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UNH Financial Update

Review and analysis of UNH's financial performance in FY18, budget planning for FY19 and FY20, lessons learned, and strategic goals. Includes operating margins, revenue, expenses, and budget categories.

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UNH Financial Update

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  1. UNH Financial Update Prepared by VPFA & Provost’s Office September 2018

  2. Today’s Goals Review of FY18 and financial history of UNH Explanation of FY19 planning and initial budget Lessons learned Plan going forward FY19 FY20 PLANNING

  3. Revenue and Expenditures 3

  4. Revenue and Expenditures FY OPERATING MARGIN BUDGET ACTUAL 0.9% 4.2% FY13 1.2% 3.9% FY14 2.4% 4.2% FY15 1.9% 4.0% FY16 3.0% 2.6% FY17 3.0% 2.1% FY18 3.0% FY19 4

  5. Financial Metrics OPERATING MARGIN (OM) • Measure of financial stability; used to fund strategic and capital investments (e.g, Hamilton Smith, Biological Sciences, CaPS). • Excluded from revenue: endowment gifts and market returns, state capital appropriation and gifts for capital projects • Excluded from expense: net internal transfers (nets $0) • Board requires 3% minimum for UNH; USNH overall at ~1.3% FY19. 5

  6. Financial Metrics UNRESTRICTED FINANCIAL RESOURCES (UFR) TO DEBT • Measures the ability to cover external outstanding debt • Board requires ≥ 50% for USNH in total; FY19 budget at 54% 6

  7. UNH Budget Categories 7

  8. FY18 Final Results OPERATING MARGIN 2.1% 3.0% vs. FINAL BUDGET ORIGINAL BUDGET CHALLENGING YEAR Units held positions vacant, reduced supplies & services 8

  9. FY18 Final Results FY17-18 OPERATING REVENUE GROWTH 2.5% (+13.1M) (EXCLUDING GRANTS) 9

  10. +13.9M 2.5% (+13.1M) GROSS TUITION +9.9M (EXCLUDING GRANTS) FY17-18 OPERATING REVENUE GROWTH AID +2.1% (+4.0M) +3.3% (+$.7M) +10.1% (+$1.5M) UNDERGRADUATE NET TUITION GRADUATE NET TUITION OTHER STUDENT FEES +13.8% (+$3.6M) +$3.3M NON-CAPITAL GIFTS AND ENDOWMENT INCOME USED IN OPERATIONS OTHER SOURCES (includes F&A cost recovery, auxiliary revenue, other operating and investment income) 10

  11. 3.3% ($16.8M) (EXCLUDING GRANTS) FY17-18 OPERATING EXPENSE GROWTH +4.2% (+$13.5M) ~$5.0M +1.9% (+$2.1M) EMPLOYEE COMP SUPPLIES & SERVICES related to salary increases; fringe benefit increase from 39.0% to 39.5%; shift from non-benefitted to benefitted positions +7.6% ($1.2M) 28.3% —> 29.7% OTHER OPERATING EXPENSES (USNH AND UTILITIES) DURHAM UNDERGRADUATE DISCOUNT RATE INCREASED 11 (from FY17-18)

  12. FY19 Budget BOARD PARAMETERS OPERATING EXPENSE GROWTH ≤ OPERATING REVENUE GROWTH 3% DATE OM 4/30/18 ($14.1M) 5/25/18 ($3.5M) 5/29/18 $0M 6/4/18 $19.0M OM FOR UNH 12

  13. FY19 Budget BOARD PARAMETERS Initial budget assumed 2.5% growth of operating revenue Short window to make significant changes Many RC units projected use of reserves initially 13

  14. FY19 Budget — Process to Achieve 3% OM 14

  15. NET IMPROVEMENTS TO OM ACTUAL ADJUSTMENTS 5/30-6/4 JUSTIFICATION $0.5M $0.5M F&A COST RECOVERY (R) Increase the estimated impact of EPSCoR, IMAPS $2.0M $2.0M UNDERGRAD NET TUITION (R) Reduction in discount rate estimates (HCRC) Increased retention efforts — Fall to Spring (normally ~100 student melt) and increase in spring term enrollments OM IMPROVEMENTS (R= REVENUE, E= EXPENSE) $2.0M $2.0M UNDERGRAD NET TUITION (R) $0.2M Law due to increased enrollments and lower discount rate; $1M in academic schools/colleges — more focused marketing with existing funds. $0.15M reduction in graduate entitlement aid (mostly National Guard) $1.4M $1.3M GRAD NET TUITION (R) $1.0M $1.0M NON CAPITAL GIFTS (R) Stretch goal Need list from Business Affairs & Facilities. Savings to come from not doing smaller projects, where there is a direct OM impact; focus on larger, capital projects where expenses get spread out over 10+ years in the form of depreciation. CAPITAL PROJECTS DIRECT EXPENSE (E) $1.0M $1.0M $6.1M $3.6M SUPPLIES (E) Actual adjustments based on unit progress between 5/30 and 6/4. $5.0M $7.8M EMPLOYEE COMP Budgets for most vacant positions have been removed. SUBTOTAL — OM IMPROVEMENTS $19.0M $19.2M** OM = 3% 15

  16. FY19 Budget FY19 GOING FORWARD Need to keep working to make sure revenue projections hold Working to identify new revenue which can be strategically invested 3% OM for UNH must be monitored Retention, January admission, Cost savings through synergies 16

  17. FY19 Budget FY19 GOING FORWARD Seeking to identify strategic investment pool Working to right size financially underperforming units Reduce the number or projections to save staff time/resources Communicate about the process and parameters more effectively with the campus Cost savings through structural changes being reviewed 17

  18. FY20 Budget LESSONS LEARNED • Need to begin planning now • Need to develop stronger revenue projection on which to build budgets • Communicate early and often regarding campus wide expenses • Work with Board to build trust and move some categories out of the OM • Identify and coordinate revenue generation strategies and look for expense synergies 18

  19. – All preliminary undergraduate goals set with associate deans – Review of all compiled goals with ASAC, Dean’s Council, EC FY20 Budget Planning Calendar – review of all compiled goals by Provost and Deans, finalized by EC SEPT INITIAL ENROLLMENT PLANNING WITH EM AND COLLEGES – Financial aid scenarios finalized – Set budget assumptions & parameters, including salary increase guidelines, RCM, retention rates, student Fees AUG SET BUDGET ASSUMPTIONS AND PARAMETERS OCT GRAD ENROLLMENT PLANNING IN PROCESS – Freshman awards roll out NOV – Dean’s and RC unit head develop preliminary budgets – Tuition, fee and room & board approval STRATEGIC PRIORITIES JAN – Draft budget review by Dean’s Council and EC MARCH/APRIL DRAFT BUDGET – Freshman deposits due MAY – Present complete draft budget to Board of Trustees JUNE 19

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