Closing the Books on a Good Fiscal Year

The University ended its 2010 fiscal year June 30 with record operating reserves of $114 million and its best pledge year ever, with more than $80 million promised. Martin Howard, vice president for financial affairs and treasurer, says these additional resources are reinvested in the core mission of the University, either directly in BU’s academic units or in the physical campus through renovation of existing buildings or new construction, such as the new student services center, slated to open in fall 2012.

BU’s balance sheet at the fiscal year’s close reported net assets of $1.9 billion, up 10.4 percent from the year before. Fiscal 2009—“the most volatile economic period in decades,” says Howard—saw the University’s net assets decline by 5.3 percent during the worst of the recession and credit crisis. The University responded to the crisis by implementing tighter controls on capital spending, senior administrative salaries, and nonacademic hiring. These steps, he says, positioned BU well for the past year.

“Our net assets have recovered, which I think is encouraging in this economic environment,” Howard says. “There was certainly greater stability or a leveling of economic conditions. But we were also conservative in terms of expenditures.”

A major contributor to the rise in net assets was the strong returns from the University’s endowment, which again exceeded $1 billion in the last fiscal year on the basis of a 12.7 percent return. Pamela Peedin, chief investment officer, attributes the gain to a strong performance by global equities, specifically emerging markets, as well as the performance by BU managers in all asset classes.

“I am encouraged by the performance of our endowment in the past year,” says Peedin. “It was a period where markets remained volatile and the economic environment uncertain.”

“Over the last five years,” she says, “endowment returns have averaged 5.8 percent annually, placing our performance in the top-quartile of all college and university endowments, as reported by investment advisor Cambridge Associates. In an effort to deliver a sustainable and increasing level of support to the University, the endowment follows an investment strategy focused on long-term growth of assets.”

Howard points out that unlike many peer institutions that depend heavily on either endowment income or tuition revenue, BU generates slightly more than half of its operating revenue from tuition and fees income, and less than 3 percent from income generated by its endowment. Also, sponsored research funds represent approximately 27 percent of the University’s operating revenues. Awarded research funding totaled $408 million last year and, Howard says, has “become a more important source of revenue for the institution as BU has become a leading research university.”

The University receives approximately 13 percent of its revenue from “auxiliary enterprises,” such as student housing and dining fees as well as other ancillary activities.

In fiscal 2010, BU invested $97 million in capital projects, such as the information technology upgrade BUWorks, the School of Medicine’s breast cancer center, the Mugar Memorial Library computer lab, and the completion of Student Village II. Renovations were also completed in the Towers and Claflin residences, and the George Sherman Union food court was overhauled. As announced last spring, a major effort has been launched to upgrade wireless technology across campus. This summer wireless service was brought to major student residences and to 82 classrooms across campus; the plan calls for installation in all classrooms by early 2011.

The reserves generated as the result of the fiscal 2010 performance will also help fund several new projects, including the renovation of the major classrooms and the teaching laboratories for organic chemistry in the Metcalf Science Center, which is estimated to cost $11.6 million.

The year was also a good one for alumni pledges, which totaled more than $80 million, up 21 percent from the previous year and the highest total in BU’s history, according to Scott Nichols, vice president for development and alumni relations. Cash giving increased by 15 percent over the previous year, to $85 million.

The University announced three $10 million gifts from individuals during the year. Prior to President Robert A. Brown’s 2006 inauguration, there had been only one gift of that size in the University’s 167-year history. The year also saw the largest-ever scholarship endowment gift: $7.4 million from the estate of Ernestine O’Connell (CAS’43, GRS’46, SED’58).

For the second straight year, donors to BU met a $1 million fundraising challenge from a trustee. Richard Cohen (CGS’67, SMG’69) matched donations to the University’s Annual Fund with a dollar-for-dollar donation to scholarships, up to $1 million. The previous year, trustee Sid Feltenstein (COM’62) and his wife, Lisa, attracted $1.6 million in donations.

Rich Barlow can be reached at barlowr@bu.edu.