Annual Report Update

The Nicholas School operates on a budget of close to $39 million annually. Revenues to operate the school derive from restricted sources, such as research grants and income from restricted endowments, and from unrestricted sources, such as tuition and overhead charged to research grants (Figure 1). A substantial fraction of the school’s unrestricted revenue derives from MEM tuition, and is therefore subject to year-toyear fluctuations based on enrollment. The school also receives a payment from Trinity College to cover the costs of undergraduate instruction, based on a formula that is driven by enrollment numbers. The Annual Fund, which provides 2 percent of revenues, is an additional important source of unrestricted funding, which is largely used to provide financial aid and special academic programs to all Nicholas School students. Revenues from endowments established to provide financial aid, largely to MEM students, have increased consistently over the past six years, so that the provision of financial aid has been a declining demand on unrestricted school funds.

School expenses (Figure 2) are dominated by the direct costs of research and by instructional expenses, largely faculty salaries. A major challenge in budgeting for the Nicholas School is that a large fraction of its expense is allocated to attract the best faculty and hence the best students. Of course, faculty numbers are relatively constant from year to year, while a large fraction of the school’s unrestricted revenue is derived from MEM students, who show elastic demand relative to tuition increases. Approximately 22 percent of the revenue from MEM students is returned to students in the form of financial aid. Approximately 12 percent of school expense is payment for university-supplied services, including police protection, library collections, bus transportation, etc.