A Letter from the President

August 9, 2011

Dear Member of the Berklee Community,

	President Roger H. Brown
	Photo by Phil Farnsworth

Berklee had a strong year financially, and I want to thank each of you who helped make this a reality. As you will recall, two years ago we experienced a deficit in our operations. That coupled with an endowment that had lost about 30% of its value, a depleted pension fund, and continuing cost growth in health insurance and other benefits made us determined to get the college on a stronger financial footing.

We set a target of achieving a surplus of 2–4% of our revenue. This is a modest surplus for an institution of our scale. I am happy to report that this past year, our surplus was 4.4%, or $7.9 million on total revenue of $179 million. It is important to remember that we take a 5% draw on our endowment, which amounts to over $9 million per year, so the endowment is a very important contributor to our operating results.

The major element driving our successful year was strong enrollment in every dimension: summer, fall, spring, Five-Week, and other special programs. In addition Berkleemusic, our online extension school, continued to grow and contribute towards our surplus. We were also helped by the successful completion of the Giant Steps Capital Campaign, which raised $54.5 million over five years, much of which has gone to support more financial aid and scholarships, the Berklee Global Jazz Institute, the American Roots Music Institute, Berklee City Music, the Newbury Comics Faculty Fellowships, the 7 Haviland facility, the Berklee Valencia program, and much more.

We are at our enrollment target (4,000 full-time-equivalent students) for fall, and close for spring, so our major focus will be to continue to expand summer enrollment—with Twelve-Week-only students, continuing Berklee College students, and Five-Week and other special programs students.

On the cost front, we managed to keep most costs under control with the exception of health insurance, which still continues to grow at about twice the rate of inflation. This will continue to be a challenge for us in future years.

The biggest new initiative on the horizon is the 168 Massachusetts Avenue building—a music technology center, cafeteria/performance venue, and dormitory for about 370 students. This will allow us to house all of our entering students. We hope it will increase our ability to attract and retain the best possible students. We will borrow $90 million to construct the facility. By virtue of revenue from students paying for dorm rooms (instead of private apartments) and revenue from ground-floor tenants, we expect the project will achieve positive cash flow within 2–3 years. However, for the first few years we will have additional pressures on the operating budget from this effort. As I think we all know, this project was identified in our 2015 Vision as the single most important initiative for Berklee—so it is worth the expense and the energy.

Thanks to the rebound in the stock market, our endowment has exceeded the pre-crash high-water mark and most recently was at about $245 million. Most colleges have not yet returned to their previous highs, so we appreciate the good work of our investment committee in helping us navigate through these volatile times. Of course, with the struggling recovery, debt ceiling difficulties, and general uncertainty in world markets, we are not immune to future fluctuations in our endowment. We also have a high level of debt—currently at $189 million and after the new bond issue at $279 million, meaning we will have more debt than endowment.

So seen in context, we had a strong year. Our greatest security is the strong level of applications and healthy enrollment. We have opportunities to increase summer and online enrollment. We believe the new 168 Mass. Ave. dorm and technology center will produce even more demand for a Berklee education and help us better retain students. I believe we have to be prepared for continued weakness in the economy, and results like this year's give confidence that we are well prepared. Thank you again for your hard and effective work this past year.

Yours,

Roger H. Brown, President
Berklee College of Music