Penn relies on tuition more than peers

A large chunk of Penn's recent 4.9 percent tuition increase will go towards the school's operating budget, a transfer of funds that differs in size from the majority of its Ivy League peers. Schools like Harvard and Princeton universities look instead to their skyrocketing endowments to finance their operating budgets -- a luxury that Penn does not have with its comparatively small $3.2 billion endowment that posted losses in Fiscal Year 2000. Two weeks ago, the University Board of Trustees approved the highest rate increase in the Ivy League for the upcoming academic year. While administrators maintain that Penn's five-year average tuition hike -- which stands at around 3.9 percent -- is moderate compared to its peer groups, University tuition nonetheless makes up almost a third of the operating budget. But at several of Penn's Ivy peer institutions, tuition makes up less than 20 percent of the budget. According to the numbers from FY 2000, 29 percent of Penn's operating budget -- excluding the Health System -- is financed by tuition. Brown and Northwestern universities both rank higher, with tuition respectively accounting for 33 percent and 32 percent of their operating budgets. However, Dartmouth College, Stanford University, Harvard, Princeton and Duke University all have budgets much less dependent on student tuition than Penn, relying instead on endowments that have seen success in the past few years. Princeton, Dartmouth and Harvard, fueled by these endowments, also recently announced significant changes to their financial aid systems to reduce the fiscal burden on undergraduates. But Vice President for Budget and Management Analysis Michael Masch said that Penn is in the middle of its peer group in terms of its financial dependence on tuition. Masch added that schools like Harvard, Princeton and Yale University, which have very large endowments, cannot be compared with the rest of the Ivy League. "Harvard, Yale and Princeton are different from everybody else," he said. In general, the schools that are less dependent on tuition than Penn generate much more revenue from their endowments. Princeton, for instance, which derives 14 percent of its operating budget from student fees, finances 34 percent of its operating budget from endowments. Penn, on the other hand, finances only 8 percent of its budget with income from endowment. Princeton's endowment measures more than twice Penn's, checking in at over $8 billion for FY 2000. School of Arts and Sciences Dean Samuel Preston said that there is a definite correlation between the size of a school's endowment and the amount on which it is dependent upon tuition. "The schools that have a higher endowment have a higher percentage of their income from endowment," Preston said. "Obviously, we would like the percentage of term expenses that come from endowment to decrease." And Vice President for Finance Craig Carnaroli said that Penn would do well to increase the amount of income derived from endowment, especially considering so much of Penn's endowment is restricted. "Because two-thirds of the endowment is restricted, what we would benefit from is having more of the operating budget from unrestricted endowment," Carnaroli said. Masch agreed that Penn needs to look at diversifying revenue sources but noted that making Penn less dependent on tuition will not happen quickly. "The goal always is to diversify revenue sources," Masch said, but then added, "None of these strategies [for diversifying sources of income] can change things overnight." Masch also said that schools that are less dependent on tuition than Penn have generally been in existence longer. "The institutions that have the greatest diversity for revenue, they're in better shape than us," he said. "They [specifically Harvard, Princeton and Yale] have been doing it for a century longer than us." Currently, Penn's operating budget sits at $844 million dollars -- the equivalent of more than a third of its $3.2 billion endowment. The biggest portion of Penn's expenses is accounted for by salaries and benefits for faculty and staff. Collectively, these comprise 46 percent of Penn's expenses. In FY 2000, Penn's endowment lost 1.8 percent due largely to a value bias while schools such as Princeton and Harvard saw their endowments shoot up after heavy investments in technology stocks and venture capital.