FY22 and FY23 Budget Updates
October 14, 2022
Dear SLU faculty and staff,
I write with good news about SLU’s financial stability and outlook.
We are preparing to close the books on the fiscal year 2022 (FY22) budget, which ended on June 30, 2022. We provided a report to the Board of Trustees at our recent meeting. I write today to share that update with you, along with a preview of priorities and planning going forward.
Summarizing the overall budget picture
SLU continues to be on strong financial footing. Because of unanticipated one-time revenues that are restricted to specific purposes, the FY22 budget will close with a much larger surplus than we anticipated in April. The FY23 budget will similarly include a significant surplus.
The sizable budget surpluses we will report are the result of large gifts or transactions that were not initially anticipated in our budget projections. The initiatives funded by these one-time, restricted revenues will increase SLU’s enrollment and reputation, make it possible for us to attract more external funding, and allow us to advance our mission in important ways. While we cannot utilize these restricted funds to support immediate increases to compensation, they highlight a stability in our financial situation that benefits us all.
An equally important budget outcome is the strength in overall enrollment and related revenue. These recurring revenues demonstrate that we are formulating an effective enrollment strategy in a challenging market. They reflect the valuable contributions that all faculty and staff make to our success.
Steady increases in recurring revenue mean that we can plan for continued salary increases and propose to the Board of Trustees that we restore the retirement match to 10%.
More details follow, including a detailed overview of FY22, an update on FY23, and our next steps in terms of budget planning and compensation.
FY22 normal operating budget
We generally think of the University’s budget in two categories. The first category is the University’s normal operating budget. This consists of the recurring revenues (like tuition) and expenses (like employee salaries) involved in the University’s day-to-day operations.
We had initially projected the normal operating budget (excluding one-time revenues) would close with a deficit of $10M. At this point, we expect a much smaller normal operating deficit of $5.7M.
This favorable budget outcome is important. It means that the University brought in more recurring revenue than we had anticipated. Our graduate enrollment initiatives contributed substantially to this revenue growth. This is an indicator that our enrollment strategies are on the right track.
When it became evident that the recurring revenue picture was positive, we chose to share the benefits with faculty and staff.
- We utilized approximately $2M to raise the retirement match to 8% from the 6% we originally had budgeted. This mid-year adjustment occurred last January.
- We allocated approximately $2.1M to pay one-time, $1,000 bonuses to eligible employees making $135,000 or less per year. These bonuses were paid in late May and early June.
FY22 one-time revenue and expenses
In addition to our normal operating budget, the University’s overall budget includes a set of one-time, non-recurring revenues and expenses. Non-recurring revenues include things like federal COVID funds, property sales and one-time gifts. Some one-time revenues are restricted in their use. Legally, we cannot spend restricted gifts on anything except their donor-designated purpose.
In FY22, our one-time revenues more than made up for the small deficit in our normal operating budget, and exceeded what we projected in April. Because of one-time revenues, we anticipate that our year-end financial statements will show an overall surplus of $97.3M. (As our auditors finish their work, all of these numbers may be adjusted slightly.)
This sounds like a large number, but it is important to note: Virtually all of the one-time revenues that generated this surplus have restricted uses. These revenues included CARES Act grants and restricted donor gifts that fund the Jesuit Center, the O’Loughlin Family Champions Center, and the Taylor Geospatial Institute (TGI).
Though the surplus revenues are restricted to specific purposes, the initiatives they support will yield benefits for the University as a whole.
- The Jesuit Center strengthens the presence and participation of the Jesuit community on SLU’s campus, which is essential to our mission.
- The Champions Center will bolster student-athlete recruitment and enrollment, as we support our student-athletes as whole persons. It also will also provide applied learning opportunities for our students studying nutrition, occupational therapy, and psychology.
- TGI amplifies our global reputation as a leader in research and innovation, creates an employment pipeline for our students, and provides more opportunities for external funding and impactful community partnerships.
Of the surplus, $4.5M was not restricted. These funds allow us to invest and to save in strategic ways.
- Approximately $2M is assigned to the Provost and designated to support the academic strategic plan implementation in the 2022-2023 academic year. The academic strategic plan was informed by input from more than 500 members of the SLU community. When it is published in the coming months, it will outline the continued growth and transformation of our academic enterprise.
- The remaining unrestricted surplus funds (approximately $2.5M) are held in reserve, so that they can be drawn on in the event that the University encounters unanticipated needs or circumstances. We have learned in recent years that it is wise to expect the unexpected.
FY23 normal operating budget
We have projected a balanced normal operating budget in FY23. Total enrollment this fall is strong, which is excellent news.
The FY23 normal operating budget builds on positive trends in recurring revenue to support compensation increases and minimize the impact of rising healthcare costs.
We budgeted a 4% salary increase pool in FY23. 2% was distributed as merit increases. For faculty, the remaining 2% was distributed for market-based salary adjustments, based on the annual salary analysis. For staff, Human Resources has engaged an external firm to complete a market-based salary study this fall. The 2% in market-based increases will be distributed based on that salary study.
The University was also able to absorb a projected $3.5M in increased health insurance costs, minimizing the impact on employee health insurance premiums. Vice President Mickey Luna provided details in his October 5 email to you.
FY23 one-time revenue and expenses
On July 1, the SLUCare practice was officially integrated into SSM Health. In terms of our budget picture, the transaction itself will have a substantial impact on SLU’s one-time revenues in the current fiscal year (FY23). At this time next year, we anticipate that we will report a budget surplus that is in excess of $240M.
Like the surplus for FY22, these funds will not recur in future years. They also have a specific, designated use: As we announced previously, this transaction will fund a transformational endowment for SLU’s School of Medicine.
Medical education and research are central to SLU’s mission, and this endowment will support a new chapter for our School of Medicine. Vice President for Medical Affairs Dr. Chris Jacobs and the SOM faculty and leadership are currently engaged in a strategic planning process that will establish a vision and priorities for the future.
Reflecting and planning for the future
As we discussed this budget report with University leaders, they reflected on an apparent dissonance: The budget surpluses are large, and compensation increases have been modest. We are recognizing historic achievements, and some members of our community are struggling in the context of rapidly-rising inflation.
Our Catholic, Jesuit values call us to do transformative work, and to honor the dignity of all workers. As we move forward, how can we ensure that our strong financial position benefits all employees?
We must continue to advance transformative initiatives that support our mission and expand our reach and reputation. We will continue to seek one-time gifts and grants that will fund groundbreaking research, support students, serve our community, and build our capacity for long-term growth.
We must also thoughtfully analyze compensation with the goal of providing equitable and competitive salary and benefits to employees at every level.
Compensation increases must be based on recurring revenue. Our recurring revenue is trending in the right direction – and given the challenges universities are facing, this is no small accomplishment. Our stable financial position allowed us to minimize the impact of rising healthcare costs on faculty and staff. It also allows us to identify compensation goals and work toward them.
In that spirit, our budget planning and communication for this year will include the following:
- Retirement match: Restoration of the 10% retirement match is a top priority. Such a proposal is ultimately subject to Board of Trustees approval. I intend to recommend this step to the Board at its December meeting, with a proposed effective date of January 1, 2023.
- Faculty salaries: The Provost reviews market salary data each year, and we continue to designate funding for salary equity in each year’s compensation pool. We have made measurable progress toward our goal of bringing all faculty to at least the 25th percentile of our market analysis. We project that we will achieve that goal by the beginning of FY24. Given this progress, the Provost is working with the deans, the Faculty Senate and other academic leaders to update the Faculty Compensation Philosophy, which will establish new goals for faculty compensation.
- Staff salaries: The market salary analysis for staff is underway, and the results will be reported to the SLU community upon its completion. This will allow us to set specific compensation goals we can report on going forward.
- For FY24, which begins in July, I anticipate that we will be able to budget another incremental salary increase. Like universities nationwide, we are unable to increase salaries at the steep rate of inflation. But assuming we do not encounter significant unanticipated circumstances, we plan to continue to take measurable steps toward the compensation goals we establish.
SLU’s budget outcomes are a reflection of your hard work and commitment to advancing our mission. Our financial outlook offers our community stability and hope. It demonstrates that we have a path toward implementing the plans we have made, and the gift of imagining new possibilities.
I look forward to shaping SLU’s future with you, in the years to come.
Higher purpose. Greater good.
Fred P. Pestello, Ph.D.