Our Sustainable Future: Five-Year Operating Budget Model

The five-year budget model, follows the accepted budgeting methodology in higher education. On the revenue side, it focuses on college-generated and unrestricted donor funds. College-generated funds include tuition, fees, room, board, auxiliaries and other related revenue. Unrestricted donor funds are primarily annual giving funds. On the expense side, it includes salaries, benefits, utilities, insurance, instructional costs, administrative support costs and depreciation to fund both debt payments and more minor capital refurbishments.

The Issue of Size

A critical question for the five-year operating model is the size of the student body. Enrollment growth impacts virtually all of the College’s operations, altering revenues and expenses as student count increases. In terms of residential space, as previously discussed, the College can accommodate 650 students, but this will require renovations and rehabilitations to certain buildings not currently in use. An enrollment of 800 will require construction of additional residential buildings. We do have sufficient academic and athletic space for as many as 800 students, however.

While the enrollment model of 800 students would contribute resources to enable new construction, there is a risk that we may commit to new residential facilities without achieving 800 students. More importantly, we must prioritize capital fundraising for the renovation and rehabilitation of existing buildings over new construction.

We recommend an enrollment target of 650 students. Leaving aside the capital requirements discussed above, the recommendation is based on the need to be more selective, enrolling gifted students who are also a “good fit” for Sweet Briar. Success in this regard will greatly improve retention. Other considerations include the “demographic cliff” that anticipates significant decline in numbers of high school graduates in our region, and the alarming enrollment expansion by Virginia Tech, often targeting the same prospective students as Sweet Briar. Furthermore, economic volatility that impacts endowment draw is always a concern. Finally, there will be an expected reduction in annual giving due to the focus on the Priorities Campaign.

How the Model is Built

The intent of this 5-year budget model is to develop reasonable revenue expectations, and then fit inside this envelope all anticipated expenses for the next five years, including the new costs from the section I of the plan that are academic and programmatic in nature (e.g. “non-capital”). The latter were determined by the vice president of academic affairs, working together with the faculty and the associate vice president/controller. It is our view that the projected revenue increases in this budget model are sufficient to cover the new academic and programmatic expenses generated by the plan.

The model assumes a target size of 650 students.

In this model we strove to remain conservative, as external economic conditions can change quickly. For each year of the plan, we will build a realistic operating budget pulling the key elements from this 5-year budget model, as well as assessing actual data and reviewing the priorities of the plan as needed, for that upcoming year.

The mechanics of creating the model began by tracking enrollment data by class year, along with the percentage of students who return each semester. Projected attrition rates are based on those of the two or three preceding years (by semester and class year) and will be adjusted as updated data is obtained, such as at “census date” or at the end of a semester.

For student revenue, we used a placeholder increase of 2% on tuition, and 2.7% on room and board across the five years. In the winter prior to each new fiscal year, we will discuss appropriate rates and propose them for board approval at that time. All other revenue lines were set based on past trends and future goals and remain conservative in light of the uncertain environment within higher education.

On the expense side, compensation includes cost of living and merit increases built in across each year in order to attract and retain talented employees. We also assumed continuing improvement in the College’s contribution to retirement. Growth in student count demands an increase in faculty and staff. For the model, we added one faculty and one staff line for every 30 additional students. During the annual budget development, we will determine the actual needs of the College and adjust the compensation budget appropriately.

Departmental expenses are increased in the range of 1% to 4% based on the division. For example, academics, athletics and technology will receive higher percentage increases, while support areas such as administrative offices will increase at slightly lower percentages. These increases generate significant new dollars in the expense lines.

Below is a snapshot of the model based on the current built in assumptions. The annual budget, through anticipated releases, will have a surplus each year. Student revenue increases by 76% over five years with total revenue increasing 28%. Importantly, student revenue rises from 46-63% of total revenue in the model.

A chart of the budget model from FY 21-22 to FY 26-27