Fiscal Year 2023 and 2022 Budget Update
In an email to the campus community earlier this week, Andrew Mangels, vice chancellor for administration and finance, gives an update on the budget for the fiscal year 2023.
That email is as follows:
Fiscal Year (FY) 2023 Budget Update
The exceptional support from the state legislature in addition to continued strong enrollment and robust campus activities provide for an increased resource base sufficient to restore campus operations to pre-pandemic levels and make investments in critical areas to sustain and build on our success.
In FY23, the campus has received an additional $23 Million (M) of state appropriation above collective bargaining costs. This increase and continued support from the state highlight the value the Commonwealth places on a strong and vibrant flagship university. In addition, strong enrollment and the first in-state undergraduate tuition increase in three years have produced net undergraduate and graduate tuition growth of $13M. Other revenue increases such as overhead recoveries and investment income are expected to produce an additional $2M, for a grand total increase of $38M. Given the importance of our bond-rating for borrowing purposes, $9M of the revenue increases will be needed to provide for a 1.5% operating margin in FY23 as described below, making progress towards a Trustee-mandated margin of 2% by 2025.
These revised projections for FY23 provide for an increase in base resources to accomplish a number of critical goals for the campus:
- Providing academic and administrative units additional base budgets to fully recover from the cuts of the previous two years and achieve additional strategic goals.
- Addressing accrued and expected inflationary increases in the costs of services and commodities.
- Maintaining need-based institutional grant aid to students in the face of increasing demand.
- Increasing support for mental health and wellbeing of students.
- Investing in an aging infrastructure to support instruction, research and student success programs.
- Maintaining a healthy operating margin surplus to ensure that we reach 2% by FY25.
Collectively these net revenue increases represent a 3.5% increase on the general funds base budget of $810M and will provide for the following base increases:
- Increasing Support for Academic Affairs During the FY20-21 financial crisis, Academic Affairs base budgets were reduced by $11.7M. In FY22, $8.0M of this reduction was restored to allow additional hiring and program support. In FY23, the campus will increase support for the academic affairs units by an additional $13.5M to provide for cost and inflationary increases in the schools and colleges, faculty promotions and retention, start-up commitments, and instructional and student success programs (e.g., advising staff). On a beginning FY21 base budget of $306.8M, this represents an overall budget increase of over 3%.
- Support of Administrative and Student Support Areas Similarly, administrative and support areas incurred $7.1M base budget reductions in FY20-21 and had $3.8M restored last fiscal year. In FY23, these areas will receive an additional $3.3M to return budgets to pre-pandemic levels for continued support of student success; research administration; the future of flexible work; Diversity, Equity, and Inclusion; accessibility; mental health and wellness efforts; and general operations and maintenance of the physical infrastructure on campus (including physical access). A strategic pool of $2.7M will be available to support additional needs during the FY24 budget process.
- Inflationary and Other Cost Increases The campus needs to plan for the overall impact of inflation and cost increases in many areas that directly and indirectly support our collective activities. Examples include utilities and other goods and services that are supported from the central budget. $5M will be allocated to these areas.
- Continued Investment in Buildings and Equipment Continued investment to address the $1.2 Billion deferred maintenance facility backlog is critical to maintain our pre-eminent national reputation and attract the highest quality faculty, staff, and students, and obtain external funding. The allocation of an additional $5M of funding for the capital pool will prevent downsizing current projects and provide for our commitment to carbon neutrality.
- Increase contribution to achieve 1.5% FY23 Operating Margin The ability to achieve the Board-mandated 2% operating margin surplus by FY25 requires the campus to provide for financial stability over the next three fiscal years. Our goal is to provide at least a 1.5% operating margin in FY23 to demonstrate steady progress towards the Board mandated 2% level in FY25 by preserving $9M of new revenue for this purpose. Healthy operating margins provide assurance to our external constituents (i.e. donors, grantors, investors) that the flagship campus is worthy of investment and helps to keep interest rates low on a debt portfolio of over $1 Billion.
FY22 Operating Results
During FY22, the Amherst campus generated a 6.9%, $105M operating margin surplus due to a series of revenue and expense flows representative of the campus’ recovery from the pandemic. The following discussion highlights the major contributors to the operating margin surplus.
- Extraordinary Fundraising Results ($15M) The campus recorded the highest amount of fundraising in its history due to the extraordinary generosity of our donors. Significant gift revenues were recognized well in advance of planned spending causing an operating surplus in FY22.
- One-Time HEERF Funding ($25M) One-time Federal institutional recovery funds ($25M) were received in FY22 to help offset lost revenues from prior years and assist the campus to emerge from the pandemic. These one-time funds were received in conjunction with $25M of student assistance that was distributed directly to undergraduate and graduate students throughout the year.
- Return to Traditional Operating Margin Surplus ($35M) Prior to the pandemic, working with the president’s office and board of trustees the campus routinely produced operating margin surpluses in the 2.5-4% range. Given the robust enrollment and strong demand for housing and dining on campus in FY22, the campus was able to return to normal levels of operating margin surplus.
- Expense Reductions ($30M) Given the tight labor market, the campus struggled to refill many positions lost during FY20 & FY21. Vacancy savings continued to produce operating surpluses across campus. While the campus made extraordinary efforts to support the teaching, research and student missions, oftentimes services were curtailed or closed, events cancelled and projects deferred to later times. Faculty hiring was affected by the hiring freeze implemented in FY21 resulting in a reduction of the normal levels of new faculty in Fall 2021. Continued lingering pandemic restrictions impacted travel, conference attendance and other events where people typically gathered.
In addition to the recent funding of one-time requests of $23M, the operating surplus will allow investment in additional strategic initiatives while providing a financial cushion to help offset future expected inflationary cost increases. In particular, continued investment in facilities renovation and renewal remains a critical challenge to address our deferred maintenance backlog. The campus will seek the necessary board approvals to move forward on a series of exciting new projects totaling approximately $60M including:
- Construction to build a new facility for the Center for Early Education and Care
- Renovation of Flint Labs for classroom and student success programming
- Sustainability enhancements to currently approved projects
- Inclusion and consolidation of student disability services and programs in centrally-located Goodell and funding of cost increases
We will continue to monitor FY23 operating results as we begin planning for the FY24 budget cycle.
Additional updates will be forthcoming as the fall semester unfolds. These new resources will allow us to provide for an even stronger and more successful flagship university. I appreciate everyone’s hard work and dedication enabling the campus to return to fiscal stability. Go UMass!