An Analysis of the Finances of the University of New Mexico Rudy - - PowerPoint PPT Presentation

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An Analysis of the Finances of the University of New Mexico Rudy - - PowerPoint PPT Presentation

Jan 21, 2024 266 likes •992 views

An Analysis of the Finances of the University of New Mexico Rudy Fichtenbaum Professor Emeritus of Economics President, AAUP Budgets: Starts with B and Ends with S This presentation is NOT about the budget or analysis of any budget It is

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SLIDE 1

An Analysis of the Finances

  • f the

University of New Mexico

Rudy Fichtenbaum Professor Emeritus of Economics President, AAUP

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SLIDE 2

Budgets: Starts with B and Ends with S

This presentation is NOT about the budget or analysis of any budget It is about how faculty can use financial statements to assess the financial health of your institution and the priorities of the administration

Most budget “models” are about the administration needing excuses to:

  • 1. Stop hiring tenured faculty
  • 2. Eliminate as many liberal arts programs as

possible

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SLIDE 3

What Data Will We Need?

Audited Financial Statements NOT Budgets. Why not?

  • Budgets are Just Plans
  • What about those budget

holes?

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SLIDE 4

Comparison of Data Sources: Audited Financial Statements vs. Budgets

Audited financial statements are certified by an independent

  • utside auditor, using standard

accounting rules and principles

Bond ratings are determined by examining numerous standard ratios from audited financial statements, as well as other data such as enrollment, applications. This is all done by an outside, independent party. Budgets are created by university administrators, are not required to be audited

  • r reviewed by an
  • utside party, and

budgets are not subject to standard accounting rules and

  • principles. Budgets

are just plans or projections which always balance

Audited Financial Statements report what ACTUALLY happened

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SLIDE 5

Comparison of Data Sources

Audited financial statements are certified by an independent

  • utside auditor, using standard

accounting rules and principles

Bond ratings are determined by examining numerous standard ratios from audited financial statements, as well as other data such as enrollment,

  • applications. This is all done by an
  • utside, independent party.

Budgets are created by university administrators, are not required to be audited

  • r reviewed by an
  • utside party, and

budgets are not subject to standard accounting rules and principles.

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SLIDE 6

Basic Accoun+ng Constructs

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SLIDE 7

Statement of Net Assets or The Balance Sheet

Assets Liabili;es & Net Assets

Net Assets Long-Term Debt Accounts Payable Property, Plant & Equipment Accounts Receivable Cash & cash equivalents

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SLIDE 8

Assets, LiabiliJes and Net Assets

  • Assets – Liabili;es = Net Assets
  • Assets + Deferred OuJlows – Liabili;es - Deferred Inflows = Net Posi;on
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SLIDE 9

Total Assets & Deferred OuMlows

$- $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 $3,000,000,000 $3,500,000,000 2012 2013 2014 2015 2016 2017 Total assets & deferred ouJlows Adjusted Total Assets & OuJlows

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SLIDE 10

Factors AffecJng Assets

  • The major factor affec;ng assets was the removal of the Land Grant Permanent Fund

(LGPF)from the University’s assets.

  • The State of New Mexico changed its policy regarding the presenta;on of the

University’s beneficial interest in the LGPF within the State’s Comprehensive Annual Financial Report (CAFR)

  • The University used to show its share of the net asset value of the LGPF as a

permanently restricted net asset. In effect it was an endowment.

  • This change in presenta;on does not impact the University’s beneficial interest in the

LGPF assets, and the University will con;nue to receive its beneficial interest in the earnings of the LGPF as required by law.

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SLIDE 11

Current and Non-Current Assets

$- $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000 $1,200,000,000 $1,400,000,000 $1,600,000,000 $1,800,000,000 $2,000,000,000 2012 2013 2014 2015 2016 2017 Total current assets Total non-current assets

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SLIDE 12

Short and Long-Term Investments

$- $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 $350,000,000 $400,000,000 $450,000,000 2012 2013 2014 2015 2016 2017 Short-term investments Long-Term Investments

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SLIDE 13

Capital Assets, Net

$- $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000 $1,200,000,000 $1,400,000,000 2012 2013 2014 2015 2016 2017

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SLIDE 14

Pur Purchases o hases of Capit f Capital A al Asse ssets ts

$- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 2012 2013 2014 2015 2016 2017

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SLIDE 15

Sources of Capital Funding

$102,605,287 $23,886,242 $331,833,614 Capital appropria;ons Capital Grants & Gics Financed by the University

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SLIDE 16

Total LiabiliJes and Deferred Inflows

$- $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 2012 2013 2014 2015 2016 2017 Total Liabili;es & Inflows Adjusted Total Liabili;es & Inflows

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SLIDE 17

Current & Non-Current LiabiliJes

$- $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 2012 2013 2014 2015 2016 2017

Current & Non-Current Liabili+es

Total current liabili;es Total non-current liabili;es

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SLIDE 18

Factors AffecJng LiabiliJes

  • Other Post-Employment Benefits (OPEB)
  • Star;ng in 2008 universi;es were required to start showing a liability for post-re;rement benefits.

Typically, post-re;rement benefits are health benefits for re;rees.

  • Most universi;es fund these benefits out of current opera;ons as opposed to having assets set

aside to balance the liability.

  • Having to show these liabili;es reduced unrestricted net assets on paper
  • To account for this change we add the OPEB liability back into unrestricted net assets
  • The other major factor influencing liabili;es and unrestricted net assets is GASB 68
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SLIDE 19

GASB 68

  • In 2015 major change in how public pensions are treated in university and college

financial statements

  • Universi;es and colleges to show their propor;onate share of any unfunded liability

in a public pensions system as an ins;tu;onal liability.

  • Affects es;mate of unrestricted net assets the major component of reserves
  • Also affects es;mate of change in net assets and es;mate of opera;ng expenses.
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SLIDE 20

Total Debt

$- $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 $700,000,000 $800,000,000 2012 2013 2014 2015 2016 2017

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SLIDE 21

RaJo of Debt to Total Revenue

0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 2012 2013 2014 2015 2016 2017

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SLIDE 22

Total Net Assets

$- $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 2012 2013 2014 2015 2016 2017 2018 Total Net Assets Adjusted net assets GASB 68, OPEB & LGPF

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SLIDE 23

Restricted Net Assets

$- $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 $350,000,000 $400,000,000 2012 2013 2014 2015 2016 2017 restricted non-expendable (adjusted LGPF) restricted expendable

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SLIDE 24

Unrestricted Net Assets

$(400,000,000) $(200,000,000) $- $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000 2012 2013 2014 2015 2016 2017 unrestricted Unrestricted adjusted for GASB 68, OPEB, and LGPF

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SLIDE 25

Summary of the Statement of Net PosiJon

$- $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 $3,000,000,000 $3,500,000,000 2012 2013 2014 2015 2016 2017 Adjusted Total Assets & OuJlows Adjusted Total Liabili;es & Inflows Total adjusted net posi;on

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SLIDE 26

Revenues, Expenses & Changes in Net Assets

Total Revenues Total Expenses Change in Net Assets

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SLIDE 27

Revenues, Expenses & Change in Net Assets

  • Total Revenue – Total Expenses = Change in Net Assets
  • Total Revenue – Total Expenses = Change in Net Posi;on
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SLIDE 28

Total Revenues and Expenses

$1,500,000,000 $1,600,000,000 $1,700,000,000 $1,800,000,000 $1,900,000,000 $2,000,000,000 $2,100,000,000 $2,200,000,000 $2,300,000,000 $2,400,000,000 2012 2013 2014 2015 2016 2017 Total Revenue Total Expenses (Adjusted for GASB 68 & OPEB)

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SLIDE 29

Pa PaJent Revenue as a Pe Percent of OperaJng Revenue

0% 10% 20% 30% 40% 50% 60% 2012 2013 2014 2015 2016 2017

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SLIDE 30

Sources of Revenue in 2017

12% 25% 8% 4% 38% 4% 2% 3% 4% Student tui;on and fees Grants & contracts Sales and services Auxiliary enterprises State & local support Federal funding Investment income (loss) Gics Other

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SLIDE 31

Sources of Revenue (Excluding PaJent Revenue)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015 2016 2017 Student tui;on and fees Grants & contracts Sales and services Auxiliary enterprises State & local support Federal funding Investment income (loss) Gics Other

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SLIDE 32

TuiJon v State AppropriaJon

$- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 2012 2013 2014 2015 2016 2017 Student tui;on and fees State appropria;ons

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SLIDE 33

Public Service as a Percent of OperaJng Expenses

0% 10% 20% 30% 40% 50% 60% 70% 2012 2013 2014 2015 2016 2017

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SLIDE 34

AllocaJon of Resources in 2017 (Excluding Public Service)

32% 21% 6% 4% 8% 8% 3% 11% 7% Instruc;on Research Academic support Student services Ins;tu;onal support Opera;on and maintenance of plant Student aid Auxiliary enterprises Other opera;ng expenses

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SLIDE 35

AllocaJon of Resources (Excluding Public Services)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015 2016 2017

Figure 27 Alloca;on of Resources

Instruc;on Research Academic support Student services Ins;tu;onal support Opera;on and maintenance of plant Student aid Auxiliary enterprises Other opera;ng expenses

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SLIDE 36

Salaries for Professors

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SLIDE 37

Salaries for Associate Professors

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SLIDE 38

Salaries for Assistant Professors

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SLIDE 39

Net Income from Auxiliaries

$(20,000,000) $(15,000,000) $(10,000,000) $(5,000,000) $- $5,000,000 $10,000,000 2012 2013 2014 2015 2016 2017

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SLIDE 40

Subsidy for Intercollegiate AthleJcs

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2012 2013 2014 2015 2016 2017

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SLIDE 41

Change in Net PosiJon

$- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000 2012 2013 2014 2015 2016 2017 Change in Net Posi;on (Adjusted for GASB 68 & OPEB) Change in Net Posi;on as reported

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SLIDE 42

Net Income Margins

0% 1% 2% 3% 4% 5% 6% 7% 8% 2012 2013 2014 2015 2016 2017 Reported net income margin Adjusted net income margin

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SLIDE 43

Cash Flow Public

Cash Flows from Opera;ng Ac;vi;es

Cash Flows from Non-

Capital Financing Ac;vi;es

Cash Flows from Capital Financing Ac;vi;es

Cash Flows from Investment Ac;vi;es Net Increase (Decrease) in Cash

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SLIDE 44

Revenues, Expenses & Change in Net Assets

  • Opera;ng Cash Flow = Net Cash OuJlow from Opera;ons

+ Net Inflow from Non-Capital Financing - Interest

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SLIDE 45

OperaJng Cash Flow

$- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000 $180,000,000 2012 2013 2014 2015 2016 2017

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SLIDE 46

Cash Flow RaJo

0% 1% 2% 3% 4% 5% 6% 7% 8% 2012 2013 2014 2015 2016 2017

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SLIDE 47

What is the Difference Between The Change in Net Assets and Cash Flows?

The change in net assets = Total Revenues – Total Expenses for the year; Total net assets (some of which are reserves) get built up if the change in net assets is positive Add back depreciation expense and

  • ther non-cash

expenses Add or subtract paper gains on investments Operating Cash Flows; This includes all cash coming in, less all cash going out for recurring items

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SLIDE 48

What are Reserves?

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SLIDE 49

Reserves in the Public Sector

Total Net Assets

=

Invested in Capital Assets

+

Restricted Net Assets

+

Unrestricted Net Assets Expendable

Non-expendable

Reserves or Expendable Net Assets

=

Restricted Expendable

+

Unrestricted Net Assets

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SLIDE 50

Reserves

$- $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 $700,000,000 $800,000,000 $900,000,000 $1,000,000,000 2012 2013 2014 2015 2016 2017 Expendable Net Assets (Adjusted for GASB 68 & OPEB)

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SLIDE 51

How do we know if we have enough?

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SLIDE 52

Viability RaJo

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2012 2013 2014 2015 2016 2017

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SLIDE 53

Primary Reserve RaJo

0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 2012 2013 2014 2015 2016 2017

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SLIDE 54

Moody’s Score Card

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SLIDE 55

Moody’s Bond RaJngs in Higher EducaJon Public Sector

8 12 41 46 69 22 19 8 2 3 10 20 30 40 50 60 70 80 Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 SG

US Public University Ratings

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SLIDE 56
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SLIDE 57

RaJngs Systems of Moody’s and S&P

Moody's Standard & Poor's Aaa AAA Aa1 AA+ Aa2 AA Aa3 AA- A1 A+ A2 A A3 A- Baa1 BBB+ Baa2 BBB Baa3 BBB- SG (Speculative Grade) SG (Speculative Grade)

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SLIDE 58

6 Public Universities with AAA Ratings from both Moody’s and S&P

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SLIDE 59

Moody’s

  • Moody’s has just created a new score card to

measure financial performance, one that corresponds with the credit ra;ngs that it gives to various public and private ins;tu;ons of higher educa;on.

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SLIDE 60

Scorecard

  • The score card considers four broad areas of performance:
  • market profile
  • opera;ng performance,
  • wealth and liquidity and
  • Leverage.
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SLIDE 61

Higher EducaJon Score Card

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SLIDE 62

Scores for Categories ReflecJng Bond RaJngs

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SLIDE 63

Process

  • Then each score is then mul+plied by the weights in slide 61

resul+ng in an average weighted factor score.

  • The average weighted factor score is then mapped one of

Moody’s 20 credit ra+ngs

  • The scores are somewhat counter intui+ve in that 20 is the

worst score and 1 is the best score.

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SLIDE 64

Average Weighted Factor Scores and Credit RaJngs

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SLIDE 65

Scores for Public InsJtuJons

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SLIDE 66

Moody’s Scores for University of New Mexico

Year 2012 2013 2014 2015 2016 2017 Score 4.95 4.50 4.95 3.30 3.45 3.60 Moody's Ra;ng A1 Aa3 A1 Aa2 Aa2 Aa3

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SLIDE 67

Moody's Average Weighted Factor Scores for University of New Mexico

2 4 6 8 10 12 14 16 18 20 2012 2013 2014 2015 2016 2017

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SLIDE 68

Moody’s RaJng for the University of New Mexico

  • The last ;me Moody’s did an actual ra;ng for the University was in February 2017

and it assigned the University an Aa2 ra;ng with a nega;ve outlook.

  • This is consistent with the scores just presented
  • Moody’s gives the nega;ve outlook because of increased pressure on the

University’s opera;ng performance.

  • It cites Medicaid reduc;ons because of revenue shorJalls in the state due to weaker than

an;cipated tax revenue collec;ons.

  • It also cites sustained and deep enrollment declines leading to a reduc;on in tui;on revenue as a

factor that could lead to a downgrade.

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SLIDE 69

Total Headcount

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2012 2013 2014 2015 2016 2017 2018 Headcount at Branches Headcount Albuquerque

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SLIDE 70

FTE Headcount

  • 5,000

10,000 15,000 20,000 25,000 30,000 2012 2013 2014 2015 2016 2017 2018 FTE at Branches FTE Albuquerque

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SLIDE 71

Conclusion

  • The University is in very good condi;on financially, but it is facing some headwinds.
  • It is also the case that faculty salaries are not compe;;ve, par;cularly at the higher

ranks.

  • Given the overall condi;on of the University this suggests that it has not made

faculty salaries a priority.