***This memo was circulated to the Brown community on Thursday, October 24, 2024***

Brown is embarking on important work to ensure the University’s long-term financial health, now and into the future. As communicated to the campus in May, Brown’s current Fiscal Year 2025 operating budget approved by the Corporation of Brown University contains an approved $46 million structural deficit. The Office of the Provost and the Division of Finance and Administration are leading a financial health initiative that aims to engage the community in developing strategies and definitive actions to address this deficit, as well as ongoing projected shortfalls. 

Without changes to the way Brown operates, the structural deficit is expected to grow significantly in the near term, largely because Brown has reached an inflection point that many institutions face as they adjust their operating and funding models to align with an evolution in priorities. In her post-Corporation letter to the campus community on Oct. 21, President Paxson referenced a decision Brown made years prior to her presidency, as the community asked a pivotal question: Should Brown be a liberal arts college or a leading research university? Brown chose the path of a leading research institution, and after important work over the past 15 years to fulfill this aspiration, the University must complete its transition toward a model of a more diversified set of academic offerings and accompanying revenue sources aligned with other research university peers. 

Although Brown is and will always be deeply committed to providing excellent undergraduate education, the University can no longer maintain its historic, undergraduate tuition-dependent funding model that is more reminiscent of colleges, and which will not support the aspirations of the community. To achieve our goals as a leading research university, we must make strategic changes to operations that significantly slow expense growth, explore innovative growth opportunities in education and research that are aligned with our mission, and develop new revenue streams. We are engaging the entire community to support these efforts to align the University’s financial model to match the leading institution for education and research that Brown has evolved to be. 

The President referenced this initiative in her Aug. 29 letter to campus outlining priorities for this academic year, and we write today to share the operating context and principles that will inform this work. We will engage with departments and offices across campus as part of the effort to develop strategies and actions to address the deficit while also building a financial model of constrained expense growth that allows us to continue to compete as a leading research institution. 

This letter offers an important framework for the Fiscal Year 2026 budget guidance that departments and offices will receive in the coming weeks aligned with these efforts. Outlined in the sections below are: (1) the drivers of the structural deficit; (2) the core principles for Brown’s transition to a sustainable academic funding model; and (3) the important role of staff and faculty to firmly establish a model that sustains Brown’s financial health.

Drivers of the Structural Deficit

A “structural deficit” occurs when an organization's typical operating expenses — throughout the course of ordinary business — are greater than its typical operating revenues, causing an operating budget deficit to persist over time. It does not include direct investments in capital or building construction (except for costs of debt and building depreciation). It also does not include other large, one-time or short-term extraordinary expenses that will not be repeated. 

Brown’s structural operating deficit is driven by the shift in Brown’s academic and financial model, as well as the macroeconomic environment. Brown’s operating budget over the past decade has been supported by uncharacteristically strong investment returns; historically low interest rates; the highly successful BrownTogether campaign; and growth in the size of the undergraduate student body. In contrast, Brown is now experiencing slowing growth in net undergraduate tuition (because of strategic decisions not to further grow the undergraduate student body, while increasing financial aid to make a Brown education more accessible), as well as rapid growth in faculty and staff positions. 

Economic factors that include high inflation, efforts to sustain competitive employee compensation, and national trends toward unionization — in addition to costs for supplies and services — have placed upward pressure on wages, salaries and employee benefits, which comprise 53% of the University’s regular operating expenses. At the same time, Brown’s planned growth in high-quality master’s and professional programs and other new sources of revenue requires time to develop, in addition to up-front investment that has to catch up with the dramatic shift in the economic environment.

It's important to note that the structural deficit is not driven by capital investments in projects like the Danoff Laboratories, which is funded by a combination of philanthropy and long-term debt. Similarly, Brown’s investments in Brown University Health, formerly Lifespan Health System, will yield new financial flows back to the University after an initial period of Brown’s investment. This will augment operating revenues over time. Both of these investments keep Brown on the trajectory of strengthening its standing as a leading research institution.

Principles for a Balanced Academic Financial Model

It is imperative that the University do the following to manage finances:

1. Continue to make necessary investments to expand research and support the University’s core academic mission across all departments.

2. Make the upfront investments needed to diversify and grow revenues, with a focus on sustained increases in revenue growth from strategic investments in research and expanded master’s and professional programs. 

3. Actively manage expense growth.

These efforts to shift Brown’s financial model will support growth in salaries, financial aid and other areas of expense growth. And just as important, they align with Brown’s mission.

As President Paxson has shared in meetings with faculty and staff over the past year, Brown’s mission of “educating and preparing students to discharge the offices of life with usefulness and reputation” was never intended to be limited to undergraduates. Shifts in demographics and growth in the demand for advanced degrees provides an opportunity for Brown to extend its impact to broader communities of master’s and professional students who will make a difference in the world by shaping their fields and industries. This broader educational approach also aligns with diverse funding models for research institutions that are not as heavily dependent on undergraduate tuition to fund their operations.

At the same time, Brown has to slow expense growth in areas that are heavily dependent on operating revenues to be sustained. These efforts will be complemented by the work of units like the Division of Advancement and the Investment Office, which have demonstrated incredible performance leading to uncharacteristically strong returns for the University. It also will be supported by concurrent efforts by academic units that have expanded academic offerings and research growth through new revenue-generating programs.

We want to be explicit that a focus on slowing expense growth does not mean mass layoffs, across-the-board salary reductions or other such measures that can characterize financial sustainability efforts at universities. We will, however, make efforts to ensure that Brown’s overall staff headcount remains flat, with the exception of new positions that are funded through grants or philanthropic support. Brown will continue to grow in strategic areas and pursue exciting initiatives, including new academic programs and facilities. We will prioritize strategic investments while balancing the budget.

Community Collaboration in the Work Ahead

We know that managing cost growth is best achieved through the participation and collaboration of all members of the University. We have been collaborating with leaders from all of Brown’s schools and major units to identify enduring, long-term solutions — focused on the operating budget — to improve Brown’s financial health. Through Brown’s shared governance model, this work will coordinate closely with the budget planning that takes place in the University Resources Committee, composed of faculty, staff and students, the Academic Priorities Committee, and other appropriate governing bodies.

Every academic and administrative unit across our community will be asked to support these efforts through prudent fiscal management and innovative operational strategies that slow expense growth. We will work in partnership with academic and administrative leaders to develop plans that are sensitive to resource constraints while balancing opportunities for innovation. As this work progresses, we know that many members of our community will have questions, and we are committed to offering opportunities for discussion in the months ahead, including at faculty meetings and staff town halls.

The principles outlined in this letter will be reflected in the FY26 budget guidance, which will be released to division and unit heads and directors, and budget and finance managers, within the next couple of weeks. We also will ensure that the guidance is available to leaders of departments and offices across the community. We look forward to working together with faculty, staff and students to ensure the University’s long-term financial stability.

Sincerely,

Francis J. Doyle III

Provost

Sarah Latham

Executive Vice President for Finance and Administration