes a new revenue initiative targeted at intensifying marketing and recruitment efforts, promoting faculty research activities, and exercising innovation.

There will be a five percent increase in undergraduate, graduate, and law school tuition rates for fiscal years 2010 and 2011. Residence hall rates will increase by four and a half percent each year. The current summer graduate rate will remain the same for summer 2009 and will increase by five percent in summer 2010. MBA and graduate business tuition rates will increase by three percent for fiscal years 2010 and 2011 to maintain competitiveness. AU’s tuition and mandatory fees are below the mid-point of our market competitors, based on the latest available data (see table on p.14). These increases will not significantly change our position and are necessary to make needed improvements while supporting the implementation phase of the strategic plan.

Consistent with the strategic plan, this budget provides for:

• increased full-time faculty to enhance instructional resources and to reduce teaching loads for research-active faculty;

• competitive salaries and benefits for faculty and staff;

• more competitive adjunct faculty salary rates;

• strengthening of our undergraduate and graduate programs;

• expanded faculty and student research support;

• augmented need-based financial aid and various diversity initiatives;

• enhanced student recruitment including international students;

• increased support for fundraising and alumni support;

• improved student services including the implementation of a virtual and physical “One-Stop Center”;

• progress toward the President’s Climate Commitment;

• the next phase of marketing initiatives including the branding campaign, digital media, and web phase II;

• augmented facilities modernization and equipment funding;

• advancements in technology, library, and research infrastructure;

• new sources of revenue;

• tuition reserve and quasi-endowment transfer for financial safeguards; and 

• a transfer of cash reserves to supplement funding for strategic action steps.

I am grateful to all who participated in the budget and strategic planning processes. I am confident that the budget for fiscal years 2010 and 2011 will enable the university to make significant advances in realizing its strategic goals.

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Fiscal Years 2010 and 2011 Budget Highlights

Tuition and Fees:
All Enrollment Categories: 5.0% increase for FY10 and FY11 except MBA and graduate business programs.
MBA and Graduate Business: 3.0% increase for FY10 and FY11.
Summer Undergraduate: 6.0% increase for FY10 and 5.0% increase for FY11.
Summer Graduate: 0.0% increase for FY10 and 5.0% increase for FY11.
Student Technology Fee: $120 per semester for full-time students and $40 per semester for part-time students effective FY10 to help support investments in new technologies as part of the strategic plan.

Residence Halls: 4.5% increase for FY10 and FY11.

Meal Plan: 4.0% increase for FY10 and FY11.

Parking: Increased $3 per month. The monthly rate for faculty, staff, and students will be $117 effective May 2009 and $120 effective May 2010.

New Revenue Initiatives: $500,000 in FY11 by intensifying marketing and recruitment efforts, promoting faculty research activities, and exercising innovation.

Faculty-Staff Salaries and Benefits: $3.7 million for a 3.0% performance-based salary pool and benefits for faculty and staff effective September 2009, and another $3.8 million for a 3.0% pool effective September 2010. An additional pool is set aside to continue the multi-year goal of bringing the average salary for assistant professors closer to the AAUP Level 1 standard. No market adjustment pool is set aside for staff salaries as benchmarking analysis indicates average staff salaries are above the market median. However, staff compensation salary bands will be increased by 3.0% each year. Salary and benefits commitments also include the implementation of a minimum wage increase to $8.25 per hour in compliance with D.C. regulations, auto-enrollment in 403(b) benefits plans effective May 2009, and increased university contributions to the health plan.

Full-time Faculty: $2.6 million over two years to hire 23 new tenure-track faculty, and an additional $1.1 million to continue 12 full-time temporary faculty positions each year to respond to planned enrollment increases. $1.36 million over two years to support start-up packages for new faculty positions and current searches.

Adjunct Faculty: Increased $760,000 over two years to make adjunct faculty salary rates more competitive.

New Staff: $4.5 million over two years for salaries and benefits for 58 new full-time staff positions.

Financial Aid: Increased $9.4 million over two years to match the tuition rate and index to enrollment projections at a 29% tuition discount ratio for undergraduate and graduate students; to make need-based financial aid awards available for Pell Grant-eligible students and to support diversity initiatives within the financial aid budget; to increase funding for existing and new Ph.D. programs; to award frou additional Athletics scholarships over two years to increase competitiveness among Patriot League schools; and to provide seed money for the expansion of Washington Semester affiliated programs in FY10.

Supplies and Expenses: Additional funding for a wide range of initiatives to adequately fund academic base budgets, faculty travel, and staff training and development; to fund new research centers; and to respond to external environmental factors.

New SIS Building: $1.3 million for operations and maintenance costs in FY11 as the new SIS building becomes fully operational.

Marketing Initiatives: $1.27 million over two years for branding campaign, integrated marketing efforts, and web phase II. An additional $1 million each year for intensive marketing and retention efforts for undergraduate, international, and graduate students.

Development: Increased $258,000 over two years to support fundraising and alumni development.

Student Services: Increased $300,000 over two years to implement various initiatives including the student leadership development initiative and the creation of a Women's Center.

Athletics: Increased $138,000 over two years to be competitive among Patriot League schools.

Utilities: Increased $1.8 million in FY10 based on a renewed five-year contract.

Technology Capital Funding: $3.2 million over two years to support the university's multi-year technology plan including technology capital life cycle renewal, faculty research and student service support, campus-wide enterprise projects, and business continuity. Student technology fee increases will partially offset this technology investment.

Library Acquisitions: Increased $350,000 in FY10 and an additional $1.5 million in FY11 to enhance the library collection and electronic databases.

Deferred Maintenance Fund: Increased $300,000 in FY10 and an additional $1.5 million in FY11, which includes residence halls, the new SIS building, and continuation of the preventive maintenance program.

Furnishings and Equipment Fund: Increased $50,000 in FY10 and another $250,000 in FY11.

Facilities Modernization Fund: Increased $250,000 in FY10 and another $250,000 in FY11.

Transfer to Quasi-Endowment Funds: Equals 1% of the total budget for FY10 and 2% for FY11.

Enrollment Contingency Fund: Equals $5.6 million or 1.5% of projected tuition revenue in FY10. In FY11, $5 million will be available to fund strategic priorities and the remaining $900,000 will be budgeted in the enrollment contingency account.

Transfer to Fund Strategic Plan Initiatives: $2.4 million in FY10 and $3 million in FY11 from the internally designated Strategic Plan Initiative accounts.

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American University FY2010 Budget Revenue and Expenditures

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American University FY2011 Budget Revenue and Expenditures

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FY2010 Revenue and Expenditure Budget

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FY2011 Revenue and Expenditure Budget

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American University FY2010 Expenditure Budget by Division

(Units include Fringe Benefits)

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American University FY2011 Expenditure Budget by Division

(Units include Fringe Benefits)

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Highlights of FY2010–2011 Funding for Strategic Plan Goals

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Tuition and Housing Rates

* Meal plan rates will increase by 4%.

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American University Fall Full-Time Equivalent Enrollment

Source: Office of Institutional Research. Data as of the 5th week.
* Katrina students are not included in enrollment data.

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Higher Education Inflation Measures

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American University Market Comparison Full-Time Undergraduate Tuition and Mandatory Fees

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Market Comparison Undergraduate Tuition and Mandatory Fee Increases

*67 Institutions (private and public) identified by the Office of Enrollment for AY08-09
** Annually reported by the College Board.

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Market Comparison Residence Hall Room Rates at Area Institutions

Source: Survey of university websites completed by the Budget Office.
Note: All rooms are double occupancy with no private bath. Cost is for room only.

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Staff and Faculty Performance-Based Salary Increase and Market Adjustments

Note: The staff compensation salary bands will increase by 3% each year.

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