Pressure to diversify revenue streams — driven by rising cost drivers amid a technological and information revolution — has prompted the University to pursue nontraditional sources of revenue as economic pressures constrain capacity for continual tuition hikes.

Emory’s Board of Trustees announced a 4.8 percent increase in tuition, fees and room and board for Emory undergraduate students on Feb. 10.

“The experiences Emory offers are incredibly rich both in and outside of the classroom. But these are resource intensive and puts pressure on raising revenue,” Executive Vice President for Finance and Administration Michael Mandl said.

According to Mandl, the administration sent a letter to the deans of Emory’s nine schools in July 2010 requesting that they propose potential streams of new revenue, with an expected initiation date in fiscal year (FY) 2012. Executive Vice President for Academic Affairs and Provost Earl Lewis explained in a Feb. 11 Wheel article that the University charged all schools to grow net revenue by five percent in three years, without relying on tuition from current programs.

Mandl said revenue opportunities outside of tuition from core existing programs include charging tuition for new services such as continuing education, certificate programs and boutique professional masters programs, among others. In addition, he said, the University will aim to capitalize on its intellectual content, such as by selling images from special collections.

Emory’s Core Revenue Streams

Currently, tuition represents 79.2 percent of the College’s revenue, while grants and contracts represent 8.2 percent. The endowment and trust income represent 5.6 percent of the total, and gifts and contributions only represent 1 percent. In the Goizueta Business School, 87.6 percent of revenue is composed of tuition and fees, 8.2 percent is derived from the endowment and trust and 3 percent comes from gifts and contributions.

Vice President of Alumni Relations Allison Dykes wrote in an e-mail to the Wheel that of the gifts received by the College, 57 percent comes from alumni. Thirty-four percent of the B-School’s total gifts derives from alumni. She noted that larger alumni gifts sometimes come through a foundation and, under reporting mechanisms, are credited to a foundation rather than to an individual alum.

Though Emory’s endowment climbed 8.5 percent from $4.3 billion to $4.6 billion in FY2010, the increase follows a 21 percent drop in FY2009 as the 2008 recession rocked the financial markets. Endowment income is withdrawn at a fixed percentage every year.

Fuller E. Callaway Professor of Political Science Micheal Giles noted that the University could benefit from bolstering revenue streams from research grants, which are most typically driven by the hard sciences departments.

“But one problem with ramping up that revenue stream is that the cost of expanding the sciences is high,” Giles said. Not only would the University need physical capacity for additional lab space, he explained, the capital costs of setting up new labs are also prohibitive. Yet such expenditures would be necessary to attract high-quality researchers, he added.

Giles also pointed out the low percentage of total revenue that alumni gifts represent, indicating that support from alums could be a critical point of difference. Mandl explained that while the percentage of alumni giving is very competitive with that of peer institutions, the average amount donated lags.

According to Dykes, undergraduate alumni giving at Emory is in the top 10th percentile of national research universities. Since the kickoff of Campaign Emory in 2005, she said, aggregate alumni giving has reached more than $255.2 million — a 71 percent spike from the previous six-year period, during which alumni giving totaled $149.5 million.

Dykes wrote that most alumni dollars go toward student support, both through financial aid and scholarships, followed by support for faculty.

College Dean Robin Forman wrote in an e-mail to the Wheel that student aid, both need- and merit-based, constitutes the fast-growing expense category.

“We remain absolutely committed to being need blind, and meeting the full need of our students,” Forman wrote. “We remain true to that core value, while continuing to offer both a superlative experience for all of our students and a home for important path-breaking scholarship.”

Rising Expenses at Emory

Emory College’s current expense make-up sees 22.4 percent of the budget going toward financial aid and 40.8 percent toward faculty, staff and student salaries and benefits. General operating expenses represent 13.1 percent of expenditures and allocated costs represent 23.7 percent. Allocated costs are comparable to taxes charged by University divisions — many of which do not generate independent income — to support services provided to constituents of each respective school. For example, the College is charged a library fee since its students utilize the library.

According to Senior Vice Provost for Administration Charlotte Johnson, the largest allocated costs include facilities, libraries and technology services.
Giles pointed out that though tuition has soared, students still do not pay the full cost of their education.

Mandl noted that other major University expenses derive from the rising cost of regulatory compliance, library materials, benefits, utilities, technological investments and technological investment.

As the world becomes increasingly technologically complex, Giles emphasized, students will expect to be oriented with these technologies at their universities. Therefore, he said, the costs of technology and information technology (IT) services are somewhat unavoidable. Giles noted that technological costs do not subside even as the economy and therefore revenue streams contract.

Furthermore, the College, as a leading research institution and a liberal arts school, cannot skimp on attracting faculty who publish and can secure research grants, Giles said. Since he arrived at Emory in 1983 as chair of the political science department, Giles said, the most noticeable changes have been in the physical structure of Emory and in the number and quality of faculty. Benefits to students include a better student-teacher ratio and more research opportunities with first-rate scholars for undergraduates, he added.

“The cost of competing for the best scholars puts pressure on the system,” Giles said. “But students are expecting access to these scholars, more resources and better facilities.”

On Feb. 16, Sewanee University announced its decision to cut tuition and fees by 10 percent. According to Sewanee University spokeswoman Laurie Saxton, Sewanee officials found that students were increasingly concerned about tuition and economic factors when considering various schools.

“We decided to make the tuition reduction and then find a way to make up the difference,” Saxton said. “There are some risks, although they are risks we can live with. It’s hard to imagine more students won’t come here. Tuition revenue will go down some next year, but we are hearing from alum and families and foundations who are willing to step up and increase their support.”

According to Saxton, Sewanee’s president said the university will not lay off faculty or staff or reduce programs as a result of the tuition cut, though the institution will have to exercise a stringent budget discipline.

“We expect to be able to continue to offer a terrific liberal arts education at a significantly lower price for a long time, though it may fluctuate from year to year. It didn’t go down 10 percent this year to go up 10 percent next year,” Saxton said.

Forman wrote that he does not know enough about Sewanee to make any judgment on the school’s decision but pointed out that speaking about tuition without including financial aid can be misleading. In other words, he wrote, reducing tuition by 10 percent does not mean revenue from tuition is cut 10 percent.

“Students receiving significant need-based financial aid will, presumably, see a corresponding reduction in their aid, and so will see little or no difference,” Forman wrote. “Those students who were not previously judged to have financial need may see the greatest benefit.”

In the face of rising costs, Forman emphasized the need to increase external funding for research and educational activities. For example, he wrote, Emory can take advantage of interest in “area-based studies” for the local business community and offer language and cultural courses or study abroad programs. He cited a new program, a pre-college summer initiative allowing high school students to experience courses with Emory faculty, as an examplar that has already generated significant interest.

“We are thinking about new, creative ways to further our mission which will at least break even financially, so as to not draw resources away from other activities, and hopefully generate net revenue,” Forman said.

— Contact Tiffany Han.