The early stages of Boston University’s budgeting process for the 2007 fiscal year began last week, just days after Congress proposed to cut over $14 billion in federal financial aid and a month after a study revealed that BU faculty earn less than their peers at comparable institutions.
Executive Vice President Joseph Mercurio say the university’s top priority when creating the budget is funding education, despite complaints by some that the university runs too much like a business and does not focus enough on the educational aspect of the institution.
“We are a business,” BU spokesman Colin Riley said. “Our business is higher education and we do a very good job of it.”
Mercurio said the university must run like a business in order to delegate enough resources for all its departments.
“We try to operate efficiently,” he said, “and if that means businesslike, then we are guilty.”
The university begins the seven-month process of creating a budget each year at the end of October, Mercurio said. After its development, the budget is presented to the university’s Board of Trustees each April. “In early November, the deans and the vice presidents receive an outline of the budget situation,” Mercurio said. “We will look at the fiscal 2006 budget first, and then based on a series of assumptions … we will extrapolate what the budget will look like until 2010.”
Mercurio said these assumptions include the anticipated changes in inflation, enrollment and salaries. The deans and vice presidents then analyze statistics, which are compiled into a database that produces in-depth reports about each school within the university.
“The first thing we do is look at our expenses,” he said. “We try to do that in a highly detailed, analytical process.”
The second half of the budgeting process is to look at “what’s happening nationally,” Mercurio said, taking into account the fiscal trends at peer universities.
“The decisions on tuition are made partly based on what the needs of BU are,” he said, “and then … the overall national picture of the economy. There is an effort made to keep the increases to as low a rate as possible.”
Riley said BU’s tuition increases have been lower than the national average for the past 10 years, while financial assistance has increased at a much higher rate than both tuition and family income over the past decade.
“The university endeavors every year to keep increases as low as possible,” he said. “One of the key factors is that financial assistance increases as well.”
For the 2005 fiscal year, Mercurio said the university’s revenue came primarily from tuition, research grants, gifts and miscellaneous income from auxiliary operations.
“Roughly half of our revenue came from tuition,” he said. “The grants were either from private foundations [or] federal grants to conduct research. And the gifts [consisted of] donations from friends, from alumni and from commercial organizations.”
For example, Mercurio said although a 1.5 percent increase in tuition over the past two years is due to the construction of the Student Village complex, most of the cost was offset by a grant from John Hancock Financial Services, Inc.
“[John Hancock] provides us with 2 million dollars in support,” he said. “They’ve pledged to do that for 10 years.”
Mercurio said the university also earns money through other ways, like parking for Red Sox games.
“A couple million dollars are generated through auxiliary operations,” he said, including “student housing, student dining, bookstore, convenience stores, rental properties, parking and all of the auxiliary operations that charge fees for services.”
According to Mercurio, over 72 percent of the university’s budget goes directly to educational, instructional and research costs. Mercurio said this includes the library, research and other educational expenses.
The administrative and general costs associated with running the university, including the administrators’ salaries, comprise the smallest component of the budget, at 7.4 percent.
“A lot of people, because of the visibility of the central functions, would assume that that’s a bigger piece of the pie,” he said. “But relatively speaking, it isn’t.”
Mercurio said one of the reasons why tuition at private colleges has grown so much in recent years is because operating a university requires resources on a much larger scale than the average citizen.
“One of the distinguishing characteristics of higher education in terms of the cost structure is that generally speaking … the cost of operating a higher educational institution is higher than the cost of living,” he said. “We purchase a different basket of goods and services than an ordinary person does.”
Although BU may be as organized as any Fortune 500 company, Mercurio said the university keeps students’ best interests at heart when delegating resources.
“There are about 700 to 800 departments that need to be coordinated and brought together into an economically viable institution,” he said. “The more efficient we can become and the more businesslike we are – every dollar we save or every dollar we bring in goes back into the operating budget of the university.”
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