SMU Budget at Work

May 2, 2011 by · Comments Off 

By Jonathan Richter

Over the past five years, SMU’s allotted spending plan has increased 24.4 percent despite investment declines occurring from the financial crisis that hit the nation in 2008.

The university has shown a steady rise in spending since the crisis, currently boasting an operating budget for 2010-2011 of $474.7 million compared to $381.5 million in 2006-2007. However, due to a drastic decrease in investment income, SMU’s expenses exceeded its revenues by $52.7 million during 2008 as opposed to a gain of $163.1 million in 2007, according to its Form 990 tax return. More recent returns were not available.

“The financial crisis caused SMU to reduce budgets to absorb reductions in payout from the endowment fund as well as other investment revenue declines,” Chris Casey, SMU’s vice president for Business and Finance said in an e-mail interview.

The biggest challenge related to the financial crisis came from the loss to SMU’s investments. In 2007 SMU showed investment revenues of $125.1 million, representing more than 20 percent of total revenue. By contrast in 2008, the university recorded losses of $43.3 million. The endowment fund had a balance of $1.4 billion in 2007, but fell 23.7 percent to an end balance of $1.032 billion in 2008.

“Academic areas were responsible for reducing their budgets to absorb endowment declines while administrative areas were asked to take percentage reductions over several years to balance the budget,” Casey said.

A majority of the revenue SMU receives stems from tuition and fees, endowment income, auxiliary income, athletic income and other sources.

According to SMU’s Statement of Revenue for 2008, revenue totaled $416.7, down from $627.1 million in 2007. Of that tuition and fees accounted for 66.6 percent, while auxiliary activities came in second making up 8.6 percent. Sponsored research totaled 5.2 percent, other student fees were 2.4 percent and organized activities came to 1.9 percent of the university’s revenue.

“Overall, revenue has increased during the current year mainly due to tuition, fees, and room and board increases,” Casey said. “Budget reductions have occurred across campus and in all other areas to balance the university’s budget in light of investment declines and lower tuition increases.”

Over the past five years tuition increases have averaged 6.74 percent, with the highest increase occurring in 2007-2008 at 7.9 percent. However, in light of the financial crisis SMU tuition rose this year at just 5.9 percent.

“Tuition and fee increases we kept as low as possible to be sensitive to the financial pressures faced by many of our students and their families, limiting the ability of SMU to fund various initiatives,” Casey said.

Students are positively reacting to this reduction in tuition increases. SMU senior Blythe Bumstead said: “I’m glad SMU decided upon a lower tuition increase. It reassures me and my parents that we don’t have to pay as much in this financially stressful time. Hopefully we won’t see drastic increases in tuition once the country is fully recovered from the financial crisis.”

Grants and salaries are the two largest areas of expenditure for the university. Of total expenses at $514.4 million in 2008, over $104.3 million or 20.3 percent was spent on scholarships and other assistance to individuals. Salaries and wages, not including compensation or benefits, accounted for 34.6 percent expenses. These numbers are continuing to rise.

“With this budget SMU provides financial aid to students,” said Ernie Barry, university budget director. “The budget schedule reflects an overall increase in spending and our major areas of spending include compensation to university employees, debt services, and auxiliaries.”

Not only are students happy that tuition is rising less quickly, but they are also excited to see how the university is spending its money to create a better campus.

According to SMU’s Form 990, the five highest-paid contractors in 2008 were all construction companies, which received a total of $26.4 million. With the help of independent contractors like Hunt Construction Group Inc. and Turner Construction Co Inc., compensated $7.9 million and $7.7 million respectively, SMU maintains buildings and makes improvements around campus.

“I feel the university does a great job of creating the best educational environment for us,” said SMU senior Matt Gormly. “Look around at all the construction and improvements being made on campus and you can tell SMU is spending tuition dollars appropriately.”